In the wake of IR35’s introduction to the private sector, consultants operating through ‘personal limited companies’ working for a single client could find themselves paying more tax. Consequently, the number of consultancy company closures has increased.
So, how do you close a consultancy company?
Why do you want to close your consultancy company?
You may wish to close a consultancy company if you feel it has no future and has come to the end of its useful life, or you wish to pursue employment.
For personal limited companies specifically, legislation introduced in April 2021 by HM Revenue & Customs (HMRC) may have a bearing on that decision.
Before 2021, sole traders commonly operated ‘consultancy companies’ as limited companies while working for a single client. These were referred to as ‘personal limited companies’. Doing so meant those contractors could pay less tax than through being employed by their client or operating as a self-employed sole trader.
On 6th April 2021, HMRC rolled IR35 out to the private sector. Originally due to roll out in 2020, coronavirus delayed it.
What is IR35?
IR35 is legislation designed to make those operating through ‘personal limited companies’ pay appropriate amounts of tax and National Insurance contributions for their work.
Having to pay more tax means owners of these ‘personal limited companies’ may wish to close that company and either seek contracted employment with their client or continue operating as a sole trader.
How we can help close your consultancy company
When choosing to close a consultancy company, its solvent position will influence what closure procedures it can undergo. A company is considered insolvent when its liabilities outweigh its assets, and it cannot repay its debts when they fall due.How to determine whether your company is insolvent
Contact us for free, impartial advice from our experienced team of advisors, who will help you decide the best route forward for you and your company.
- Liquidating a solvent company
If the company is solvent and able to cover its liabilities when they fall due and has enough assets to justify it, you can explore a solvent liquidation. This sees the company close in an orderly manner and means directors may benefit from Business Asset Disposal Relief.More on Members Voluntary Liquidations
- Liquidating an insolvent company
If the company is insolvent, without the assets to repay its liabilities, if the director wishes to close it, they must do so via a Creditors Voluntary Liquidation (CVL). Undergoing an insolvency procedure protects the company from creditor pressure and legal action for the duration. Once the process is complete, the company is closed, and the debts cease to exist.More on Creditors Voluntary Liquidations
With IR35, consultancy contractors operating out of ‘personal limited companies’ for a single client may find themselves paying more tax than if they were in full-time employment or self-employed. If you no longer wish to operate within that structure, you can close a consultancy company via a liquidation, either solvent or insolvent depending on its circumstances. Speak to us for free, impartial advice tailored to your circumstances.
How much does it cost to close a consultancy company?
Closing a solvent company will have different costs to closing an insolvent one. We have a set starting price of £1,695 + VAT and expenses to liquidate a solvent company via an MVL, and the fees for liquidating an insolvent company vary depending on its circumstances.How much does it cost to close a company?
Can you dissolve a consultancy company?
If you just want to strike off your consultancy company, closing it as quickly as possible and without receiving any benefits, you can apply for a dissolution. Doing so will close the company down and strike it off the register at Companies House, and any assets remaining in the company will pass to the crown.
Can you make a consultancy company dormant?
If you don’t wish to operate out of the personal limited company but would like to keep it for later use, you can make the company dormant. Before the company can be made dormant, it must have stopped trading and have no significant transactions for an accounting period.
Once dormant, you can still close the company if you decide it’s no longer needed.
Book a free telephone consultation with one of our initial advisers