Closing down your limited company and returning to sole trader status

Our accountants in London here at Freelancer Accounting (http://www.freelanceraccounting.com) are used to providing a limited company formation service to those who have thus far been a sole trader, but want to make the most of their income. It’s not so often, however, that advice is given on the reverse process, of going back to sole trader status, perhaps after a significant loss of income that makes the additional paperwork and filings with Companies House seem less worthwhile.

It may not seem likely that you would ever want to return to sole trader status after experiencing the benefits of a limited company, but it does happen for some of the clients of our contractor accountants. They might have lost their biggest client, and it might seem unlikely that business will significantly pick up again soon. If you are in a similar position, then it may seem worth closing down your limited company for good – but the process of doing so can be more protracted than you think. It starts with ensuring that you have tied up all of your limited company’s ‘loose ends’ before you proceed with life as a sole trader.

That means that any outstanding bills will need to be settled, and any owed invoices collected. You’ll also have to account for ongoing running costs between now and when your limited company is finally legally wound up. You may, for example, be receiving help from credit control services in the rounding up of any late payers, or your last batch of returns may be being worked on by small business accountants to whom you still owe money. Thankfully, as these costs are legitimate business expenses, you are able to offset them against your last tax bill.

There are other tasks to attend to – such as, once the company has gone for three months without trading, filing form DS01 with Companies House so that it can be ‘struck off/dissolved’. Those that are VAT registered will also need to complete a VAT 7 form, so that HMRC knows that they intend to de-register. Once HMRC receives this form, it will get in touch to provide a de-registration date. A final VAT Return will also need to be completed, taking into account the likes of business-owned equipment and leftover stock.

Informing HMRC that your company has ceased trading will also stop you receiving Corporation Tax reminders, and they will also need to be told about any PAYE Scheme that you no longer operate. Many freelancers also find that they need to pay Capital Gains tax on company equipment that they take possession of personally. With these and other factors to bear in mind, you may just find that it’s better to make your limited company “dormant” rather than close it down, while working outside it as a sole trader – at least for now. Freelancer Accounting can give you the most informed advice for your particular situation. Find out more at http://www.freelanceraccounting.com.

Editor’s Note: Freelancer Accounting (http://www.freelanceraccounting.com) are represented by the search engine advertising and digital marketing specialists Jumping Spider Media. Email: info@jumpingspidermedia.co.uk or call: +44 (0)20 3070 1959 / +34 952 783 637.