8 tips for contractors on closing down your limited company
There are several reasons why, as a contractor, you might decide to close down your limited company. It could be that work has dried up and you’ve decided to go back to full-time work or, more positively, you may just have had an offer you can’t refuse from a client who wants you to join their team. You may have reached retirement age – or be retiring early – or maybe, just maybe, you could have won the Lottery.
Whatever the (hopefully positive) reason for needing to close down your limited company, you need to ensure you do it properly so that legally and financially everything is tied up with a nice big bow and all of your bases are covered. You don’t want anything to turn up to bite you months or even years down the line. We’ve put together eight pointers of things you should definitely do – and who you need to notify – when you’ve decided that it’s time say goodbye to the contractor life.
1. Give your clients plenty of notice
Unless you actually have won the Lottery, chances are you won’t just be upping sticks and quitting as a contractor with immediate effect. Assuming that you’ll be finishing up any current contracts before closing down your company (you don’t necessarily have to do this, which we’ll discuss in the next section), you should give clients plenty of notice that you’ll cease to be available to them. After all, they may have been factoring you in to future projects and now they will have to look at alternatives. As a rule of thumb, you should let any current and regular clients know by email, but you may also wish to post a blog or news item on your website and social media accounts as well. When notifying clients:
- Reassure them that you’ll be fulfilling your current contractual obligations
- Let them know when you’ll be finishing
- Tell them how much you’ve enjoyed working with them
- Recommend, if you can, suitable alternative contractors they may wish to work with in future
2. Check your contract
If you want or need to close down your limited company sooner rather than later, you need to examine your existing contracts. You may be obliged to see them through to completion, but some contracts will have clauses that allow you to leave with a certain amount of notice without incurring any penalties. If you’re unsure, it could be worth having a solicitor look at your contract, or simply have a chat with your client or recruiter. If it’s a client you’re friendly with and you have important reasons why you need to close down your business as soon as possible, you may be able to reach an agreement that works for both of you.
3. Consider the tax implications
Don’t get stung by a penalty because you forgot to submit your final Self-Assessment. When you submit your final tax return, there is space to notify HMRC that you are no longer self-employed. Once you’ve done this, you will not have to complete another Self-Assessment unless you register again in the future.
Just remember that your final Self-Assessment may be a little different to the ones you have been used to. For instance, if you stop being self-employed in July 2022 and move to full-time employment in the same month, your final Self-Assessment will be submitted after 6th April 2023. It will include your self-employed income between April and July 2022, but you will also have to declare your employed income from July 2022 onwards so that your tax can be correctly calculated.
4. Let your accountant know
If you use an accountant’s services, make sure you let them know as far in advance as you can so that they can complete the necessary paperwork on your behalf. Remember, if you want them to compete your final tax return for you, you may have to retain their services for several months after you close up.
5. Strike yourself off the Companies Register
When you started your business, you would have been listed on the Companies Register. Now you have to have yourself struck off. There are several steps you must legally take to do this, including letting HMRC know, ensuring you are treating any employees by the rules, and dealing with your assets and accounts. GOV.UK has a definitive list you can use to make sure you’ve done everything properly.
Once you’ve done everything required, you can apply to strike off. Currently it costs £8 to do this online, or £10 if you choose to use paper forms.
6. Close down everything linked to your company
Once you’ve officially ceased trading, you need to close down everything linked to your company. Depending on what you’ve had set up, this might include:
- Social media pages
- LinkedIn Services account
- Cloud and email services
- Virtual office
- Physical office
- PO Box
- Answering services
- Business bank account
- Work mobile contract
These are generally all things you pay for so you don’t want them hanging around after you’ve shut down.
7. Let your insurer know
Your business insurance provider will need to know that you’re closing. Once you have a firm date where you’ll cease trading, get in touch with them to end your policies. Bear in mind there may be admin fees with some insurers for ending your policy early. Your insurer will also want to discuss options with you to make sure you’re covered even after you stop being self-employed, which brings us neatly to…
8. Don’t run off without run-off cover
The thing with being self-employed is that even after you stop, you’re still liable for any issues with work you carried out when you were self-employed – sometimes up to five years later. Ideally, then, you still need to hold insurance even after you stop contracting. However, we understand you don’t want to keep paying for contractor insurance when you’re no longer taking on clients. This is where run-off cover steps in.
Run-off cover futureproofs your professional indemnity insurance and is available to purchase for up to 30 days after your Kingsbridge policy expires. It can cover you for either one, three or six years into the future, covering you for work completed in the past. If you’re an existing customer, find out more about Kingsbridge’s run-off cover here.