Landing a permanent PAYE role, what to do with your Limited company?
Posted on 28th January 2021
So, you’ve found a permanent job and have decided that the security of a regular monthly paycheck sounds like the right course of action for you? Or perhaps the upcoming changes with IR35 are forcing your hand?
There are many reasons many choose to take on a more conventional job over contracting. These include paid annual leave, statutory sick pay, paid maternity/paternity leave, National Minimum Wage and pension contributions. At the moment, with the ongoing pandemic, I know some people are drawn to the security that a permanent role can bring.
It will also mean you are no longer responsible for all the administration that goes with running your own business, including producing invoices, chasing payments, and saving for those dreaded tax bills.
What will happen to your Limited Company? Dormancy vs Closure
If this move is permanent, then you need to decide if you want to keep the company dormant or if it’s better to close your Limited company down.
Dormancy
If you wish to retain your company as dormant, in case you want to jump back into contracting or simply to preserve the company name, it’s worth noting that you will still remain responsible for submitting annual accounts and tax returns (and other ongoing admin). We work with our clients to reduce the costs by removing any unnecessary services (VAT, payroll etc).
You need to weigh up the continued cost of retaining it versus complete closure.
Closure
The process for closing the company varies depending on the route you want to take.
If you have a large amount of retained profits (and cash) remaining in your company, you may want to consider closure and making use of Business Asset Disposal Relief (BADR). Please contact us to discuss this option (it is complicated!)
This process, can take up to six months. This will also allow you to access any of the money left in the company.
Alternatively, if there are very little funds left in the company, the company closure process will be quicker and easier.
Keeping the company dormant – your responsibilities
If you choose to keep your company dormant, the Company Director(s) will remain responsible for running the company and all the compliance including submitting accounts and tax returns.
Here are some simple steps to ensure you remain compliant whilst reducing the admin burden. (If you are a client of Effective Accounting, we will assist you with this.)
De-register from VAT. You will need to submit a final VAT return and report VAT on any assets or unpaid invoices.
Stop taking a company salary and issue yourself (and any other employees) with a P45.
Close your PAYE scheme.
Prepare accounts and calculate corporation tax up to the point you stop trading.
Review all direct debits to reduce any ongoing costs.
Going forward you will then just need to prepare and submit annual company accounts and corporation tax return, as well as the annual confirmation statement.
What if I choose to close down?
*Please note that you cannot voluntarily close your business if it’s in financial difficulty, as this involves a different route.
If you decide you want to close down the company, the next step is to determine which route is most appropriate for you. (This is where we come in – so please get in touch to discuss your options.) This largely comes down to the amount remaining in the business and whether you want to make use of Business Asset Disposal Relief (BADR) or not.
If you have very little funds remaining in the company you could simply prepare and submit final accounts and corporation tax returns up to the point the company ceased trading, settle the final taxes and simply apply for striking off at Companies House.
If you have a fair amount of funds remaining in the company (up to £25k), you could look to claim BADR and still apply for striking off at Companies House.
If you have more than £25k remaining, you could look to claim BADR but would need to go down a formal Members Voluntary Liquidation route. This is where the process can take up to 6 months as it is a strict legal process.
Here are some simple steps to ensure you remain compliant whilst reducing the admin burden. (If you are a client of Effective Accounting, we will assist you with this, so don't panic!)
Receive payment for your final invoice
Pay off any outstanding suppliers
Stop all direct debits
De-register from VAT. You will need to submit a final VAT return and report VAT on any assets or unpaid invoices.
Stop taking a company salary and issue yourself and any other employees with a P45.
Close your PAYE scheme.
Prepare and submit accounts and calculate corporation tax up to the point you stop trading.
Make final payments to HMRC for VAT and Corporation Tax
Pay remaining final dividend to yourself (if advised)
Close your company bank account
Submit form DS01 to Companies House to inform them of your closure or appoint insolvency practitioner for the Members Voluntary Liquidation to begin
Completing this process will result in your company being removed from the Companies House register and you will no longer be responsible for any further running costs or admin duties relating to this company.
Next steps…
Written by
Nicola J Sorrell
- Effective Accounting
Founder | Xero Champion | IR35 Expert
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