Closing a company with retained profits

Retained profits are those held within the business after dividends have been paid to shareholders. They represent money that’s available to the business for growth purposes or as a ‘cushion’ in times of financial instability.

If you’re thinking of closing your company and it has retained profits, it’s important to choose the right closure method as you could overlook significant tax advantages. Retained profits can amount to a significant sum, which is why closing the company in the right way optimises the amount you’re able to extract.

The two options for closing a company with retained profits are Members’ Voluntary Liquidation (MVL) and voluntary dissolution. The value of your retained profits and the nature of your business affairs is the key to choosing between them.

For companies with a lower level of retained profits and straightforward business affairs, voluntary dissolution, also known as voluntary strike-off, provides a more suitable alternative.

Voluntary strike-off is an inexpensive way to close a company yourself, whereby you wind down the business’s affairs yourself and apply to Companies House via form DS01 to have the company removed from the register.

Profits are extracted by way of a dividend in this case, or via your director’s salary. If you have substantial retained profits, however, it’s important to note that this is far less tax efficient than the Members’ Voluntary Liquidation process.

• Do your company reserves amount to £25,000 or more?
• Are your business affairs complex or relatively straightforward?
• Has your company traded for 12 months or more
• What are your plans for the future – do you intend to carry out a similar trade under a new company name within the next two years?
• Is there any doubt that your company is solvent?
• Have you sought professional advice from a licensed insolvency practitioner?

A key factor when deciding how to close a company that has retained profits is tax efficiency. It’s always important to obtain professional guidance when you close a business, particularly when there may be considerable tax advantages available to you.

Company Closure will ensure that you close your company the correct way, bearing in mind its levels of retained profits and other factors. We have extensive experience in helping directors to close their companies safely, and will quickly determine the most appropriate path.

Please get in touch to arrange a free, same-day consultation – we operate a broad network of offices around the UK so you’re never far away from professional support.