Are you a freelancer running your business through a limited company? At some point, every freelancer will want to close down their business, and in many cases, a freelance business will be closed with a liquidation process.
Even if a freelancer trading as a limited company is successful and their business is making a profit, the business is difficult to sell – essentially, the director is vital to the company, as their work is the basis for the success of the business. As a result, if they will no longer be involved, there is nothing to sell and liquidation is likely the best solution.
If you are ready to close your limited freelance business, or are interested in finding out more about liquidation processes, this article is our guide to liquidation when:
- Your company is solvent
- Your company is insolvent
If your company is solvent, this means that you are able to pay all of your bills, whereas if your company is insolvent, your company is experiencing financial difficulties from which it may not be able to recover and cannot pay all of its bills.
There are two different liquidation processes that freelancers can follow based on the financial state of their business.
Members Voluntary Liquidation
There are a variety of reasons why a freelance business owner may choose to close their solvent business. For example, to take up a full time role, to retire, or potentially to release money in order to pay off personal debts, such as a mortgage. If a freelancer is no longer trading they will also not want to incur the costs associated with an open limited company.
If you are closing down a solvent freelance business and have retained profits of over £25,000, a Members Voluntary Liquidation (or MVL) is most likely the best and most tax-effective way to close down your company and extract maximum assets, which in the case of many freelancers will simply be money in a business bank account.
By choosing to close a solvent company by MVL, cash left in the company can be distributed to the director. These funds are subject to Capital Gains Tax, rather than Income tax, so the tax rates are much lower (as low as 10% for businesses that qualify for Business Asset Disposal Relief).
To wind down your freelance company by Members Voluntary liquidation, you will need to appoint the services of a Licensed Insolvency Practitioner.
Creditors Voluntary Liquidation
In cases where a freelancer’s company is insolvent and unable to pay creditors, to wind down the limited company voluntarily, a Creditors Voluntary Liquidation will allow the business to be closed without added stress. A CVL puts the interests of creditors first, ensuring that directors will avoid any harsher penalties that could come from being forced into a compulsory liquidation.
As well as protecting freelancers from the implications of wrongful trading, there are a range of benefits of a Creditors Voluntary Liquidation, including a relatively low cost and quick solution for closing down the company.
To close your business by CVL, you should seek guidance and support from a Licensed Insolvency Practitioner.
If you are ready to close your freelance business, whether you are solvent or insolvent, BEACON Licensed Insolvency Practioners can help.