What Happens to My Accounts If I Close My Business

Closing a business is a major decision that involves more than simply stopping trading. Whether you are a sole trader, limited company, or partnership, there are specific accounting and tax steps you must complete before you can officially close. Understanding what happens to your accounts ensures you meet all legal obligations, avoid penalties, and keep your financial records in order. This article explains what happens to your accounts when you close your business and how to manage the process properly.

Informing HMRC and Companies House

Before you close your business, you must notify the relevant authorities. The process varies depending on your business structure.

Sole traders and partnerships:
If you are self employed or part of a partnership, you need to tell HMRC that you have stopped trading. This can be done through your Self Assessment account or by contacting HMRC directly. Once notified, HMRC will expect a final tax return covering the period up to the date you stopped trading.

Limited companies:
If you operate through a limited company, you must inform Companies House and HMRC. You cannot simply stop trading; you must formally close the company by:

  • Applying for voluntary strike off if the company is solvent.

  • Going through liquidation if the company has outstanding debts.

In both cases, final accounts and a Corporation Tax return must be prepared and filed before closure.

Preparing Final Accounts

Before closing your business, you must prepare final accounts showing your trading activity up to the date you stop operating. These accounts will form the basis for your last tax return.

For sole traders and partnerships, this means:

  • Recording all income and expenses up to the closure date.

  • Calculating any profit or loss.

  • Including any capital allowances or balancing charges on business assets that have been sold, scrapped, or retained for personal use.

For limited companies, you must prepare final statutory accounts in line with Companies House requirements. These will include a balance sheet, profit and loss statement, and supporting notes.

Paying Final Tax Liabilities

Once your final accounts are prepared, you must calculate and pay any outstanding tax liabilities.

Sole traders and partnerships:

  • Complete a final Self Assessment tax return.

  • Pay any remaining Income Tax and Class 2 and Class 4 National Insurance due.

  • Settle any outstanding VAT if you are VAT-registered.

Limited companies:

  • File a final Corporation Tax return (CT600).

  • Pay any Corporation Tax due within nine months and one day of the company’s accounting year end.

  • File a final VAT return if applicable.

  • Deregister for PAYE and submit final payroll submissions for employees or directors.

After all taxes have been paid, you can close your business bank accounts and distribute any remaining funds.

Deregistering for VAT and PAYE

If your business is VAT-registered or has employees, you must close these schemes properly before your business can be considered officially closed.

VAT deregistration:

  • Submit your final VAT return within 30 days of ceasing trading.

  • Pay any VAT due to HMRC.

  • Keep VAT records for at least six years in case HMRC requests them.

PAYE closure:

  • Submit a final Full Payment Submission (FPS) to HMRC through your payroll software.

  • Indicate that it is your final return.

  • Provide employees with their final payslips and P45s.

Failing to complete these steps can result in continued obligations or penalties from HMRC.

Settling Business Debts and Assets

Before closing, ensure all outstanding debts are settled and assets are dealt with correctly.

  • Pay suppliers and creditors in full if possible.

  • Sell or dispose of business assets, including equipment, vehicles, and property.

  • Record any gains or losses on asset sales in your final accounts.

  • For limited companies, any remaining funds after paying creditors can be distributed to shareholders as dividends or as capital distributions, depending on tax efficiency.

If your company cannot pay its debts, it may need to enter a creditors’ voluntary liquidation. An insolvency practitioner will then handle the process.

Closing Business Bank Accounts

Once all income has been received and all bills, taxes, and refunds have been paid, you can close your business bank accounts.

Keep statements from your bank and any loan or credit agreements for your records. HMRC may ask for proof of transactions if they review your accounts after closure.

Record Keeping Requirements

Even after closing your business, you must keep certain accounting and tax records for a minimum period:

  • Self employed and partnerships: At least five years after the submission deadline for your final tax return.

  • Limited companies: At least six years after the date the company is dissolved or struck off.

These records include:

  • Invoices, receipts, and bank statements.

  • VAT and PAYE documentation.

  • Employee and payroll records.

  • Business correspondence and contracts.

Keeping your records ensures you can respond to any future HMRC or Companies House queries.

Final Distributions and Shareholder Payments

For limited companies that still hold money after paying all liabilities, directors can distribute the remaining funds to shareholders. There are two main ways to do this:

  • Dividends: Treated as income and subject to dividend tax.

  • Capital distributions: May qualify for Business Asset Disposal Relief, reducing Capital Gains Tax to 10 percent on qualifying amounts.

Your accountant can advise on which option is more tax-efficient for your situation.

Informing Other Stakeholders

Before closing your business, you should also notify other relevant parties, such as:

  • Customers and clients, so they can settle final invoices.

  • Suppliers and service providers, to cancel contracts or subscriptions.

  • Insurers, landlords, or lenders, to close or transfer agreements.

  • Professional bodies or regulators, if your business was subject to registration or licensing.

This prevents misunderstandings and ensures all financial obligations are properly settled.

How an Accountant Can Help with Business Closure

Closing a business involves multiple steps, and an accountant can make the process smoother by:

  • Preparing your final accounts and tax returns.

  • Calculating any outstanding tax liabilities and advising on payments.

  • Handling VAT and PAYE deregistration.

  • Managing final distributions to shareholders.

  • Ensuring your business is properly dissolved or struck off.

They can also provide advice on keeping your records, claiming reliefs, and avoiding penalties.

Summary

When you close your business, your accounts must be finalised and submitted to HMRC and, for companies, to Companies House. You will need to pay any outstanding tax, deregister for VAT and PAYE, settle debts, and distribute remaining assets. Even after closure, you must keep your accounting records for several years in case of future audits.

Working with an accountant ensures all financial and legal obligations are met, helping you close your business confidently and without unexpected complications.