How do I close down my limited company?
There may come a point when you no longer need your limited company.
You may be moving into employment, retiring, changing direction, or starting something new. Whatever the reason, it is important to close the company properly and understand the tax and administrative consequences before taking action.
This guide explains the main options for closing a solvent UK limited company. It does not cover sole traders, partnerships, selling a company, or closing an insolvent company that cannot pay its debts.
Start with the company’s financial position
Before deciding how to close a company, the first question is whether the company is solvent.
A company is solvent if it can pay its debts as they fall due. This includes supplier balances, loans, HMRC liabilities, employee obligations and any other outstanding commitments.
If the company cannot pay its debts, you should take insolvency advice before attempting to strike it off or distribute funds to shareholders.
If the company is solvent, the main routes are usually:
- Voluntary strike off
- Members’ Voluntary Liquidation
- Keeping the company dormant
The right option will often depend on the level of retained profits, the company’s assets, your future plans and the tax position of the shareholders.
Preparation before closing the company
Whatever route you choose, it is usually best to plan ahead.
Before closing the company, you should normally:
- Stop trading at the appropriate time
- Collect outstanding customer debts
- Pay suppliers and other creditors
- Settle any bank loans or finance agreements
- Review and settle any director’s loan account balances
- Pay any outstanding HMRC liabilities
- Decide how remaining company funds will be distributed
- Keep clear records of the final transactions
If you work with an accountant, it is sensible to discuss your plans before taking money out or submitting closure forms. There may be tax planning points to consider before the company is closed.
Final tax and compliance obligations
Closing the company does not remove the need to deal with final tax and compliance matters.
Depending on the company’s circumstances, these may include:
- Final accounts
- Final Corporation Tax return
- Final PAYE submissions if the company has a payroll
- P45s for employees
- VAT deregistration if the company is VAT registered
- Final VAT return
- CIS notification if the company is registered under the Construction Industry Scheme
- Review of capital allowances on business assets
- Corporation Tax on any chargeable gains made before closure
If the company owns assets, these need to be dealt with carefully. If assets are sold, transferred to a director, or retained personally after the business closes, there may be tax consequences.
Option 1: Voluntary strike off
Voluntary strike off is the informal route for closing a solvent limited company.
It involves applying to Companies House to have the company removed from the register and dissolved.
This is usually done using form DS01.
When can a company apply for voluntary strike off?
A company can usually apply for voluntary strike off only if it meets the relevant conditions.
For example, in the previous three months the company must not usually have:
- Traded or carried on business
- Changed its name
- Sold stock or certain assets as part of normal trading
- Been threatened with liquidation
- Entered into creditor arrangements such as a Company Voluntary Arrangement
The company should also be able to pay its debts.
If there are unpaid creditors, HMRC liabilities or other unresolved matters, an objection may be raised and the strike off may be delayed or stopped.
How voluntary strike off works
The directors apply to Companies House for the company to be struck off.
Companies House then publishes notice of the proposed strike off. This gives interested parties, such as creditors or HMRC, an opportunity to object.
If no objection is made and the process completes, the company is dissolved.
Before applying, it is important to make sure the company bank account and remaining funds have been dealt with. Once the company is dissolved, the company bank account will usually be frozen and any remaining assets may pass to the Crown.
Tax treatment of remaining funds on voluntary strike off
Where a company is struck off, the tax treatment of funds distributed to shareholders depends on the amount distributed and the circumstances.
In broad terms, where total distributions on closure are £25,000 or less, they may be treated as capital rather than income. This can be more favourable than dividend treatment.
Where distributions exceed £25,000, the position is more complex and distributions may be taxed as dividends unless a formal liquidation is used.
This is one reason why voluntary strike off is often more suitable where retained profits are relatively modest.
Advantages of voluntary strike off
Voluntary strike off can be attractive because it is usually:
- Simpler than liquidation
- Less expensive
- Suitable for solvent companies with limited remaining funds
- A practical option where the company has already stopped trading
Limitations of voluntary strike off
Voluntary strike off may not be suitable where:
- The company has significant retained profits
- There are unresolved creditor or HMRC issues
- There are complicated assets to distribute
- Shareholders want capital treatment on larger distributions
- There is a risk of objection
- The company may trade again shortly
In these cases, advice should be taken before proceeding.
Option 2: Members’ Voluntary Liquidation
A Members’ Voluntary Liquidation, often called an MVL, is a formal liquidation process for a solvent company.
It is used when the company can pay its debts but the shareholders want to close it and distribute the remaining assets.
An MVL must be handled by a licensed insolvency practitioner. Your accountant can help prepare information for the process, but the liquidation itself must be carried out by an insolvency practitioner.
When might an MVL be appropriate?
An MVL may be appropriate where the company has significant retained profits or assets to distribute.
The main tax advantage is that distributions made through an MVL are usually treated as capital distributions rather than dividends.
This can make a significant difference where the shareholders qualify for capital treatment and, in some cases, Business Asset Disposal Relief.
Business Asset Disposal Relief
Business Asset Disposal Relief, previously known as Entrepreneurs’ Relief, can reduce the Capital Gains Tax rate on qualifying business disposals.
The rate has changed in recent years.
For qualifying disposals:
- The rate was 10% for disposals on or before 5 April 2025
- The rate is 14% for disposals between 6 April 2025 and 5 April 2026
- The rate is 18% for disposals from 6 April 2026
The rules are detailed and there are qualifying conditions. For example, the company must normally be a trading company and the shareholder must meet conditions relating to share ownership, employment or office holding, and the relevant qualifying period.
You should take advice before assuming the relief applies.
Phoenixing and anti-avoidance rules
An MVL should not be used simply to extract profits at capital gains rates and then carry on the same or a similar business through another company.
Targeted Anti-Avoidance Rules can apply where a person receives a capital distribution on winding up a company and is involved in a similar trade or activity within a relevant period.
These rules are designed to prevent “phoenixing”, where companies are closed and restarted mainly to obtain a tax advantage.
If you intend to start another business, or continue similar work through a connected company, you should take advice before using an MVL.
Advantages of an MVL
An MVL can be useful because:
- It is a formal route for closing a solvent company
- It can deal with significant retained profits or assets
- Distributions are generally treated as capital
- It may be more tax efficient than dividends where conditions are met
- It is managed by a licensed insolvency practitioner
Limitations of an MVL
An MVL is usually:
- More expensive than voluntary strike off
- More formal and administratively involved
- Slower than a simple strike off
- Unsuitable where the company is not solvent
- Potentially problematic if anti-avoidance rules apply
The cost and tax benefit should be reviewed before deciding whether an MVL is worthwhile.
Option 3: Keeping the company dormant
A third option is not to close the company immediately.
You may decide to stop trading but keep the company dormant.
This can be useful if:
- You may use the company again in the future
- You want to keep the company name
- You are unsure about your next step
- You want to keep the structure available while taking employment or pausing trading
A dormant company still has ongoing responsibilities.
These usually include:
- Filing a Confirmation Statement
- Filing dormant accounts at Companies House
- Keeping statutory records up to date
- Informing HMRC that the company is dormant for Corporation Tax
- Filing any final Corporation Tax return required before dormancy
If the company still has money in the bank or transactions taking place, it may not be dormant in the strictest sense, so the position should be checked carefully.
Taking profits over time
Sometimes a company is kept open, but non-trading, while retained profits are distributed over more than one tax year.
This may be considered where shareholders want to manage dividend tax exposure.
However, this needs to be handled carefully. The company will still have filing obligations, and any distributions must be properly supported and documented.
Which option should you choose?
There is no single answer.
The best route depends on:
- Whether the company is solvent
- The amount of retained profits
- The company’s assets and liabilities
- Whether shareholders qualify for capital treatment
- Whether Business Asset Disposal Relief may apply
- Whether you may start a similar business again
- The likely professional costs
- How quickly you want the company closed
As a rough guide:
- Voluntary strike off may suit a solvent company with modest retained profits and simple affairs
- An MVL may suit a solvent company with significant retained profits or assets
- Dormancy may suit a company that may be used again in the future
Plan before taking action
The most important point is to plan before acting.
Taking money out, closing bank accounts, distributing assets or submitting forms in the wrong order can create unnecessary problems.
Before closing your company, it is worth reviewing:
- Final accounts and Corporation Tax position
- VAT, PAYE and CIS obligations
- Director’s loan account balances
- Shareholder distributions
- Capital allowances and asset disposals
- Possible Capital Gains Tax treatment
- Business Asset Disposal Relief eligibility
- Whether anti-avoidance rules could apply
How CooperFaure can help
CooperFaure can help directors understand the accounting and tax steps involved in closing a solvent limited company.
We can support with:
- Reviewing the company’s financial position
- Preparing final accounts
- Preparing the final Corporation Tax return
- Advising on director’s loan accounts
- Reviewing VAT, PAYE and other final obligations
- Helping you understand the likely tax treatment of distributions
- Liaising with an insolvency practitioner where an MVL may be appropriate
If you are considering closing your limited company, it is best to speak to us before taking action so that the process can be planned properly.