Closing a limited company in the UK is a significant decision, whether you’re winding down a successful venture or wrapping up a business that’s no longer viable. Understanding the correct process and the tax implications of any remaining funds is essential to ensure compliance and avoid unexpected costs.
Assess solvency
Before choosing a closure method, determine whether your company is solvent (able to pay its debts) or insolvent.
Solvent companies
For solvent companies that can pay all outstanding liabilities there are two options:
Voluntary Strike-Off (DS01)
This is the simplest and cheapest method to close solvent companies. You apply to Companies House using Form DS01. Do not do this until the bank accounts are closed, or any funds will be irrecoverably frozen.
Any remaining funds up to £25,000 can be treated as capital and taxed under Capital Gains Tax (CGT) rules. This will potentially qualify for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) if the conditions are met. Funds above £25,000 are taxed as a dividend.
Members’ Voluntary Liquidation (MVL)
If your company has more than £25,000 in retained profits, you can consider MVL. This involves appointing a licensed insolvency practitioner, liquidating assets and distributing funds to shareholders. Of course this comes at an additional cost in legal fees.
The advantage to this is that the distributions are treated as capital gains, potentially qualifying for Business Asset Disposal Relief, which reduces CGT to 14% (increasing to 18% on 6 April 2026). The dividend tax for higher rate taxpayers is 33.75%.
Insolvent companies
You cannot meet your financial obligations and your company cannot pay its debts, you’ll need to pursue:
- Creditors’ Voluntary Liquidation (CVL)
- Compulsory Liquidation
- Administration
These processes prioritise creditors and require an insolvency practitioner.
Final steps before closure
- Submit final accounts and Corporation Tax return
- Pay any outstanding VAT, PAYE and Corporation Tax
- Pay all other debts
- Close your business bank accounts
- Notify Companies House. Companies House will publish notice of the proposed striking off in the Gazette. If no objections are raised, the company will then be struck off.
If you would like to discuss this in more detail relating to your business, please feel free to book a free online meeting.
