Closing a company — questions answered plainly
What this page covers
Direct answers to questions about closing a UK limited company — the difference between voluntary strike-off and MVL, when each is appropriate, the tax saving from Business Asset Disposal Relief, costs, timescales, and what to do before you close.
What are the two ways to close a limited company?
There are two main routes for closing a solvent limited company:
- Voluntary strike-off (DS01) is the simpler and cheaper option — you apply to Companies House to have the company struck off the register. It costs £33 and is suitable when the company has minimal retained profits.
- Members' Voluntary Liquidation (MVL) is a formal liquidation process handled by a licensed insolvency practitioner. It is more expensive (typically £1,500–£3,000 in professional fees) but allows retained profits to be distributed as a capital distribution rather than dividends — which can save significant tax when there is more than £25,000 retained in the company.
What is the difference between strike-off and MVL?
Voluntary Strike-Off
Any remaining money passes to the Crown (government) — must extract all funds first
MVL
Liquidator distributes assets as capital distribution — can qualify for BADR at 10% tax
With voluntary strike-off, any money remaining in the company at dissolution passes to the Crown (the government) — so you must extract all funds before applying. Distributions made in anticipation of strike-off above £25,000 are taxed as dividends. With an MVL, a licensed liquidator distributes all assets to shareholders as a capital distribution — taxed as a capital gain, not a dividend. At the 10% Business Asset Disposal Relief rate (if eligible), this is significantly more tax-efficient than paying 33.75% dividend tax on the same money.
When is an MVL worth it?
An MVL is generally worth considering when your company has more than £25,000 in retained profits. At that level the tax saving from CGT at 10% (with BADR) versus dividend tax at 33.75% typically exceeds the cost of the liquidator.
Example: £100,000 retained profits
- Via dividend: tax approximately £33,750
- Via MVL with BADR: tax approximately £10,000 plus liquidator fees of £1,500–£3,000
- Net saving: approximately £20,000–£22,000
The higher the retained profits, the more compelling the MVL case.
What is Business Asset Disposal Relief (BADR)?
Business Asset Disposal Relief (BADR, formerly Entrepreneurs' Relief) reduces Capital Gains Tax to 10% on qualifying business disposals. To qualify for BADR on an MVL you must:
- Own at least 5% of the ordinary share capital
- Be an officer or employee of the company
- Hold these for at least two years ending at the point of disposal
The lifetime limit is £1 million of qualifying gains. Most sole director contractors who have operated their company for over two years will qualify. From April 2025 the BADR rate is 14% (rising from 10%) — confirm the current rate with your accountant.
What is the process for voluntary strike-off?
Step by step
1. Stop all trading and business activity
2. Pay all creditors, employees, and HMRC liabilities
3. Close the business bank account
4. File final accounts and corporation tax return
5. Submit form DS01 to Companies House (£33 fee)
6. Companies House advertises the strike-off in the London Gazette
7. If no objections within two months, the company is dissolved
The whole process typically takes 3–4 months. You must inform all creditors, shareholders, employees, and anyone else with an interest before applying.
How long does an MVL take?
A straightforward MVL typically takes 3–6 months from appointment of the liquidator to final distribution. The process involves:
- Appointing a licensed insolvency practitioner
- Statutory declaration of solvency signed by all directors
- Liquidator realises and distributes assets
- Files final returns with HMRC and Companies House
Simple companies with clean records and no creditor issues complete faster. Companies with complex affairs, outstanding tax queries, or multiple creditors may take longer.
Can I start contracting again through a new company?
Yes — there is no restriction on forming a new limited company after closing an old one, provided the new company is genuinely a new trading entity and not a continuation of the same business. If HMRC suspects the closure was primarily to extract retained profits tax-efficiently and you immediately resume identical activities through a new vehicle, they may apply the Targeted Anti-Avoidance Rules (TAAR) which can reclassify the distribution as a dividend. Take advice before closing if you intend to resume contracting immediately.
What do I need to do before closing?
File all outstanding corporation tax returns and pay all tax owed
File all outstanding VAT returns and deregister for VAT
Run final payroll and submit final RTI to HMRC
File final annual accounts
Pay all creditors
Extract all funds (correctly, as salary/dividend) leaving the company with nothing or minimal balances
Close the business bank account
Transfer or sell any company assets
Your accountant coordinates all of this in the correct sequence — attempting to close without clearing all HMRC obligations will result in Companies House rejecting or reversing the strike-off.
What about my accountant fees when closing?
Your accountant will typically charge for: final year accounts and CT600; director's SA100 for the final year; any additional filings (VAT deregistration, final payroll); and liaison with Companies House. Autobooks handles all of this as part of the standard process for clients closing their company. There is no additional charge for the coordination work — it is included in the monthly fee up to the closure date.
What are the common mistakes when closing?
Applying for strike-off while HMRC liabilities are still outstanding (Companies House will suspend the application)
Paying out retained profits as dividends above £25,000 when an MVL would have saved significant tax
Failing to deregister for VAT before closing
Leaving money in the company at dissolution (it goes to the Crown)
Not filing the final SA100 for the tax year of closure
Not taking advice on BADR eligibility before proceeding with an MVL
A specialist contractor accountant handles the correct sequence and avoids all of these.
Closing your company correctly saves thousands in tax.
Autobooks handles the full process — from final accounts to Companies House sign-off. From £89+VAT/month.