How to close down a limited company – 4 options

Thinking of closing your limited company?

There’s a lot to consider.

For one, how you choose to close your company could have a big impact on your tax bill. And, depending on your business’s financial health, there are also legal implications to take into account.

In this guide, we take a deep dive into the process of closing a company.

Read on to find out:

• The main procedures and when to use them
• How to close your company as tax-efficiently as possible
• What you need to do once the process is complete

Why are you closing your limited company?

How you go about closing your limited company depends on its financial situation.

If your company is solvent – that is, there’s enough money to pay suppliers, bills, and other debts – you can either strike it off or start a members’ voluntary liquidation (MVL).

If the company is insolvent – that is, the company can no longer afford to pay its debts – the options may include:

• Putting it into administration, where appropriate
• Starting a creditors’ voluntary liquidation (CVL)
• Compulsory liquidation through the courts

It’s worth noting that, while closing a solvent company is usually a personal decision, you could get in trouble with the law if you don’t take appropriate action as soon as you realise your company is at risk of insolvency.

We’ll take a more in-depth look at the reasons for and possible consequences of continuing to trade while insolvent in a few paragraphs.

How to close a solvent company

So your company has a healthy bank balance but you’ve decided to call it a day, for example because you’re retiring, working a full-time job, or starting a new venture.

If there’s money left over after you pay off your debts, HMRC will want a cut. So the main thing to consider when deciding how to close your solvent company is your potential tax bill.

Let’s have a look at your options and their tax implications.

Striking off

To strike off a company, it must not have traded or carried on business during the previous three months. There are also restrictions on other activities during this period.

You must also:

• Tell HMRC, creditors, employees, shareholders, and other company directors you’re planning to strike it off.
• Pay your outstanding debts. If you have employees, you may also have outstanding wages, holiday pay or redundancy obligations. You’ll also need to settle the company’s tax affairs.
• File form DS01 with Companies House and pay the fee. As of 2026, this is £13 if you apply online or £18 using the paper form.

The biggest advantage of striking off is that it’s quick, simple, and cheap.

The catch is that it won’t usually be tax-efficient if your company’s retained profits – that is, the money that’s left after you pay your debts – are more than £25,000. This is because distributions made in anticipation of an informal strike-off can generally receive capital treatment only where the total amount distributed does not exceed £25,000.

If the amount exceeds £25,000, the distribution will normally be treated as income rather than capital. This is one of the main reasons why owners of solvent companies with larger retained profits consider an MVL instead.

The difference to your tax bill can be significant.

Where a distribution qualifies for capital treatment, the normal Capital Gains Tax rates for individuals in 2026/27 are:

• 18% to the extent the gain falls within the unused basic rate band.
• 24% on gains above the basic rate band.

The annual Capital Gains Tax exempt amount is currently £3,000.

If you qualify for Business Asset Disposal Relief (BADR), qualifying gains are taxed at 18% from 6 April 2026, subject to the eligibility conditions and the £1 million lifetime limit.

You can check the current rates and rules in the GOV.UK Capital Gains Tax guidance.

Try our Business Asset Disposal Relief Calculator.

Members’ voluntary liquidation

A members’ voluntary liquidation takes longer and is more expensive than striking off your company. But if you have significant retained profits, it may be worth it for the tax savings.

To start the process, you’ll need to:

• Make a statutory declaration of solvency. The majority of directors must sign it in front of a solicitor or notary public, stating that they believe the company can pay its debts in full, with interest, within 12 months.
• Pass a shareholders’ resolution formalising your decision to close the company.
• Appoint an authorised insolvency practitioner as liquidator.

The liquidator will pay off the company’s debts, wrap up any outstanding issues – contracts that are yet to be fulfilled, for instance – and ultimately arrange for the company to be removed from the Companies House register.

You can read the official GOV.UK guidance on members’ voluntary liquidation for the full procedure.

A members’ voluntary liquidation can be considerably more expensive than striking off, with the liquidator’s fees depending on how complicated the company’s affairs are.

The flipside is that an MVL has no £25,000 cap on capital treatment. Distributions to shareholders are normally treated as capital, subject to the usual tax rules and the anti-avoidance provisions.

For 2026/27, the standard CGT rates are 18% and 24%. Where the shareholder qualifies for Business Asset Disposal Relief, qualifying gains are taxed at 18%.

Watch out for the MVL anti-phoenixing rule

There is an important tax rule to bear in mind if you’re planning to close one company and then carry on with the same or a similar business.

Broadly, HMRC’s anti-phoenixing rules can cause an MVL distribution to be taxed as income rather than capital where an individual continues or becomes involved in the same or a similar trade or activity within two years and the statutory conditions are met.

This is particularly important if you’re thinking of liquidating a company to extract retained profits and then starting substantially the same business through another company.

How to close an insolvent company

As sad as it is to shutter a company you’ve worked hard to build, taking professional insolvency advice quickly is usually the smart move if you’re in serious financial trouble.

When a company is insolvent, the directors’ duties shift towards protecting the interests of creditors.

Directors can potentially face personal consequences where their conduct amounts to:

Wrongful trading – broadly, this can become an issue where directors continue trading after they knew, or ought to have concluded, that there was no reasonable prospect of avoiding insolvent liquidation or administration, and fail to take appropriate steps to minimise losses to creditors.

Fraudulent trading – this involves carrying on the company’s business with intent to defraud creditors or for another fraudulent purpose.

The key difference is that fraudulent trading involves dishonesty. For example, deliberately taking money from customers while knowing the company will not provide what they have paid for could potentially amount to fraudulent conduct.

Misfeasance – this can include directors misapplying company money or property or breaching their duties. For example, selling a company car to a family member or friend for much less than it’s worth could potentially be challenged.

You may also be disqualified from being a company director for up to 15 years.

Needless to say, when a company is insolvent it’s unlikely there will be money left once the process is complete. So the main thing to consider should be protecting creditors and obtaining professional insolvency advice as soon as possible.

Let’s have a look at two of the main procedures.

Administration

This is the business equivalent of putting your company in intensive care. Instead of necessarily closing your company straight away, an administrator takes control of the company and considers the best way forward.

Depending on the circumstances, administration may result in:

• An attempt to rescue the company as a going concern.
• A sale of some or all of the company’s business or assets.
• A better result for creditors than an immediate winding-up.
• The company subsequently entering liquidation or being dissolved.

A Company Voluntary Arrangement (CVA) is a separate insolvency procedure which may, in appropriate circumstances, allow an insolvent company to reach an agreement with its creditors and continue trading.

Creditors’ voluntary liquidation

In a creditors’ voluntary liquidation, the company’s shareholders pass a resolution to wind up the company voluntarily.

For the resolution to pass, at least 75% by value of the shareholders who vote must agree. A liquidator is then appointed and creditors become involved in the liquidation process.

You can read more about the process in the GOV.UK guide to creditors’ voluntary liquidation.

Compulsory liquidation is different. This is a court-ordered winding up, usually following a winding-up petition from a creditor, although others may also be able to petition in certain circumstances.

What happens after you close a company?

Closing your company has consequences, regardless of its solvency. In particular, you’ll need to fulfil certain obligations, and you risk getting into trouble with the law – and the taxman – if you don’t.

If you close your company using a members’ voluntary liquidation and then become involved in the same or a similar trade or activity within two years, HMRC’s anti-phoenixing rules may cause what would otherwise be a capital distribution to be taxed as income, if the other statutory conditions are met.

Similarly, if your company went into insolvent liquidation, section 216 of the Insolvency Act 1986 can prevent a director from being involved in another business using the same or a prohibited similar name for five years, subject to specific statutory exceptions or court permission.

Here, the purpose is to prevent phoenixism, where failed businesses close to avoid paying their debts but continue trading through an identical new company like nothing happened.

You’ll also need to keep the company’s records after it closes. For tax purposes, business records generally need to be retained for 6 years from the end of the relevant accounting period, although longer periods can apply in some circumstances.

The third option: letting your company go dormant

If closing your company feels too permanent, you could let it go dormant. This simply means your company is inactive. In other words, it’s on the Companies House register but isn’t trading.

The benefit of this is that, if you change your mind – for example because you decide retirement or full-time employment aren’t for you – you can reactivate the company instead of having to start from scratch.

You can let your company go dormant at any time, even if you’ve just registered it. You can also leave it dormant for as long as you like. The important thing is that you deal with any outstanding liabilities and understand what transactions a dormant company can make. You’ll also still have to file accounts and a confirmation statement with Companies House.

Read more in our dormant limited company guide.

Wrapping up

As with any other aspect of running a limited company, how you go about closing it requires careful thought.

There are four key things to consider:

• Is your company solvent, or insolvent?
• If it’s solvent, how much retained profit does it have?
• If it’s insolvent, might it be possible to turn things round?
• And should you even close the company, or is it worth pressing pause for a while?

It sounds obvious, but it all depends on the company’s financial circumstances and your personal situation.

So, before you take action, be sure to have a chat with your accountant. If the company is insolvent or at risk of insolvency, you should also speak to a licensed insolvency practitioner as soon as possible.