Closing a limited company sounds simple, but it rarely is. Whether you're retiring, moving on to a new venture or facing trading difficulties, how you close the company affects your tax bill, your personal liability and how much of the remaining money you keep. The two main routes are dissolution (also called striking off) and liquidation, and choosing the wrong one can be expensive.
Here's what experienced advisers typically recommend directors consider before closing a company.
The Key Difference: Dissolution vs Liquidation
Dissolution (strike off) is the cheapest and simplest way to close a company that has finished trading. You apply to Companies House to have the company removed from the register.
Liquidation is a formal process where a licensed insolvency practitioner winds up the company, sells any assets, pays creditors and distributes what's left. It comes in two main forms: a Members' Voluntary Liquidation (MVL) for solvent companies and a Creditors' Voluntary Liquidation (CVL) for insolvent ones.
The right route depends on three things: whether the company can pay its debts, how much money or assets are left inside it, and what tax treatment you want on the proceeds.
Option 1: Voluntary Dissolution (Strike Off)
Dissolution suits small, solvent companies with few or no assets and no unresolved debts. The process involves:
Filing an application (form DS01) with Companies House, which carries a small fee
Notifying shareholders, creditors, employees and other interested parties
Waiting for the notice to appear in The Gazette, after which the company can be struck off following a minimum notice period
You can't use this route if the company has:
Traded, changed its name or sold property or rights in the last three months
An active insolvency process or a company voluntary arrangement in place
Before you apply, you'll usually need to:
Prepare final accounts and file a final Corporation Tax return
Settle PAYE, VAT and Corporation Tax liabilities
Deregister the company for VAT and PAYE
Deal with the final bank balance and any director's loan account
The tax angle on dissolution
When a company is dissolved, money left in the business and paid out to shareholders is normally taxed as income, which can be costly for higher earners. However, if the total distribution is £25,000 or less, HMRC's extra-statutory concession C16 may allow it to be taxed as capital gains instead, which is often more favourable. Anti-avoidance rules apply if you restart a similar business within two years, so take advice before you proceed.
Option 2: Members' Voluntary Liquidation (MVL)
An MVL is designed for solvent companies. It's usually worth considering when there are significant funds or assets to distribute, typically well over £25,000.
Directors sign a declaration that the company can pay its debts in full within 12 months
Shareholders pass a special resolution to wind up the company
A licensed insolvency practitioner takes control, settles remaining liabilities and distributes the surplus
Why an MVL can save tax
Distributions in an MVL are generally treated as capital rather than income, which means Capital Gains Tax applies instead of income tax. If you qualify for Business Asset Disposal Relief, a lower CGT rate may apply on qualifying gains up to the lifetime limit. The relief rate has been rising in stages (14% from April 2025 and 18% from April 2026), so the figures need checking at the time you close.
The trade-off is cost. An MVL involves insolvency practitioner fees, so it normally only makes financial sense when the tax saving outweighs the cost. A good Coventry accountant can model both routes side by side so you can see the real difference in what ends up in your pocket. Our tax planning service covers exactly this kind of comparison.
Option 3: Creditors' Voluntary Liquidation (CVL)
If the company can't pay its debts, directors should not simply strike it off. Doing so with outstanding creditors can lead to the company being restored to the register, and directors can face personal consequences.
A CVL is the formal route for insolvent companies. An insolvency practitioner is appointed, assets are sold and creditors are paid in order of priority. Directors have legal duties in this situation, including acting in the interests of creditors, avoiding preferential payments and not trading wrongfully. Directors' conduct is reviewed as part of the process.
If you suspect the company is insolvent, speak to a qualified professional early. The sooner you act, the more options you have.
Common Mistakes When Closing a Company
Choosing strike off for a company with debts or significant assets
Forgetting to deregister for VAT and PAYE
Leaving an overdrawn director's loan account unresolved
Not keeping company records for the required period after closure
Extracting funds in the wrong way and paying more tax than necessary
Starting a similar business straight away without understanding the anti-avoidance rules
How Cheylesmore Helps
Our team helps directors by:
Reviewing whether the company is solvent and which route fits best
Calculating the after-tax outcome of dissolution versus an MVL
Preparing final accounts, tax returns and VAT and payroll closures
Advising on Business Asset Disposal Relief and director's loan accounts
Working with trusted licensed insolvency practitioners where a formal liquidation is needed
Accountants can only act as liquidators if they hold an insolvency licence, so where a formal liquidation is required, we coordinate with a licensed practitioner on your behalf.
Speak to Accountants in Coventry Before You Close Your Company
A short conversation before you apply can protect your profits and your personal position. Book a free 15-minute consultation with the team of accountants in Coventry Cheylesmore, or ask for an accountant Coventry directors already trust to talk through your options.
Call 02476017778 or email info@cheylesmore.com to get started.
