TRW & Co · Company law and governance
How to Close a Limited Company: Strike-Off or Members' Voluntary Liquidation
To close a limited company that can pay its debts, you can apply to Companies House for voluntary strike-off or appoint a liquidator through a members' voluntary liquidation. Strike-off is cheaper and simpler; an MVL is formal but usually gives better tax treatment where shareholders will take out more than £25,000.
Key pointThe £25,000 limit for capital treatment on strike-off applies to the total of all pre-closure distributions, and exceeding it turns the whole amount into income, not just the excess.
At a glance
Two solvent routes
Voluntary strike-off under section 1003 of the Companies Act 2006, or a members' voluntary liquidation run by a licensed insolvency practitioner.
Three-month eligibility test
Strike-off is only available if the company has not traded, sold stock or changed its name in the last three months and faces no insolvency process.
The £25,000 limit
Distributions before strike-off are taxed as capital only if their total does not exceed £25,000 and the company intends to settle its debts.
MVL declaration of solvency
Directors must declare the company can pay its debts in full within no more than 12 months, then shareholders resolve to wind up within five weeks.
BADR at 18%
Business Asset Disposal Relief applies at 18% to qualifying disposals from 6 April 2026, subject to conditions and the anti-avoidance rule on phoenix activity.
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The short answer: two ways to close a solvent company
If you want to close a limited company that can pay its debts, there are two main routes: voluntary strike-off, where the directors apply to Companies House to remove the company from the register, or a members' voluntary liquidation (MVL), where the shareholders appoint a licensed insolvency practitioner to realise the assets, pay the creditors and distribute the surplus.
Strike-off is usually the cheapest and simplest route. It suits companies with modest retained value, no disputes and tidy records. An MVL costs more but gives a formal, supervised process, a clean break from creditors and, in many cases, better tax treatment for larger distributions, because the liquidator's payments to shareholders are normally treated as capital rather than income.
The deciding factors are usually how much cash or value is left in the company, whether anyone might object, and how the shareholders will be taxed on what they take out. This guide compares the two routes for companies in England and Wales as of October 2026.
The legal framework when you close a limited company
Voluntary strike-off is governed by section 1003 of the Companies Act 2006 and the sections that follow it. The directors apply on form DS01, which must be signed by a majority of them. Companies House publishes a notice in The Gazette and, if no one objects, strikes the company off once the two months mentioned in the notice have passed. A second notice confirms dissolution.
An MVL is a form of voluntary winding up under the Insolvency Act 1986. The directors make a statutory declaration of solvency, the shareholders pass a special resolution to wind up, and a licensed insolvency practitioner is appointed as liquidator. The process for Scottish companies differs in the forms and filing body, and Northern Ireland has its own insolvency legislation.
Two tax provisions shape the choice. Section 1030A of the Corporation Tax Act 2010 allows limited distributions made in anticipation of strike-off to be treated as capital. Section 396B of the Income Tax (Trading and Other Income) Act 2005 is a targeted anti-avoidance rule that can treat a distribution in a winding up as income where the shareholder carries on a similar business afterwards.
Voluntary strike-off: eligibility and process
According to GOV.UK's strike-off guidance, you can only apply if, in the last three months, the company has not traded or sold off stock and has not changed its name, and it is not threatened with liquidation and has no agreements with creditors such as a company voluntary arrangement. If the company does not meet these conditions, it must be liquidated instead.
Who must be told
A copy of the application must be sent within seven days to anyone who could be affected, including shareholders, creditors, employees, managers or trustees of any employee pension fund, and any directors who did not sign. Failing to do so can lead to a fine and prosecution, and making a dishonest application is an offence.
Before you apply
The company should be wound down first. That means telling HMRC, dealing with employees and payroll, filing final accounts and a company tax return with HMRC, paying all corporation tax and other liabilities, closing bank accounts and transferring assets such as domain names. Anything left in the company when it is dissolved passes to the Crown as ownerless property, including later refunds from HMRC.
If the company starts trading again or becomes ineligible during the process, the directors must withdraw the application. Only one director needs to sign the withdrawal.
Members' voluntary liquidation: how it works
An MVL is available only if the directors can honestly declare that the company will be able to pay its debts in full, with interest at the official rate, within a stated period of no more than 12 months from the start of the winding up. The GOV.UK guide to liquidating your company sets out the sequence.
- Prepare the numbers. Review the company's assets and liabilities, including contingent and tax liabilities, and prepare a statement of assets and liabilities.
- Make the declaration of solvency. A majority of the directors sign it in front of a solicitor or notary public. A false declaration made without reasonable grounds carries criminal risk.
- Pass the resolution. Within five weeks of the declaration, the shareholders pass a special resolution for voluntary winding up at a general meeting.
- Appoint the liquidator. The shareholders appoint a licensed insolvency practitioner, who takes control of the company. The directors' powers cease.
- Advertise and file. The resolution is advertised in The Gazette within 14 days, and the declaration is sent to Companies House within 15 days of the resolution.
- Realise and distribute. The liquidator collects assets, pays creditors, settles tax with HMRC and distributes the surplus to shareholders, in cash or in specie.
- Close. The liquidator files final accounts and the company is dissolved.
Because the liquidator advertises for creditors and adjudicates claims, an MVL gives directors and shareholders more comfort that liabilities have been dealt with properly than an informal strike-off does.
Before you close a limited company by either route, ask HMRC and your accountant to confirm that every return is filed and every liability is paid. Most failed strike-offs and delayed liquidations come down to a missing VAT return, a payroll balance or an unfiled confirmation statement, not to any legal complexity.
Tax treatment of distributions to shareholders
Tax is often the deciding factor when you close a limited company with significant reserves. The same cash can be taxed very differently depending on the route.
Strike-off and the £25,000 limit
Under section 1030A, a distribution made in anticipation of a strike-off is not treated as an income distribution if two conditions are met: the company intends to collect what it is owed and settle its debts, and the total amount distributed does not exceed £25,000. Within that limit, shareholders are taxed under the capital gains rules. If the total exceeds £25,000, the protection is lost and, as GOV.UK puts it, the amount is treated as income and subject to income tax.
There is also a company law limit. A private company can only pay dividends out of distributable profits. Returning share capital normally requires a formal reduction of capital first, which adds cost and procedure to the strike-off route.
MVL and capital treatment
Distributions made by a liquidator in a winding up are generally treated as capital, with no £25,000 cap.
Shareholders may be able to claim Business Asset Disposal Relief if they meet the conditions for the two years before the disposal, including holding at least 5% of the shares and votes and being an employee or officer of a trading company. GOV.UK confirms the relief rate is 18% for disposals from 6 April 2026, up from 14% for the 2025/26 tax year. The relief is subject to a lifetime limit and the company must have been trading, so check eligibility early.
The targeted anti-avoidance rule
Section 396B can treat a liquidation distribution as income where four conditions are met: the shareholder had at least a 5% interest; the company was a close company at the start of the winding up or at any time in the previous two years; within two years of the distribution the shareholder carries on, or is involved with, the same or a similar trade or activity; and it is reasonable to assume that a main purpose of the winding up was to reduce income tax.
Contractors and consultants who close a limited company and continue the same work through another are the classic risk case. Take advice from our tax lawyers before choosing the route.
Strike-off and MVL compared: which way to close a limited company
| Issue | Voluntary strike-off | Members' voluntary liquidation |
|---|---|---|
| Who runs it | The directors | A licensed insolvency practitioner as liquidator |
| Solvency test | No formal declaration, but the company must not be threatened with liquidation | Statutory declaration that debts will be paid in full within no more than 12 months |
| Typical cost | Low: Companies House filing fee plus advisers' time | Higher: insolvency practitioner's fees and Gazette notices |
| Timing | At least two months after the Gazette notice, if no objection | Varies with tax clearances and asset realisation; often several months |
| Tax on distributions | Capital only if total distributions do not exceed £25,000 | Generally capital, subject to the anti-avoidance rule |
| Objection risk | Creditors, HMRC or others can object and stop the process | Creditors are dealt with by the liquidator within the process |
| Assets left behind | Pass to the Crown on dissolution | Distributed by the liquidator before dissolution |
| Best suited to | Dormant or low-value companies with no disputes | Companies with significant reserves, property or complex liabilities |
Illustrative scenario: choosing a route
This example is illustrative only and uses generic parties.
Two shareholders own a London consultancy company equally and want to close a limited company they no longer need. Both are directors. The business has stopped trading, its client contracts have ended and it holds cash well above £25,000 after paying its final corporation tax. One shareholder is retiring; the other plans to join a large firm as an employee.
A strike-off would be quick, but distributing the cash beforehand would push the total above the £25,000 limit and turn the whole amount into income for tax purposes. An MVL lets the liquidator distribute the cash as capital.
Because neither shareholder intends to carry on a similar trade on their own account, the anti-avoidance rule is less likely to bite, although each should still take personal tax advice on whether employment in a similar field is caught. The shareholders also check whether they qualify for Business Asset Disposal Relief. They choose an MVL, and the directors prepare the declaration of solvency once the final tax position is agreed.
Had the company held only a few thousand pounds and had no creditors, a strike-off after paying out a final dividend would have been the obvious choice.
Common mistakes and risks
Leaving money or assets in the company
When a company is struck off, everything it still owns passes to the Crown, including bank balances, intellectual property and future HMRC refunds. Getting it back requires restoration. After a voluntary strike-off, restoration is by court application, which must generally be made within six years of dissolution, according to the Companies House restoration guide. Close bank accounts, assign assets and confirm any refunds before applying.
Ignoring creditors and objections
Creditors, HMRC and other interested parties can object to a strike-off during the notice period, and an objection will halt the process. Missing filings, unpaid tax or a dispute with a supplier often trigger objections. Failing to send copies of the application to creditors within seven days is itself an offence. If there is any doubt about solvency, take advice from our insolvency advice for directors team first, because directors' duties shift towards creditors as a company approaches insolvency.
Exceeding the £25,000 distribution limit
The £25,000 limit applies to the total of all distributions made in anticipation of strike-off, not to each shareholder or each payment. Exceeding it means the entire amount is treated as an income distribution, not just the excess. Many directors pay a series of pre-closure dividends without tracking the total. If reserves are larger, compare the income tax cost with the cost of an MVL before you start distributing.
Using strike-off for a company that is still trading
A company that has traded, sold stock or changed its name in the last three months is not eligible, and nor is one threatened with liquidation. Applying anyway, or failing to withdraw when circumstances change, can be an offence. If you plan to close a limited company that has only recently stopped trading, plan the timetable so the last trading activity is well before the application date.
Signing a declaration of solvency without proper review
The declaration of solvency is a statutory declaration. A director who makes it without reasonable grounds for the opinion expressed in it risks a criminal offence, and if the liquidator later finds the company cannot pay its debts in full the MVL converts into a creditors' process. Review contingent liabilities, leases, warranties given on past sales and any tax enquiries before signing. Our guide to directors' duties in the UK sets out the wider duties.
Cross-border shareholders and group companies
Where shareholders live outside the UK, the tax analysis changes. Non-resident individuals may not be subject to UK capital gains tax on a liquidation distribution in the same way as UK residents, but they may be taxed in their country of residence, and the UK treatment of income distributions can differ. Shareholders in Bangladesh, the Gulf or Singapore should take local tax advice alongside UK advice.
Groups that need to close a limited company within the group, such as a dormant UK subsidiary, often use strike-off, but should first check intra-group balances, guarantees and any assets still held in the subsidiary's name. Where the subsidiary holds valuable property or contracts, an MVL may give the group a cleaner audit trail. Our restructuring and insolvency team advises on group simplification projects.
If you are winding down one business to start another, consider the new structure at the same time. Our guide to sole trader versus limited company explains the trade-offs.
Checklist before you close a limited company
- Confirm the company is solvent and list every creditor, including HMRC and contingent liabilities.
- Decide the route: strike-off for low-value, simple companies; MVL for larger reserves or complex assets.
- Model the shareholders' tax under both routes, including the £25,000 limit, Business Asset Disposal Relief and the anti-avoidance rule.
- Stop trading, deal with employees and payroll, and file final accounts and the company tax return.
- Collect debts, pay liabilities, close bank accounts and transfer or distribute any remaining assets.
- For strike-off, file form DS01 and send copies to all interested parties within seven days.
- For an MVL, appoint an insolvency practitioner and prepare the declaration of solvency.
- Keep the company's records for at least seven years after dissolution.
TRW & Co's London office is authorised and regulated by the Solicitors Regulation Authority. Our corporate lawyers help owners decide how to close a limited company, prepare board and shareholder resolutions, and work with insolvency practitioners and tax advisers. To discuss your company, contact us at info@trw.co or on +880 1779 127165, or visit us at Holborn Gate, 330 High Holborn, London WC1V 7QH.
Frequently asked questions
01What is the cheapest way to close a limited company?
Voluntary strike-off is usually the cheapest route for a solvent company. The directors file form DS01 with Companies House and pay a filing fee, and there is no liquidator to pay. It suits dormant or low-value companies with no creditors or disputes. However, if shareholders will take out more than £25,000 in total before closure, the income tax cost can outweigh the savings, and a members' voluntary liquidation may be cheaper overall once tax is taken into account.
02How long does it take to strike off a company?
Once Companies House accepts the DS01, it publishes a notice in The Gazette. If no one objects, the company is struck off once the two months mentioned in the notice have passed, and a second notice confirms dissolution. Preparation can take longer: the company must first stop trading for at least three months, file final accounts and a tax return with HMRC, pay its liabilities and deal with its assets.
03What is the £25,000 rule when closing a company?
Under section 1030A of the Corporation Tax Act 2010, a distribution made in anticipation of a voluntary strike-off is not treated as an income distribution if the company intends to collect its debts and settle its liabilities and the total of such distributions does not exceed £25,000. Within that limit, shareholders are taxed under capital gains rules. If the total exceeds £25,000, the whole amount is treated as income.
04When is a members' voluntary liquidation better than strike-off?
An MVL is usually better where the company has significant reserves, property or other assets to distribute, or complex liabilities that need a formal process. Distributions from a liquidator are generally capital, so shareholders may pay capital gains tax and, if eligible, claim Business Asset Disposal Relief. An MVL also gives a supervised process for dealing with creditors. The trade-off is the cost of the insolvency practitioner and a longer timetable.
05Can a struck-off company be restored?
Yes. After a voluntary strike-off, a company can be restored by application to the court. According to the Companies House restoration guide, the application must generally be made within six years of dissolution, except for personal injury claims. Restoration is often needed to recover assets that passed to the Crown, such as money left in a bank account or an HMRC refund. Once the court order is delivered to Companies House, the company is treated as if it had never been dissolved.
06Can HMRC object to a company being struck off?
Yes. Creditors, HMRC and other interested parties can object during the Gazette notice period, and an objection stops the strike-off from going ahead. HMRC commonly objects where returns are missing or tax is unpaid. To avoid this, file the final company tax return, pay all corporation tax, VAT and payroll liabilities, and make sure Companies House filings are up to date before applying.
Sources and official materials
- Strike off your company from the Companies Register — Eligibility, DS01, notice to interested parties and Gazette process
- Liquidate your limited company — Members' voluntary liquidation and declaration of solvency
- Companies Act 2006, section 1003 — Voluntary striking off on application
- Corporation Tax Act 2010, section 1030A — Distributions in anticipation of dissolution and the £25,000 limit
- Income Tax (Trading and Other Income) Act 2005, section 396B — Targeted anti-avoidance rule for winding-up distributions
- Business Asset Disposal Relief — Eligibility conditions and rates from 6 April 2026
- Company restoration guide — Restoring a dissolved company by court application
General information only, current as at 21 October 2026. It is not legal advice and does not create a solicitor–client relationship. It reflects the law of England and Wales unless stated otherwise; Scotland and Northern Ireland have separate legal systems, and the law changes frequently. Check current official sources and take advice on the facts of your matter.