Closing a UK limited company sounds like the easy bit — the trading is done, the team is moved on, the customers are notified. In practice, how you close the company can make a difference of tens of thousands of pounds in personal tax, can determine whether you keep Business Asset Disposal Relief, and can affect your ability to be a director of future companies. In 2026 there are two main routes — voluntary strike off and Members' Voluntary Liquidation — and choosing between them is a decision worth making deliberately.
Route 1: Voluntary strike off (DS01)
A voluntary strike off is the simpler, cheaper route. The directors apply to Companies House to remove the company from the register. The company must:
- Have ceased trading for at least three months.
- Have not changed name in the last three months.
- Have not engaged in any activity other than that necessary to wind up.
- Have no outstanding legal proceedings.
- Not be the subject of any insolvency arrangement.
Before applying, the company must distribute all assets and settle all liabilities. Cash or assets still in the company at strike off vest in the Crown as bona vacantia — a one-way trip nobody plans for deliberately.
The £25,000 distribution question
Distributions made on a voluntary strike off are treated as capital distributions only up to the limit set out in HMRC's Extra-Statutory Concession C16 — broadly, where total distributions do not exceed £25,000. Above this threshold, distributions on a strike off are treated as income (dividends), often resulting in a materially higher personal tax bill.
This single rule explains why companies with retained cash above £25,000 should almost never use a voluntary strike off as their primary exit route.
Route 2: Members' Voluntary Liquidation (MVL)
An MVL is a formal solvent liquidation managed by a licensed insolvency practitioner. The process:
- Directors sign a declaration of solvency.
- Shareholders pass a winding-up resolution and appoint a liquidator.
- The liquidator settles remaining liabilities, distributes assets, and applies to Companies House to dissolve.
Critically, distributions during an MVL are treated as capital distributions, not income — meaning they are subject to Capital Gains Tax rather than Income Tax. With Business Asset Disposal Relief, this can mean an effective rate of 14% on qualifying gains, against marginal Income Tax rates that can exceed 39% on higher dividends.
The decision framework
The simple rule of thumb:
- Distributable reserves below £25,000: voluntary strike off is usually the right route. Cheap, fast, clean.
- Distributable reserves above £25,000, ideally above £50,000: MVL nearly always pays for itself in tax savings.
- Distributable reserves between £25,000 and £50,000: case by case, depending on the founder's tax band and BADR availability.
The Targeted Anti-Avoidance Rule
HMRC's TAAR can recharacterise capital distributions from an MVL as income if the same individual sets up a similar trade or business within two years of receiving the distribution. The rule was introduced specifically to prevent "phoenixing" — closing a company with capital treatment and immediately reopening with the same business. Plan the exit with the next two years in mind.
Business Asset Disposal Relief on MVL distributions
BADR (formerly Entrepreneurs Relief) can reduce the CGT rate on qualifying lifetime gains up to the lifetime limit. To qualify, the shareholder must have held at least 5% of the ordinary share capital and voting rights, been an officer or employee of the company for the preceding two years, and the company must have been a trading company. MVLs are often timed to ensure these conditions are met on the distribution date.
Practical timelines
- Voluntary strike off: roughly 3–6 months from cessation to dissolution.
- MVL: typically 4–9 months, sometimes longer where there are outstanding tax clearances or asset sales.
Things to do before either route
- Clear all liabilities, including HMRC.
- Cancel VAT, PAYE and Corporation Tax registrations on the right dates.
- Distribute physical assets (cars, equipment) at correctly stated market values.
- Notify customers, suppliers and the bank.
- Retain accounting records for the statutory period (6 years for most documents).
Common mistakes
- Filing the DS01 before distributing remaining cash — losing it to the Crown.
- Choosing strike off with £75,000+ in the company and paying Income Tax on the lot.
- Forgetting BADR conditions and exiting just before the two-year holding test is met.
- Triggering TAAR by reopening the same trade within two years.
How PushDigits helps
Our business advisory team models both exit routes for every closing client, including BADR availability and the post-tax cash outcome of each. Where MVL is the right route, we coordinate with our preferred licensed insolvency practitioners and handle all HMRC clearances. Contact us early — the right time to plan a closure is at least 12 months before you intend to stop trading.