What tax do I have to pay when closing a company?

When the time comes to close your limited company, there are two main questions to ask to determine the most appropriate closure method: 

• Is the company solvent?
• How much tax will you pay?

If your limited company cannot pay its debts when they are due, it is said to be insolvent. You can close an insolvent limited company voluntarily via a Creditors’ Voluntary Liquidation (CVL). 

In this case, there is usually no tax to pay, as any cash or assets the company has are used to repay its debts before it closes. Therefore, there’s no profit to distribute to the shareholders, and no tax bill. 

On the other hand, if your company is solvent, it will have cash reserves and/or assets that you want to extract. In this case, you will have to pay tax on the money you take out of the company, but the type and amount of tax you pay will depend on the closure method you use.

You can Strike Off a solvent company yourself by completing the DS01 form or applying online. By applying, you are asking Companies House to remove the business from the register of companies. The application fee is less than £50, making the process very cheap. 

To apply for Voluntary Strike Off, your company must be solvent and not have:

• Traded or changed its name in the past three months
• Any creditor agreements (such as a Company Voluntary Arrangement) or be threatened with liquidation

Before applying to Companies House to strike your company off the register, you must wind down its affairs and prepare it for closure. That includes making staff redundant, selling or transferring its assets, closing company bank accounts and filing statutory accounts.

You must also settle all your tax obligations. That includes:

• Submitting a final VAT return, paying what you owe and deregistering from VAT
• Paying any outstanding PAYE and National Insurance contributions
• Filing a final Corporation Tax return with HMRC and paying any tax due

As well as settling your ongoing tax obligations, you must pay tax on the company assets and cash that you distribute to the shareholders. 

Under Voluntary Strike Off, distributable profits of up to £25,000 are subject to Capital Gains Tax (CGT) at 18% (for basic rate taxpayers) and 24% (for higher and additional rate taxpayers). You may also be eligible for Business Asset Disposal Relief, which reduces the rate of CGT you pay on qualifying gains.

If the total distribution exceeds £25,000, then the entire sum, and not just any amount over £25,000, is taxed as income. The profits are usually distributed as a final dividend. That means basic, higher and additional-rate taxpayers will pay 8.75%, 33.75% or 39.35% dividend tax, respectively, on the profits for the current year (2025-26).

A Members’ Voluntary Liquidation is a formal procedure to close a solvent company. The big difference here is that you do not administer the procedure yourself. Instead, you must appoint a licensed Insolvency Practitioner to liquidate the company on your behalf. They charge a fee for their work (typically £1,500 to £3,000), which, on the face of it, makes an MVL more expensive than Strike Off. 

The liquidator will sell the company’s assets, use the proceeds to settle any debts and distribute the remaining funds among the shareholders before removing the company from the official register. 

Although the liquidator’s fee can make the MVL process seem more expensive, it’s typically more tax efficient for companies with distributable profits of over £25,000. 

That’s because, unlike Strike Off, in an MVL, all profits, including those over £25,000, are subject to Capital Gains Tax (CGT). Basic-rate taxpayers pay CGT at 18%, and it’s 24% for higher and additional-rate taxpayers. That’s significantly lower than the dividend tax due on Strike Off for those higher earners.  

If you close your company via Members’ Voluntary Liquidation, you may also be eligible for Business Asset Disposal Relief. Business Asset Disposal Relief reduces the rate of CGT to 14% for disposals made after 6 April 2025 and before 6 April 2026, and 18% for disposals made after 6 April 2026. That represents a significant saving. 

There’s a lot of information there, but generally speaking, you can boil it down to this general rule of thumb:

• If your company has retained profits of less than £25,000, it’s usually more cost-effective to strike it off. That’s because you pay Capital Gains Tax on the distributions and avoid the liquidator’s fee.
• However, if your retained profits exceed £25,000, you’ll usually be better off with an MVL due to the tax savings and the ability to apply for Business Asset Disposal Relief. 

If you want to know more about your company closure options or are unsure which method is most tax-efficient, please get in touch. At Company Closure, we provide free initial advice and help hundreds of UK company directors close their businesses every month.