What are the tax implications of closing a limited company?

If the time is right to close a solvent limited company, you’ll want to extract the profits, whether that’s cash or assets, in the most tax-efficient way. That’s perfectly understandable given the years of hard work you’ve put in.

But which is likely to be the most tax-efficient closure method, and how much tax will you have to pay? Here we run through the two main options, discuss the tax implications and help you find the most suitable way to shut up shop.

There are two main ways to close a solvent limited company. You can apply for Voluntary Strike Off to remove it from the Companies House Register, or liquidate it voluntarily via a Members’ Voluntary Liquidation (CVL). 

• Voluntary Strike Off

Voluntary Strike Off, also known as Voluntary Dissolution, is the simplest and cheapest way to close a solvent limited company. You can complete the process yourself by applying online and paying an application fee of less than £50. We can also perform the procedure on your behalf.

The process typically takes two or three months, and there are no professional fees to pay, which keeps your costs down.

• Members’ Voluntary Liquidation (MVL) 

A Members’ Voluntary Liquidation (MVL) is more expensive than Strike Off, as you must appoint an Insolvency Practitioner to administer the procedure on your behalf. They will settle any outstanding liabilities, ensure tax compliance and distribute the profits among the shareholders.

Even simple MVLs start at £1,500 to £2,000. That fee is paid from company funds before any distributions are made. That means it reduces the shareholders’ return. The process also takes longer to complete, with a typical timeframe of three to six months. However, for companies with significant retained profits, the tax savings often justify the extra cost.

When is it a good fit for your business?

A Voluntary Strike Off is best suited to companies with retained profits of £25,000 or less. That’s because profitable distributions up to that limit are treated as capital, and shareholders pay Capital Gains Tax on the money they receive.

Current Capital Gains Tax rates are 18% (for basic rate taxpayers) and 24% (for higher and additional rate taxpayers). You may also be eligible for a tax relief called Business Asset Disposal Relief. That reduces the rate of CGT you pay on qualifying gains to:

• 14% for disposals made after 6 April 2025 and before 6 April 2026
• 18% for disposals made after 6 April 2026

When is it less tax-efficient?

If your company has more than £25,000 in distributable profits, Strike Off is unlikely to be the best option. That’s because, when the profits exceed £25,000, the whole sum, and not just the amount over £25,000, is treated as income rather than capital.

In that case, the profits are usually distributed to shareholders as a final dividend, and Dividend Tax for higher and additional-rate taxpayers is significantly higher than CGT. Current (2025-26) dividend tax rates are:

• Basic rate – 8.75%
• Higher rate – 33.75%
• Additional rate – 39.35%

Business Asset Disposal Relief (BADR) only applies to capital gains, not dividends, so shareholders cannot claim it on income distributions. That means higher and additional-rate taxpayers who close a company with over £25,000 in retained profits via Strike Off could face a higher tax bill. And the extra tax due will usually exceed the cost of a liquidator in an MVL.

When is it a good fit for your business?

Members’ Voluntary Liquidation (MVL) is likely to be a tax-efficient closure method for your company if it has more than £25,000 in retained profits to return to the shareholders.

In an MVL, all distributions are treated as capital; there’s no £25,000 limit. That means shareholders will pay Capital Gains Tax (CGT) on all the profit they receive from the company. 

Eligible shareholders are also able to claim Business Asset Disposal Relief on up to £1 million of qualifying gains over their lifetime. 

When is it less tax-efficient?

If you’re closing a solvent limited company with £25,000 or less in retained profits, a Voluntary Strike Off is just as tax-efficient as a Members’ Voluntary Liquidation (MVL). That’s because in both cases, the distribution can be treated as capital, and Business Asset Disposal Relief (BADR) may be available. 

The key difference is cost. An MVL starts at around £1,500, but Strike Off is much cheaper. So, if all else is equal, you’ll usually end up with more money in your pocket by choosing the Strike Off route for smaller distributions.

Of course, there are other tax implications, beyond the tax due on profits, to consider when closing a company. You must also:

• Deregister for VAT and PAYE schemes
• Settle any outstanding tax bills
• File a final Corporation Tax return and pay any tax due
• Submit final payroll reports if you have employees

If the company is insolvent, the liquidator will make the necessary distributions to HMRC on your behalf. They will also investigate your conduct as a director in the period leading up to and during the insolvency. 

In this case, you may face accusations if you continued trading while the company was insolvent and incurred additional tax debts as a result (wrongful trading). You could also be penalised if you made preferential payments to certain creditors, such as family, directors or suppliers, ahead of HMRC.

If you are unsure of the tax implications of closing a limited company or would like to discuss your circumstances with an advisor, we are ready to help. 

As company closure specialists, we can advise you of your options, recommend the best route forward and implement company closure procedures on your behalf so you can focus on what’s next. Get in touch for a free consultation or arrange a meeting at your nearest office.