Two Routes, One Destination

Closing a limited company is not something most directors do often. When the time comes, the two main options are a voluntary strike off (dissolution) and a Members' Voluntary Liquidation (MVL). They both end the company's existence. But they work very differently on tax and cost.

This article explains both routes in plain English. You will know which one fits your situation by the end.

What Is a Voluntary Strike Off?

A voluntary strike off is the simplest way to close a limited company. You apply to Companies House to remove the company from the register. The process takes around 3 months if everything is straightforward.

You file a DS01 form online or by post. The fee is £8. Companies House then advertises the strike off in the Gazette. If no objections come in, the company is dissolved.

Striking off works well when the company has no assets left, or only small assets that you have already taken out as dividends or director's loan repayments. It is also suitable when the company has no liabilities and no ongoing legal issues.

Conditions for Striking Off

You cannot strike off if the company is trading, has debts it cannot pay, or is involved in a dispute. You must also have cleared all tax liabilities with HMRC, filed all outstanding returns, and distributed any remaining assets to shareholders.

If the company owns property, has significant cash reserves, or holds investments, a strike off is usually the wrong choice. You would need an MVL instead.

What Is a Members' Voluntary Liquidation (MVL)?

An MVL is a formal insolvency process for solvent companies. You appoint a licensed insolvency practitioner (IP) to wind up the company, sell its assets, pay its debts, and distribute the remaining cash to shareholders.

The process takes longer than a strike off. Typically 6 to 12 weeks for the liquidation itself, then a further period before the company is dissolved. The cost is higher too. Expect to pay £3,000 to £6,000 plus VAT for a straightforward MVL, sometimes more if the company is complex.

Why would anyone pay that? Because an MVL turns the company's retained profits into capital distributions. And capital distributions qualify for Business Asset Disposal Relief (BADR) in most cases.

How BADR Changes the Numbers

If you take retained profits as dividends before striking off, you pay dividend tax at your marginal rate. For a higher rate taxpayer, that is 33.75% on dividends above the £500 allowance. On £100,000 of retained profits, that is roughly £33,500 in tax.

With an MVL, the same £100,000 is treated as a capital distribution. If you qualify for BADR, you pay 14% CGT on gains above your annual exempt amount (£3,000 in 2025/26). That is roughly £13,500 in tax on the same £100,000. The saving is around £20,000.

BADR has conditions. You must have held at least 5% of the shares and 5% of the voting rights for the 2 years before the liquidation. You must also have been an employee or director of the company throughout that period. Most owner-directors meet these conditions without trouble.

When a Strike Off Makes More Sense

If the company has less than £25,000 in retained profits, the cost of an MVL often outweighs the tax saving. On £20,000 of retained profits, the dividend tax at higher rate is about £6,600. The CGT under BADR is about £2,400. The difference is £4,200. But the MVL costs £4,000 to £6,000. You break even or lose money.

Strike off is also simpler if you have already extracted most of the company's value over time through salaries and dividends. If the remaining cash is small, just take it as a final dividend, file the final accounts, and strike off.

One more reason to strike off: you have no intention of returning to the same trade. BADR is a once-per-lifetime relief in effect (the £1 million limit applies across all disposals). If you plan to start another company later, you might want to preserve your BADR allowance for that eventual exit.

When an MVL Is the Better Choice

An MVL is the right choice when the company holds significant retained profits, typically £50,000 or more. The tax saving on £100,000 is £20,000 as shown above. On £250,000, the saving is around £50,000. The MVL fee becomes a small fraction of the benefit.

An MVL is also necessary if the company owns assets that cannot be easily distributed to shareholders without triggering a tax charge. Property, intellectual property, investments, and vehicles are examples. The liquidator sells these assets and distributes the cash as capital.

If the company has creditors who need to be paid off formally, an MVL provides a clean break. The liquidator handles creditor claims, and shareholders receive the surplus without future liability.

The Tax and Filing Steps for Either Route

Whichever route you choose, you must complete certain steps before the company closes.

Before a Strike Off

You need to file final accounts up to the date of dissolution. HMRC requires a final corporation tax return (CT600) covering the period from the last return to the date the company stops trading. You must pay any corporation tax due.

If the company is VAT registered, you cancel the VAT registration using form VAT7. You file a final VAT return and pay any VAT due.

If you have employees, you run a final payroll and issue P45s. You file a final FPS and an EPS to HMRC. You also submit a P11D(b) for any benefits in kind.

You distribute any remaining assets to shareholders before applying for strike off. This usually means paying a final dividend. You record the dividend in the company's books and issue dividend vouchers.

Before an MVL

The process is similar but formalised. The liquidator takes control of the company's affairs. They file the final accounts and corporation tax return. They cancel VAT and payroll registrations. They sell or distribute assets and pay creditors.

Shareholders sign a declaration of solvency confirming the company can pay its debts within 12 months. This is a legal document with penalties for false statements.

The liquidator distributes the surplus to shareholders as a capital distribution. You receive a certificate of distribution showing the amount. You report this on your self assessment tax return and claim BADR if eligible.

What Happens to Director's Loan Accounts?

If you owe money to the company, that is a director's loan account in debit. You must repay it before closing the company. If you cannot repay, the company can write it off as a dividend or bonus, but that triggers income tax and NIC.

If the company owes you money, that is a director's loan account in credit. You should repay yourself before closing. Any remaining credit balance is treated as a distribution and taxed as capital (MVL) or dividend (strike off).

Can You Close a Company With Debts?

No, not through strike off or MVL. If the company cannot pay its debts, you need a Creditors' Voluntary Liquidation (CVL) or compulsory liquidation. That is a different process with different tax consequences. Directors of insolvent companies should take professional advice immediately.

If you try to strike off a company with unpaid debts, HMRC or another creditor can object. Companies House will suspend the strike off. In serious cases, HMRC can apply to restore the company and pursue directors personally for certain liabilities.

How Long Does Each Process Take?

A strike off takes around 3 months from filing the DS01. The Gazette notice runs for 2 months. If no objections arise, the company is dissolved after that.

An MVL takes 6 to 12 weeks for the liquidation itself. The liquidator then files final accounts and applies to strike off the company. Total time is usually 4 to 6 months from start to finish.

What About the Company's Name and Bank Account?

Once the company is dissolved, its name becomes available for others to register. If you want to reuse the name, register it before the dissolution completes.

Close the company bank account after the final distribution. Do not leave it open. Banks will freeze accounts of dissolved companies, and recovering funds later is difficult.

Common Mistakes to Avoid

Do not apply for strike off if the company has traded in the last 3 months. Companies House will reject the application. You must wait until the company has stopped trading.

Do not distribute assets before clearing all tax liabilities. HMRC will object to the strike off and may pursue you personally for unpaid tax.

Do not ignore the director's loan account. HMRC reviews loan accounts on closure. An unresolved debit balance can trigger a tax charge under the loan to participator rules (S455).

Do not assume you can claim BADR automatically. Check the 2-year holding period and the 5% shareholding condition. If you hold shares through a trust or nominee, the rules are different.

Which Route Should You Choose?

If the company has less than £25,000 in retained profits and no significant assets, strike off is the cheaper option. File the DS01, pay the £8 fee, and close the company.

If the company has £50,000 or more in retained profits, or holds assets that are hard to distribute, an MVL saves you thousands in tax. Pay the liquidator's fee and claim BADR on the capital distribution.

If the company is between £25,000 and £50,000, run the numbers. Compare the dividend tax on a final distribution against the MVL cost plus BADR CGT. The breakeven point varies by your tax band and the exact fees involved.

As ICAEW qualified accountants, we help directors work through these decisions regularly. If your situation is straightforward, you can handle a strike off yourself. If there is any complexity, or if the retained profits are substantial, speak to us before committing to a route.

Get in touch through our contact page or read more about exit planning and capital gains on our blog.