The right exit route can save you thousands in tax on retained profits. This guide covers striking off, Members’ Voluntary Liquidation, Business Asset Disposal Relief and the practical checklist for shutting down cleanly.
A dormant company has minimal obligations: file a dormant company annual return at Companies House (£13/year) and a confirmation statement (£34/year). No corporation tax return is needed if the company is genuinely dormant (no transactions). Your accountant notifies HMRC of the dormant status to pause CT filing obligations.
| Feature | Striking Off (DS01) | Members’ Voluntary Liquidation (MVL) |
|---|---|---|
| Best for | Companies with under £25,000 in assets | Companies with £25,000+ in retained profits |
| Tax on distributions | Capital distribution under £25,000 (BADR at 10%) | Capital distribution of any amount (BADR at 10%) |
| Cost | £10 Companies House fee | £2,000–£5,000+ (insolvency practitioner fees) |
| Timeline | 3–6 months (2-month notice + 3-month dissolution) | 6–12 months (liquidator appointed, assets distributed) |
| Complexity | Low — director files DS01 form | High — requires a licensed insolvency practitioner |
| Can be reversed? | Yes, within 6 years (administrative restoration) | No — company is dissolved after final distribution |
You apply to Companies House to strike the company off the register using form DS01. The process:
The company cannot be struck off if it has traded or changed name in the last 3 months, or if it is subject to insolvency proceedings. You must also have filed all outstanding accounts and returns — Companies House will reject the DS01 otherwise.
Compare this to extracting £25,000 as a final dividend: at the basic rate you would pay £2,634 in dividend tax (10.75%); at the higher rate you would pay £8,937 (35.75%). Via capital distribution with BADR, you pay just £2,500 (10% of £25,000) regardless of your income tax band. The saving is most significant for higher-rate taxpayers.
An MVL is a formal liquidation process for solvent companies — meaning the company can pay all its debts in full. It requires a licensed insolvency practitioner (IP) to act as liquidator. The process:
IP fees for a straightforward contractor MVL typically range from £2,000 to £5,000 (inclusive of VAT). The MVL pays for itself when the tax saving from capital treatment exceeds the fees. Here is the break-even analysis for a higher-rate taxpayer (the saving is smaller at basic rate):
| Retained Profits | Dividend Tax (35.75%) | CGT via MVL (BADR 10%) | Tax Saving | Net Saving After IP Fees |
|---|---|---|---|---|
| £25,000 | £8,937 | £2,500 | £6,437 | £3,437+ |
| £50,000 | £17,875 | £5,000 | £12,875 | £9,875+ |
| £100,000 | £35,750 | £10,000 | £25,750 | £22,750+ |
| £200,000 | £71,500 | £20,000 | £51,500 | £48,500+ |
Figures assume BADR at 10%, higher-rate dividend tax at 35.75%, and IP fees of £3,000. Actual CGT calculation includes deduction of base cost (original share capital, typically £1–£100) and the annual CGT exemption (£3,000 for 2026/27).
Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) requires:
Most contractor limited companies meet these conditions comfortably. Your accountant confirms eligibility before you proceed.
HMRC is vigilant about contractors who close a company, extract profits at 10% via BADR, and then immediately start a new company doing the same work. Two provisions target this:
Introduced in 2016, the TAAR allows HMRC to treat the MVL distribution as income (dividend) rather than capital if:
In practice: if you liquidate your company, take £100,000 at 10% BADR, and incorporate a new company the next month doing the same IT contracting work, HMRC can reclassify the £100,000 as a dividend and charge tax at 35.75%. The additional tax bill: £25,750.
For striking off (not MVL), if the distribution exceeds £25,000, the entire amount is treated as income. This prevents contractors from building up profits and extracting them cheaply via a simple strike-off without going through the full MVL process.
Whether you are striking off or going through an MVL, complete these steps first:
ICAEW-regulated and led by Godwin Pinto ACA, AccTek handles the full closure process:
Whether you are an IT contractor moving to a permanent role, a freelancer winding down, or simply restructuring, we ensure you exit tax-efficiently and compliantly.
How much does it cost to close a limited company?
Striking off costs £10 (Companies House fee) plus your accountant’s time to prepare final accounts and returns. An MVL costs £2,000–£5,000 in insolvency practitioner fees but saves significantly more in tax for companies with £25,000+ in retained profits.
How long does it take to close a limited company?
Striking off takes 3–6 months: a 2-month notice period after the Gazette publication plus 3 months before dissolution. An MVL takes 6–12 months depending on the complexity of the company’s affairs. In both cases, final accounts and tax returns must be filed first.
Can I take my retained profits as a capital distribution without an MVL?
Only if the total distribution is £25,000 or less. Above £25,000, a simple strike-off distribution is treated as income (dividend), not capital. You need an MVL to access capital treatment (and BADR at 10%) on amounts above £25,000.
What is Business Asset Disposal Relief?
BADR (formerly Entrepreneurs’ Relief) taxes qualifying capital gains at 10% instead of the standard 20% CGT rate, up to a £1,000,000 lifetime limit. You must have been a 5%+ shareholder and officer for at least 2 years, and the company must have been a trading company throughout.
Can I close my company and start a new one doing the same work?
The Targeted Anti-Avoidance Rule (TAAR) can reclassify your MVL distribution as income if you carry on the same or similar trade within 2 years. If HMRC applies the TAAR, you lose the 10% BADR rate and pay dividend tax (up to 39.35%) on the distribution instead. If you genuinely plan to restart contracting, discuss the timing and structure with your accountant before liquidating.
What happens to my pension if I close my company?
Your pension is entirely separate from your company. SIPP and workplace pensions are held by the pension provider, not the company. Closing your company has no effect on your pension pot, and you can continue contributing personally after closure (though you lose the employer contribution tax advantage).
Should I extract all profits as dividends before closing?
Not necessarily. If you have more than £25,000 in retained profits and qualify for BADR, extracting via an MVL at 10% CGT is almost always cheaper than dividends at 10.75–39.35%. For smaller amounts, the optimal approach depends on your income tax band. Your accountant models both scenarios before you decide.
We model every exit route and tell you exactly which one keeps the most money in your pocket. No guesswork, no surprises.
