Key takeaways
- A solvent company can be closed by voluntary strike-off (form DS01) or a members' voluntary liquidation (MVL) run by an insolvency practitioner.
- Before a strike-off, total distributions to shareholders of up to £25,000 can be taxed as capital; above that, the whole amount is taxed as a dividend.
- In an MVL, distributions are normally capital, so Business Asset Disposal Relief at 18% may apply.
- Anti-avoidance rules can tax MVL distributions as income if you carry on a similar business within two years.
- Final accounts, a final Corporation Tax return and closing payroll and VAT registrations are needed whichever route you use.
When a company’s work is done, perhaps because the owner is retiring, taking a job or moving on, it needs to be closed properly. How it is closed decides how the money left in it is taxed. For a solvent company, the two main routes are voluntary strike-off and a members’ voluntary liquidation.
Option 1: voluntary strike-off (DS01)
The directors apply to Companies House to remove the company from the register using form DS01. It is cheap and does not need an insolvency practitioner.
Conditions
In the three months before applying, the company must not have:
- traded or carried on business
- changed its name
- sold property or rights it held for trading purposes
- been involved in other insolvency or court proceedings
The process
- Settle debts, collect money owed, and close or plan to close the bank account.
- Prepare final accounts and a final Corporation Tax return, and pay any tax due.
- Close the PAYE scheme and deregister for VAT if registered.
- File form DS01 with Companies House, signed by the directors.
- Send a copy to shareholders, creditors, employees, pension trustees and HMRC within seven days.
- Companies House publishes a notice in the Gazette. If no one objects, the company is dissolved, usually about two months later.
How distributions are taxed on strike-off
Shareholders often take the remaining cash out before the company is struck off. The tax treatment depends on the total:
| Total distributions in anticipation of strike-off | Treatment |
|---|---|
| £25,000 or less | Capital: Capital Gains Tax, with the £3,000 annual exempt amount and possibly Business Asset Disposal Relief |
| More than £25,000 | The whole amount is a dividend, taxed at up to 39.35% |
The £25,000 limit applies to the total distributed, not per shareholder. If more than £25,000 remains, an MVL is usually more tax-efficient.
Any assets still in the company when it is dissolved pass to the Crown as bona vacantia, so make sure everything is distributed or disposed of first.
Option 2: members’ voluntary liquidation (MVL)
An MVL is a formal solvent liquidation. The directors swear a declaration of solvency that the company can pay its debts within 12 months, the shareholders pass a resolution to wind up, and a licensed insolvency practitioner is appointed as liquidator.
Tax on MVL distributions
Distributions by a liquidator are generally capital, so shareholders pay Capital Gains Tax rather than dividend tax. If the conditions are met, Business Asset Disposal Relief taxes the gain at 18% from April 2026, up to the £1 million lifetime limit. Shareholders must have held at least 5% and been officers or employees for two years, and the distribution should normally be made within three years of the company ceasing to trade. See Business Asset Disposal Relief.
Example
Tom’s company has £150,000 of cash after all liabilities. He has used none of his BADR limit and the company qualifies.
| Route | Tax treatment | Approximate tax |
|---|---|---|
| Strike-off with £150,000 distributed | Whole amount a dividend, mostly at higher rates | Over £40,000 |
| MVL | Capital gain of about £149,000 (after a nominal share cost), taxed at 18% with BADR after the £3,000 exemption | About £26,300 |
The MVL costs more to run, but on these figures it saves well over £10,000 even after fees. The exact saving depends on Tom’s other income and the liquidator’s fees.
The targeted anti-avoidance rule
A distribution in a winding up can be taxed as income instead of capital if:
- you held at least 5% of the company
- the company was a close company in the two years before the winding up
- within two years of the distribution, you carry on the same or a similar trade or activity, as a sole trader, partner or through another company
- the main purpose, or one of the main purposes, of the arrangements is to obtain a tax advantage
The rule targets “phoenixing”: closing a company to extract profits as capital and then carrying on the same business in a new one.
Tax and admin checklist for closing
- final accounts and a final CT600; the accounting period ends when the company stops trading or the liquidation begins
- pay any Corporation Tax, PAYE and VAT due
- close the PAYE scheme and send final payroll submissions
- deregister for VAT and file a final VAT return; see VAT deregistration
- deal with any director’s loan account; an overdrawn balance written off is taxable
- keep company records for six years after dissolution
Frequently asked questions
How much can I take out of my company tax-free when closing it?
There is no tax-free amount as such, but on a strike-off total distributions of up to £25,000 can be taxed as capital, using your £3,000 annual exempt amount and possibly Business Asset Disposal Relief.
When should I use an MVL instead of striking off?
Usually when more than £25,000 of reserves would be distributed, because MVL distributions are taxed as capital and may qualify for Business Asset Disposal Relief at 18%.
How long does a voluntary strike-off take?
Typically around three months: the Gazette notice is published soon after the DS01 is filed, and the company is dissolved about two months later if no one objects.
Can a dissolved company be restored?
Yes. A company can usually be restored to the register within six years of dissolution, for example if assets were overlooked.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance in October 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.