Pillar Guide · Updated June 2026

Closing a Limited Company UK 2026/27: MVL vs Strike Off

When it is time to wind up a limited company, the route you choose determines how much tax you pay on the money you extract. A simple voluntary strike-off costs under GBP100 but treats distributions as dividends unless reserves are below GBP25,000. A Members' Voluntary Liquidation (MVL) involves a licensed insolvency practitioner but converts retained profits into capital gains -- potentially taxed at 18% under Business Asset Disposal Relief (BADR) rather than the 39.35% top dividend rate. This guide explains both routes, the tax on final distributions, BADR eligibility, what to do with creditors, and the practical steps from resolution to dissolution.

Last updated: 20 June 2026Last reviewed: 20 June 2026How we verify

Your Options

A solvent company -- one that can pay all its debts in full -- has two main closure routes:

Factor	Voluntary strike-off	MVL
Cost	GBP33 (Companies House fee)	GBP1,000 -- GBP3,000+ IP fees
Distributions treated as	Income (dividends) if >GBP25,000	Capital gains
BADR available	Not on income distributions	Yes, if qualifying
Insolvency practitioner required	No	Yes
Typical duration	2 -- 3 months	3 -- 6 months

An insolvent company has a third route: a Creditors' Voluntary Liquidation (CVL), where an insolvency practitioner is appointed to wind up the company and distribute assets to creditors in the statutory order. Shareholders rarely receive anything in a CVL.

Members' Voluntary Liquidation

An MVL is the preferred route for most owner-managed companies with retained profits above GBP25,000. The process begins with directors signing a Declaration of Solvency -- a statutory declaration that the company can pay all its debts, including interest, within 12 months. This must be sworn before a solicitor or commissioner for oaths and filed at Companies House within five weeks of the winding-up resolution.

Shareholders then pass a special resolution (75% majority) to wind up and appoint a licensed insolvency practitioner as liquidator. The liquidator takes control of the company, realises assets, pays creditors (HMRC, suppliers, any other liabilities), and makes capital distributions to shareholders from the surplus.

Because the liquidator is an officer of the court and must advertise in the London Gazette, creditors have the opportunity to come forward. This protects directors from personal liability for debts they overlooked. Once all liabilities are settled and distributions made, the liquidator files final accounts at Companies House and the company is dissolved.

Voluntary Strike Off

Voluntary strike-off is available to any company that has not traded in the last three months and has no outstanding HMRC liabilities, court proceedings, or creditor claims. Directors apply using form DS01, which requires a majority of directors to sign. Companies House advertises the proposed strike-off in the Gazette, giving creditors and HMRC two months to object.

The critical tax point is the GBP25,000 threshold. If the total of distributions made at or around the time of winding up does not exceed GBP25,000, those distributions can be treated as capital rather than income -- the old ESC C16 concession now enacted in s.1030A CTA 2010. Where the total exceeds GBP25,000, all distributions are taxed as dividends regardless of how they were structured.

Practically, this means strike-off is suitable for companies with small retained profits where the simplicity and low cost outweigh the income tax treatment. For anything material above GBP25,000, an MVL almost always produces a better after-tax outcome.

Tax on Final Distributions

How the final distribution is taxed depends on the route:

Route and rate	Basic-rate taxpayer	Higher-rate taxpayer	Additional-rate taxpayer
Dividend (strike-off >GBP25k)	8.75%	33.75%	39.35%
Capital gain -- no BADR	10%	20%	20%
Capital gain -- with BADR	18%	18%	18%

The capital gain in an MVL is the distribution received less the shareholder's base cost in the shares. The annual exempt amount of GBP3,000 reduces the gain before applying rates. Any gain reported on self-assessment is added to your income to determine whether it falls in the basic or higher-rate band, so the split between the two CGT rates depends on how much taxable income you have in the year.

Note that BADR was increased from 10% to 18% in October 2024 (Autumn Budget). The 18% BADR rate applies in 2026/27 and is the figure to use in all planning scenarios.

BADR Eligibility

Business Asset Disposal Relief reduces CGT to 18% on qualifying gains up to a GBP1,000,000 lifetime limit. For company shares, the conditions are:

You have held at least 5% of ordinary share capital and 5% of voting rights for at least two years ending on the date of disposal (or the date the company ceased to trade, whichever is earlier)
The company is your personal trading company -- a trading company or the holding company of a trading group, in which you hold the 5% qualifying interest
Throughout that two-year period the company has been a trading company (not mainly investment)

An MVL distribution is treated as a disposal for BADR purposes. Where a company has ceased trading before the MVL begins, HMRC allows the two-year period to be measured to the date trading ceased rather than the date of distribution, which can be important where there is a gap between cessation and the MVL completing.

The lifetime limit of GBP1,000,000 is cumulative across all BADR claims you have ever made. If you have previously claimed BADR on a business sale, check how much of your lifetime limit remains before relying on it for the company closure.

Creditors' Voluntary Liquidation

A CVL is used when a company is insolvent and cannot pay all its debts. Directors who continue trading while knowingly insolvent risk personal liability for wrongful trading, so if the company is in financial difficulty the CVL route should be considered promptly.

Shareholders vote to wind up (a simple majority suffices in practice, though technically a special resolution is used), and an insolvency practitioner is appointed as liquidator. Creditors have the right to appoint their own choice of liquidator, but in most small insolvent companies the shareholders' nominee is accepted.

The liquidator's job is to collect assets, investigate the directors' conduct, and distribute funds in the statutory priority order: secured creditors first, then preferential creditors (employee wages up to 8 weeks and holiday pay), then the prescribed part for unsecured creditors, then unsecured creditors generally, and finally shareholders. Director loans are treated as unsecured creditor claims. There is usually nothing left for shareholders.

Steps to Close Your Company

Whether closing by MVL or strike-off, the pre-closure housekeeping is similar:

Cease trading and notify customers, suppliers and any staff. Handle redundancy obligations if there are employees.
Collect outstanding debtors and settle all liabilities including HMRC (PAYE, VAT, corporation tax). File all outstanding tax returns.
Close business bank accounts and transfer balances to a designated winding-up account, or draw down as salary/dividends before the formal process begins.
Deregister for VAT and submit a final VAT return. Close the PAYE scheme with a final EPS submission.
Prepare final accounts to the date of cessation. File the final corporation tax return and pay any tax owed.
Choose your route -- MVL if reserves exceed GBP25,000 and you want capital treatment; strike-off if below GBP25,000 or company has minimal assets.
For MVL: obtain Declaration of Solvency, pass special resolution, appoint liquidator. For strike-off: submit DS01 to Companies House.
Report distributions on your personal self-assessment return for the year in which they are received.

If you plan to restart a similar business after closing, be aware of the targeted anti-avoidance rules (TAAR) that can reclassify capital distributions as income if you recommence the same trade within two years.

Official References

FAQs

What is the cheapest way to close a solvent limited company?

For most small solvent companies with reserves under GBP25,000, voluntary strike-off via form DS01 is the cheapest route -- the Companies House fee is GBP33 online. If reserves are above GBP25,000, a Members' Voluntary Liquidation (MVL) is usually more tax-efficient even though it involves a licensed insolvency practitioner (IP) whose fees typically range from GBP1,000 to GBP3,000 plus VAT. The tax saving from treating distributions as capital gains (potentially at 10% with BADR, or 18% without) rather than income dividends (up to 39.35%) usually far outweighs the IP fee once reserves exceed GBP25,000 to GBP30,000.

What is a Members' Voluntary Liquidation (MVL)?

An MVL is a formal, court-free winding-up process available to solvent companies -- that is, companies that can pay all their debts in full within 12 months. Directors must sign a Declaration of Solvency before the process begins, confirming the company can meet all its liabilities including contingent ones. Shareholders then pass a special resolution to wind up and appoint a licensed insolvency practitioner as liquidator. The liquidator realises assets, pays creditors, and distributes the surplus to shareholders. Distributions in an MVL are treated as capital (not income) in the hands of shareholders, potentially qualifying for BADR at 18% in 2026/27.

What is the GBP25,000 threshold for strike-off distributions?

Distributions made during or shortly before a company striking off are treated as income dividends -- not capital -- unless the total distributions at the time of winding up do not exceed GBP25,000. Where the total exceeds GBP25,000, all distributions (not just the excess) are taxed as dividends under anti-avoidance rules in s.1030A CTA 2010. This is sometimes called the "ESC C16 threshold" after the old HMRC extra-statutory concession it replaced. It means that for most owner-managed companies with retained profits above GBP25,000, an MVL is the tax-preferred route even after paying the IP fee.

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What is Business Asset Disposal Relief and does it apply to company closures?

Business Asset Disposal Relief (BADR, formerly Entrepreneurs' Relief) reduces the CGT rate to 18% on qualifying gains up to the lifetime allowance. For shares in a personal company, you qualify if you have held at least 5% of ordinary shares and voting rights for at least two years ending on the date of disposal (or date the company ceased to trade, if earlier), and the company was your personal trading company during that period. In 2026/27 the BADR rate is 18% (changed from 10% in October 2024). The lifetime limit remains GBP1,000,000 of qualifying gains. BADR can apply both to an MVL distribution treated as a capital gain and to a straightforward share sale.

How are final distributions taxed in an MVL?

In an MVL the liquidator's distributions to shareholders are capital distributions, reducing the shareholder's base cost in the shares and creating a capital gain on the excess. The gain is calculated as the distribution received less the original cost of the shares. If BADR applies, the gain is taxed at 18%. Without BADR, the rates in 2026/27 are 18% (basic-rate taxpayer) or 24% (higher/additional-rate taxpayer) for residential property gains, but for company shares the standard "other assets" rates apply: 10% basic, 20% higher -- or 18% with BADR. The annual exempt amount of GBP3,000 also reduces the gain.

Can I simply pay myself a large dividend before striking off instead of using an MVL?

Only if total distributions do not exceed GBP25,000. Above that threshold, the dividend approach fails the s.1030A test and HMRC taxes all distributions as income. Even below GBP25,000, a large final dividend is taxed at dividend rates (8.75% basic, 33.75% higher, 39.35% additional) rather than the CGT rates available in an MVL. For amounts well below GBP25,000 a final dividend before strike-off can make sense, especially if you have unused personal allowance or the dividend allowance (GBP500 in 2026/27) to absorb some of it. For larger sums the MVL route is almost always preferable.

What is a Creditors' Voluntary Liquidation (CVL) and when is it used?

A CVL is used when a company is insolvent -- unable to pay its debts as they fall due, or with liabilities exceeding assets. Directors cannot sign a Declaration of Solvency, so an MVL is not available. Instead, shareholders pass a special resolution to wind up and creditors appoint a liquidator (though in practice shareholders' nominee is usually accepted). The liquidator's priority is to realise assets and pay creditors in the statutory order: secured creditors first, then preferential creditors (employee wages up to 8 weeks, holiday pay), then unsecured creditors. Shareholders receive anything left, which in an insolvent scenario is usually nothing.

What happens to PAYE, VAT and corporation tax when I close my company?

You must notify HMRC of the closure of each tax registration. For PAYE, run the final payroll, submit an EPS marked as a final submission, and deregister. For VAT, file a final return covering trading up to the deregistration date and cancel your VAT registration. For corporation tax, file a final CT600 for the accounting period ending on the last day of trading, pay any tax owed, and ensure the company is removed from the register only after HMRC confirms no outstanding liabilities. An MVL liquidator will typically handle all of these, but a strike-off requires you to do them yourself before submitting DS01.

Do I need HMRC clearance before closing my company?

There is no mandatory HMRC pre-clearance for most closures, but for an MVL the liquidator will write to HMRC and other creditors as part of the statutory process, giving them the opportunity to raise any outstanding liabilities before final distributions are made. For a simple strike-off you do not need formal clearance, but you should ensure all tax returns are filed and all tax debts are paid before applying to Companies House. HMRC is a statutory creditor and can object to a strike-off if returns or payments are outstanding. If you have complex affairs -- for example, an EMI share option scheme or R&D credits under review -- advance clearance may be prudent.

What are the main steps to close a company by MVL?

The typical MVL process runs as follows. First, ensure all trading has ceased, all debts are paid and final accounts and tax returns are up to date. Second, obtain a written Declaration of Solvency from the directors, which must be sworn before a solicitor or commissioner for oaths. Third, pass a special resolution (requiring 75% of shareholders by value) to wind up voluntarily and appoint a licensed insolvency practitioner as liquidator. Fourth, the liquidator notifies HMRC, Companies House and the Gazette, realises any remaining assets, settles any final creditor claims, and makes capital distributions to shareholders. Fifth, the liquidator files final accounts at Companies House, applies to dissolve the company, and the company is struck off the register -- typically three to six months after the resolution.

Can I reopen or restart a similar business after closing my company?

Yes, subject to restrictions. There is no general bar on starting a new company in a similar field after closing an old one. However, if HMRC considers the closure was structured to avoid tax (for example, extracting retained profits as capital gains and immediately restarting the same trade), it may apply the "transactions in securities" or "phoenixism" anti-avoidance rules to reclassify the capital distribution as income. HMRC published guidance (TAAR) in Finance Act 2016 that targets exactly this pattern: if you close a company and within two years start a similar trade with the same customers, suppliers and staff, the distributions may be taxed as income regardless of the route used. Taking at least two years off before resuming a similar trade is the conventional safe harbour.

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About the author

Emma Clarke

UK Tax Writer

Emma Clarke has been writing about UK personal tax since 2018, with a particular focus on Self Assessment, PAYE coding and the practical mechanics of how HMRC actually applies the rules to ordinary salaries. Her work concentrates on translating the dense language of HMRC manuals and Finance Act schedules into worked examples that show, pound by pound, how income tax and National Insurance reduce a gross salary to the figure that lands in a UK bank account. Emma covers the full PAYE lifecycle: tax codes (1257L, BR, K codes, emergency codes), the Marriage Allowance, the High Income Child Benefit Charge, salary sacrifice arrangements and their effect on pensionable pay, the Apprenticeship Levy, and the differences between the rUK and Scottish income-tax regimes. She is particularly interested in the edge cases that catch PAYE employees out — the £100,000 personal-allowance taper, the 60% effective marginal rate it creates, and the interaction between student-loan plans and pension contributions. Every figure in Emma's articles is verified against the current HMRC rates pages and worked through a Self Assessment calculation by hand before publication. She writes to CalcHub's editorial standards: primary-source citations, plain English, no promotional language, and clear "this is general information, not financial advice" disclaimers where appropriate.

Personal-finance writer since 2018
UK tax specialism — PAYE, Self Assessment, National Insurance
Writes to CalcHub editorial standards (primary-source citation, annual review)

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Disclaimer: This guide reflects 2026/27 UK tax rules for closing a limited company. BADR rates, CGT rates, and TAAR rules change at fiscal events. Insolvency legislation is complex and personal circumstances vary. Always consult a licensed insolvency practitioner and a qualified tax adviser before proceeding, and verify current rules on gov.uk.