How to close a limited company

Closing a limited company in the UK

There are four main ways to close a limited company in the UK. The right one depends on your company’s financial position, the level of debt it has, and whether creditors are actively pursuing payment. The right closure method depends on one key question: is your company solvent or insolvent?

If your company can pay all its debts in full, you can use a straightforward dissolution or else opt for Members’ Voluntary Liquidation (MVL) if you have significant assets to distribute to shareholders.

If the company cannot repay its debts, you’ll need a formal insolvency procedure — usually a Creditors’ Voluntary Liquidation (CVL) in order to wind down the business in an orderly and compliant manner.

Company closure options at a glance:

Let's have a look at each option in more detail.

Closure Option 1: Strike Off/Dissolving a Company

Strike off, also known as voluntary dissolution, is the simplest and cheapest way to close a limited company you no longer want. You apply to Companies House using a DS01 form, and after a waiting period, the company is removed from the register and ceases to exist as a legal entity.

While this may sound like an ideal option, strike off is only appropriate for certain companies in certain situations. This is because, outstanding creditors can submit an objection to your strike off application if they are owed money from your company. Therefore strike off should only be attempted if your company is able to pay all its debts in full, including any tax liabilities, before closure.

In order to qualify for strike off, your company must meet the following criteria:

• The company must have stopped trading at least three months before the DS01 application is submitted
• There must be no active threats of liquidation or formal creditor arrangements (such as a CVA) in place
• The company must not have changed its name in the previous three months
• All outstanding tax liabilities, including corporation tax, VAT, and PAYE, must be settled in full with HMRC
• All employees must have been properly dealt with which includes making any owed redundancy payments, outstanding wages, or accrued holiday pay

Closure Option 2: Making the company dormant

If you no longer require your company but you're uncertain as to whether you may want to resume trading in the future, making it dormant is an alternative worth considering. A dormant company remains on the Companies House register but all trade stops. This can be a good option if you want to protect the company name for potential future use, or if you’re taking a break from trading but may want to restart later.

There are some small administrative requirements which must be fulfilled while a company is registered as dormant. These include:

• You must file dormant annual accounts with Companies House, including a balance sheet and relevant notes
• You must file a confirmation statement each year
• You should notify HMRC that the company is dormant

Making a company dormant is only possible if it’s solvent and doesn’t owe money to creditors. If there are outstanding debts, you’ll need to deal with those before the company can be registered as dormant. We cover the pros and cons in detail in our guide to closing your company vs leaving it dormant.

Closure Option 3: Creditors’ Voluntary Liquidation (CVL)

If your company is insolvent, meaning it cannot pay its debts as they fall due, or its liabilities (debts) exceed its assets, a Creditors’ Voluntary Liquidation (CVL) is likely to be the most appropriate way to close it down.

A CVL is a formal insolvency procedure which can only be entered into by a licensed insolvency practitioner (IP). A CVL allows you to close an insolvent company in an orderly way, ensures creditors are treated fairly, and demonstrates a desire to adhere to your legal duties as the director of an insolvent company.

As part of the liquidation process, all assets belonging to the company will be sold by the appointed insolvency practitioner who will then use these funds to repay outstanding creditors as far as possible. Any debts which remain after this will be written off and the company will be struck off the Companies House register.

The exception to this, is if you have personally guaranteed any of the company's borrowing. If personal guarantees exists, these will crystalise at the point of liquidation, and you will become responsible for repaying the remaining balance. If you have personally guaranteed any borrowing of an insolvent company, you should make it a priority to discuss this with an insolvency practitioner to better understand your position.

Closure Option 4: Members’ Voluntary Liquidation (MVL)

If your company is solvent and has significant assets to distribute, typically more than £25,000, a Members’ Voluntary Liquidation (MVL) is often the most tax-efficient way to close it down and extract the remaining value.

In an MVL, the directors sign a Declaration of Solvency confirming the company can repay all its debts (along with any associated interest) within 12 months. A liquidator is appointed, assets are sold, creditors (if any) are paid in full, and any surplus is then distributed to shareholders.

Distributions taken via an MVL are classed as capital gains rather than income and are taxed accordingly. Business Asset Disposal Relief can often reduce the tax burden even further.

How do I decide which closure route is right for my company?

The decision on how to best close your limited company comes down to three key questions:

1. Is your company solvent or insolvent?

• If the company is solvent and has assets above £25,000 to distribute to shareholders, an MVL is likely to be the most cost-effective and tax-efficient way of closure
• If the company is solvent and has minimal assets, opting for voluntary dissolution (strike off) via the DS01 form may be the quickest and cheapest way to achieve closure
• If the company is insolvent and has significant debts it cannot repay, formal liquidation by way of a CVL under the guidance of a licensed insolvency practitioner is usually the most appropriate route

2. Do you want to close the company permanently or keep the option to trade again?

• If you are happy with permanent closure then you can choose between dissolution, MVL, or CVL depending on the financial position of the company
• If you might trade again and want to leave the door open, you should consider making the company dormant. Please note this should only be considered if the company is solvent and has no outstanding creditors

3. Are creditors already putting pressure on your company?

• If you’ve received a statutory demand or winding-up petition, you need to act quickly. At this stage, a CVL or administration may be the only realistic options open to you
• If creditors are chasing your company for payment but haven’t taken formal action yet, there may be more options open to you and therefore speaking to a licensed insolvency practitioner should be a priority

How BTG Begbies Traynor can help

If you are considering closing your limited company and are confused about your options, BTG Begbies Traynor are here to help. With over 70 licensed insolvency practitioners, we are here to provide expert help and advice whenever you need it. Speak to a member of our team today.