How to Close a Limited Company Without Paying Tax

Knowing how to close a limited company without paying tax can be very beneficial when the time comes to dissolve your venture. This process can help you avoid any unnecessary tax liabilities and make the company dissolution process as efficient as possible.

In this guide, we’ll explain the best way to close your company without incurring additional taxes. We’ll explore the different methods of closing your company and highlight any common pitfalls you should avoid. Let’s get into it!

Methods of Closing a Limited Company

You may be wondering: how do I close my company? There are a few methods to approach this, but it depends on the status of your company and whether it is solvent or insolvent. 

Strike off (Voluntary Dissolution)

A strike-off is the simplest and cheapest way to close a limited company with Companies House, but it is only available to businesses that:

• Have not traded or changed names in the last three months
• Have no outstanding debts or liabilities
• Are not facing legal action or insolvency proceedings

To apply for a strike-off, the directors must submit a DS01 form to Companies House, signed by the majority of directors. Once received, Companies House will publish a notice in The Gazette, giving creditors and other interested parties two months to object. If no objections are raised, the company will be removed from the register and officially dissolved.

While this process is straightforward, directors must ensure all liabilities are settled before applying. If a company with outstanding debts is struck off, creditors can apply to reinstate it, leading to legal and financial consequences.

Members’ Voluntary Liquidation (MVL)

Members’ Voluntary Liquidation (MVL) is the best option for solvent companies that have ceased trading and want to close in an orderly manner while distributing assets to shareholders.

MVL is often used for tax efficiency, as distributions to shareholders may qualify for Entrepreneurs' Relief (Business Asset Disposal Relief), resulting in lower Capital Gains Tax rates.

However, directors must be certain of the company’s solvency, as any misrepresentation can lead to serious legal consequences.

Compulsory Liquidation 

Of course, if your company is insolvent, your main option is compulsory liquidation. Compulsory liquidation occurs when a court orders a company to be wound up, usually after a creditor (or another interested party) files a winding-up petition due to unpaid debts of £750 or more.

The process follows these steps:

• A creditor applies to the court for a winding-up order
• If granted, an official receiver or insolvency practitioner is appointed to liquidate the company
• Assets are sold, and proceeds are used to repay creditors as far as possible

Unlike voluntary methods, compulsory liquidation is a legal enforcement process and can have severe consequences for directors, including restrictions on future business activities if misconduct is found.

Closing your company can be a delicate process, it’s crucial to get it right or you could face complications and even financial penalties down the line. Therefore, it's advisable to consult with a professional if you are at all unsure about the dissolution process. With Companies Made Simple, our experts can prepare, file and submit your company dissolution guaranteeing your company can close without complications. 

Tax Implications of Closing a Limited Company

When closing a limited company you will have a few tax obligations before, during and after the process. Most business owners may be wondering what role Corporation Tax and Capital Gains Tax play, and whether you have to pay corporation tax when you close your company. Let us clarify how it works.

If your company has never traded or carried out any significant financial transactions, you can close it down easily through a voluntary strike-off, with no tax to pay.

On the other hand, if your company has traded in the past but is up to date with tax payments and has been dormant for some time, you can still opt for a voluntary strike-off without facing any tax liabilities.

If your company is being ‘wound up’ (closing due to insolvency) your company must continue to file a Company Tax Return and pay Corporation Tax on taxable profits which come from:

• Trading income, such as investment income. 
• The sale of any goods or assets (known as chargeable gains)

Secondly, if your company ceases trading and you sell its assets separately your company will be liable to pay Corporation Tax on any chargeable gains and other profits gained from disposing of the assets.

There will also be a tax impact on your company’s shareholders. You’ll be liable for personal tax on profits if you’re a shareholder and have profits over £25,000. If your profits are up to £25,000 or less then all shareholders will pay the applicable tax rate of Capital Gains Tax.

There is an annual CGT allowance – the amount of gains that can be made without being subject to any tax. This currently stands at £3,000 in the tax year 2024-25.

Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief) can help eligible directors pay less tax when selling or closing their company. Instead of the usual Capital Gains Tax (CGT) rates, this relief allows you to pay just 10% CGT on qualifying disposals. To benefit, you typically need to own at least 5% of the company’s shares and voting rights.

Before applying to strike off a limited company you should notify HMRC of your plans to close it down and inform them of the date your company will cease trading. 

Common Pitfalls to Avoid When Closing a Company 

Closing a company may seem straightforward, but mistakes can lead to unnecessary stress, delays, or even financial penalties. Some common pitfalls include:

• Not settling outstanding debts: Creditors can object to your company being struck off if money is still owed.
• Failing to inform HMRC: Even if your company is no longer trading, you must notify HMRC and file any final tax returns to avoid potential fines.
• Incorrectly distributing assets: Any remaining company funds or assets should be properly accounted for and distributed before closure. Otherwise, they could become the property of the Crown.

If you’re unsure about any step in the process, it’s always a good idea to seek advice from a tax advisor or legal expert to ensure everything is handled correctly.

Comparing Options: Which Is Best for Your Business?