Last updated May 15, 2026 and written by Aditi Mohan

How to Close a Limited Company Without Paying Tax

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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!

Key Takeaways

  • Close a dormant or non-trading company through a voluntary strike-off to avoid any tax liability, provided the business has no outstanding debts or assets.
  • Utilise a Members Voluntary Liquidation (MVL) for solvent companies with assets over 25,000 pounds to benefit from tax-efficient distributions to shareholders.
  • Apply for Business Asset Disposal Relief during a formal liquidation to reduce your Capital Gains Tax rate to just 18 per cent on qualifying disposals.
  • Settle all company liabilities and inform HMRC of your intention to cease trading before applying for dissolution to prevent creditors from objecting to the strike-off.
  • Ensure all final tax returns are filed and Corporation Tax is paid on any profits or chargeable gains made from the sale of assets during the winding-up process.
  • Distribute remaining company funds correctly before the business is dissolved to prevent assets from being claimed by the Crown as bona vacantia.
  • Consult with a professional advisor if your company is insolvent, as compulsory liquidation involves strict legal procedures and investigations into director conduct.

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?

Closure Method

Best For

Key Requirements

Tax Implications

Voluntary Strike Off

Small companies that are dormant, never traded, or have ceased trading.

Must be debt-free and up to date with HMRC and Companies House filings.

No tax owed if all obligations are settled before closure.

Members’ Voluntary Liquidation (MVL)

Solvent companies looking for a tax-efficient way to distribute assets.

Company must be able to pay all debts within 12 months. A licensed insolvency practitioner must be appointed.

Business Asset Disposal Relief (10% CGT) may apply if criteria are met.

Compulsory Liquidation

Companies that are insolvent and cannot pay debts.

Usually initiated by creditors through a court order. Directors must cooperate with the liquidator.

Tax obligations will be handled as part of the liquidation. Directors may be investigated.

 

Final Steps to Closing Your Company Tax Efficiently

Before closing your company it’s key to examine your financial status and your future plans. This includes understanding the tax implications of closing your company and how it may affect any future businesses you aim to start. By assessing which type of company dissolution process suits your company best, what profits or losses you may gain and which tax will affect it the most you can close your company efficiently and in an affordable way.

If you are at all unsure about the process, reach out to an accountant, tax advisor, or insolvency practitioner as mistakes can add up!

FAQs

Can I close a limited company if it has no assets or debts?

Yes, the simplest way to close a debt-free company with no assets is through a voluntary strike off, also known as dissolution. You must ensure the business hasn't traded or changed its name in the last three months before submitting form DS01 to Companies House. This is the most cost-effective method for dormant companies or those that have ceased trading.

How do I close my company without paying unnecessary tax?

To close your company tax-efficiently, you should settle all liabilities and notify HMRC to ensure your final corporation tax return is processed correctly. If your company has significant assets, using a Members’ Voluntary Liquidation (MVL) may allow you to benefit from Business Asset Disposal Relief. This can reduce your Capital Gains Tax rate to 18 per cent on qualifying distributions.

What is the difference between a voluntary strike off and liquidation?

A voluntary strike off is an informal process for solvent, debt-free companies to be removed from the register by filing a single form. While using a Members’ Voluntary Liquidation is advisable for this route, it is not compulsory. Liquidation is a more formal legal process required for insolvent companies or for solvent businesses with large sums of cash to distribute. While strike off is cheaper, a formal liquidation provides a cleaner legal break and can offer better tax advantages.

Do I have to pay corporation tax when I close my company?

Your company must pay corporation tax on any trading profits made up until the date of cessation, as well as on any chargeable gains from selling business assets. You are required to file a final company tax return and pay any outstanding tax before the company is formally dissolved. Failing to do this can lead to HMRC objecting to your strike off application.

What happens to the money left in the business bank account?

Any funds or assets remaining in the company at the point of dissolution automatically pass to the Crown, a process known as bona vacantia. To avoid losing your business capital, you must ensure all bank accounts are emptied and assets are distributed to shareholders before the company is officially struck off. This distribution should be handled as either dividends or capital, depending on the amount.

Can a company be reinstated after it has been dissolved?

Yes, a dissolved company can be restored to the register within six years if a creditor or interested party makes a successful application to the court. This usually happens if debts were left unpaid or if assets were not properly distributed. Once restored, the company is treated as if it had never been dissolved, and directors may become liable for its actions again. A company can also be restored following the six year period but through a court order, rather than the regular administrative procedure.