How to Close a Limited Company: MVL, Strike Off & Dissolution Options
By Sardar Muhammad, AAT • • 11 min read
📋 Quick Comparison
- Strike off: Cheapest (£10), for companies with <£25k assets
- MVL: Best for assets >£25k, 10-20% CGT (not dividend tax)
- Compulsory liquidation: For insolvent companies with debts
Why Would You Close a Company?
There are several reasons directors choose to close their limited company:
- Retirement
- Moving abroad
- Starting a new business
- Converting to sole trader
- Company no longer trading
- Extracting profits tax-efficiently before closing
Option 1: Strike Off (Dissolution)
The simplest and cheapest way to close a company is voluntary strike off using form DS01.
✓ Best for companies with:
- Assets under £25,000
- No outstanding debts
- No legal actions pending
- Not traded in last 3 months
Strike Off Process
- Stop trading for at least 3 months
- Settle all debts – HMRC, suppliers, loans
- Distribute remaining assets to shareholders (under £25k)
- File final accounts and tax returns
- Submit DS01 form to Companies House (£10 online)
- Notify stakeholders – HMRC, employees, creditors
- Wait 2 months for objection period
- Company dissolved from the register
⚠️ The £25,000 Trap
If you have more than £25,000 in assets and use strike off, the distribution is treated as a dividend and taxed at up to 39.35%. With an MVL, it's taxed as capital gains at just 10-20%. The difference can be thousands of pounds.
Option 2: Members Voluntary Liquidation (MVL)
An MVL is a formal liquidation process for solvent companies (companies that can pay their debts). It allows you to extract company funds as capital rather than dividends.
MVL Tax Benefits
❌ Strike Off (Dividend Tax)
£100,000 distribution
Basic rate: 8.75% = £8,750
Higher rate: 33.75% = £33,750
Additional: 39.35% = £39,350
✓ MVL (Capital Gains Tax)
£100,000 distribution
With BADR: 10% = £10,000
Without BADR: 20% = £20,000
Savings: up to £29,350!
Business Asset Disposal Relief (BADR)
Formerly "Entrepreneurs' Relief", BADR gives you a 10% CGT rate on the first £1 million of lifetime gains. To qualify:
- You've been a director or employee
- You've owned at least 5% of shares
- For at least 2 years before liquidation
- The company was a trading company
MVL Process
- Directors sign declaration of solvency – stating company can pay debts
- Appoint licensed insolvency practitioner
- Pass special resolution at general meeting
- Advertise in Gazette
- Liquidator collects assets and pays debts
- Distribute remaining funds to shareholders
- Company dissolved
MVL Costs
Typical costs range from £2,000 to £5,000 depending on complexity. This includes:
- Insolvency practitioner fees
- Filing fees
- Advertising costs
- Final accounts preparation
The tax savings usually far exceed the costs – sometimes saving £20,000+ on a £100,000 distribution.
Option 3: Compulsory Liquidation
This applies to insolvent companies that cannot pay their debts. It can be:
- Creditor petition: Creditors apply to wind up the company
- Director petition: Directors apply when unable to pay debts
This is a complex process requiring specialist insolvency advice.
Which Option Should You Choose?
| Situation | Best Option |
|---|---|
| Assets under £25k, no debts | Strike off (DS01) |
| Assets £25k-£50k, want simplicity | Consider MVL vs dividend |
| Assets over £50k | MVL (significant tax saving) |
| Insolvent (can't pay debts) | Creditors Voluntary Liquidation |
Before You Close: Final Checklist
- ☐ File final VAT return and deregister
- ☐ Complete final PAYE submission
- ☐ File final corporation tax return
- ☐ File final annual accounts
- ☐ Notify HMRC of closure
- ☐ Pay all outstanding taxes
- ☐ Cancel business insurance
- ☐ Close bank accounts (after all cleared)
- ☐ Keep records for 6 years
Frequently Asked Questions
What is the cheapest way to close a company?
The cheapest method is voluntary strike off (DS01 form) which costs just £10 online. However, this only works if your company has assets under £25,000 and no debts. For larger assets, an MVL is more tax-efficient.
What is an MVL (Members Voluntary Liquidation)?
An MVL is a formal liquidation process for solvent companies. It allows you to extract company funds as capital (taxed at 10-20%) rather than dividends (taxed up to 39.35%). Typically costs £2,000-£5,000.
How long does it take to close a company?
Strike off takes 3-6 months (2 month notice period plus processing). An MVL typically takes 6-12 months depending on complexity. Compulsory liquidation varies by case.
Need Help Closing Your Company?
I can help you choose the best option for your situation and handle the final accounts and tax returns. Get it right and save thousands.
Sardar Muhammad, AAT Certified
Sardar is an AAT certified accountant and founder of LimeTree Accounting Solutions in Glasgow. He helps business owners close their companies tax-efficiently and handles all the compliance requirements.