If you close a solvent limited company through a members’ voluntary liquidation (MVL), what the shareholders receive is usually taxed as a capital gain, often at 18% with Business Asset Disposal Relief. An informal strike off costs far less, but it only keeps capital treatment if total distributions are £25,000 or less. Above that, the whole amount is taxed as a dividend. Before you choose, check the two year anti avoidance rule for anyone planning a similar business.
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What are the two ways to close a solvent company?
A company that can pay all its debts has two main exits. In an informal strike off, the directors settle the company’s affairs, pay out what is left to the shareholders and apply to Companies House on form DS01. In a members’ voluntary liquidation, the directors make a declaration of solvency confirming the company can pay its debts, with interest, within 12 months. The shareholders then resolve to wind up and appoint a licensed insolvency practitioner as liquidator.
How are distributions taxed in an MVL?
Under section 1030 of the Corporation Tax Act 2010, a distribution made in respect of share capital in a winding up is not treated as an income distribution. The shareholder is treated as disposing of their shares, so the payments fall within Capital Gains Tax rather than dividend tax.
That opens the door to Business Asset Disposal Relief. For disposals on or after 6 April 2026 the rate is 18% (it was 14% for 2025/26), subject to a £1 million lifetime limit on qualifying gains. You normally need to have held at least 5% of the shares and voting rights and been an officer or employee for two years. If the company has already stopped trading, relief can still apply to distributions received within three years of it ceasing to be a trading company, provided you met the conditions for the two years before that date.
Without the relief, gains above the £3,000 annual exempt amount are taxed at 18% within the basic rate band and 24% above it.
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What is the £25,000 strike off limit?
Extra Statutory Concession C16 used to allow capital treatment on a strike off. From 1 March 2012 it was replaced by section 1030A of the Corporation Tax Act 2010, which added a hard cap.
A distribution made in anticipation of a strike off is treated as a capital distribution only if the total distributions do not exceed £25,000 and the company intends to collect its debts and pay its liabilities. If the company is not dissolved within two years of the distribution, normal income treatment applies.
The cap is not a tax free band. If total distributions exceed £25,000, the whole sum, not just the excess, is taxed at dividend rates: 10.75%, 35.75% or 39.35% for 2026/27.
What happens to money left in the company?
Anything still owned by the company when it is struck off, including cash at the bank and later tax refunds, passes to the Crown. Close the bank account and deal with every asset before you apply.
Illustrative comparison: MVL or strike off?
Illustration only. A sole shareholder director has £45,000 of cash left after all debts and Corporation Tax are paid, and nominal share capital. Their other income already uses the basic rate band, and they meet the Business Asset Disposal Relief conditions. Figures are for 2026/27 and ignore liquidator’s fees.
- Strike off: the £45,000 exceeds the £25,000 cap, so it is all a dividend. After the £500 dividend allowance, £44,500 at 35.75% is about £15,909 of tax.
- MVL with relief: a gain of about £45,000, less the £3,000 annual exempt amount, taxed at 18% is about £7,560.
- MVL without relief: the same gain at 24% is about £10,080.
In this example the MVL saves roughly £8,350 before fees, so the liquidator’s quote decides whether it is worth it.
How much does an MVL cost?
An MVL costs more because a licensed insolvency practitioner must act. Fees vary with the size and complexity of the company, plus Gazette notices and statutory filings. Get quotes and compare them with the tax saving. A strike off only needs a small Companies House filing fee.
What is the targeted anti avoidance rule for phoenix companies?
Since 6 April 2016, section 396B of the Income Tax (Trading and Other Income) Act 2005 can turn a capital distribution in a winding up into income. It applies where all four conditions are met:
- you held at least 5% of the ordinary share capital and voting rights just before the winding up;
- the company was a close company when wound up, or at any time in the two years before;
- within two years of the distribution you carry on, or are involved with, a trade or activity that is the same as or similar to the company’s; and
- it is reasonable to assume that a main purpose of the winding up was to avoid or reduce Income Tax.
The rule does not tax the part of a distribution that simply returns your base cost. A contractor who closes one company and opens another doing the same work soon afterwards is the classic target. HMRC’s Spotlight 47 warns that schemes claiming to sidestep the rule do not work.
What about an overdrawn director’s loan?
If a director owes the company money on their director’s loan account at a year end and has not repaid it within nine months, the company pays section 455 tax on the outstanding balance: 35.75% for loans made on or after 6 April 2026 and 33.75% for loans made before then (see our guide to close company rules). It can be reclaimed once the loan is repaid, written off or released, but only from nine months and one day after the end of the accounting period in which that happened. Clear the loan account before closure.
What are the final tax and Companies House steps?
- Strike off: send final statutory accounts and a Company Tax Return to HMRC, pay all Corporation Tax and other taxes, close the payroll, then file form DS01 signed by a majority of the directors. Companies House publishes a notice in The Gazette and, if nobody objects within two months, the company is dissolved.
- MVL: the directors’ declaration of solvency goes to Companies House within 15 days of the winding up resolution, which must be advertised in The Gazette within 14 days. The start of the winding up ends the current Corporation Tax accounting period and a new one begins, so returns continue until the company closes.
Could HMRC open an enquiry into a company closure?
Yes. HMRC can enquire into the final Company Tax Return and into the shareholders’ own returns, particularly where capital treatment or Business Asset Disposal Relief has been claimed or where a similar business starts up soon after. Solar Protect tax investigation insurance covers up to £100,000 of accountant’s fees with no excess. Read more about how our tax investigation insurance works. Get a quote for tax investigation cover today.
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Reviewed by Matthew Bartlett, Director, Solar Protect. Last reviewed 29 September 2026. This guide is general information, not personalised tax or financial advice. Figures are correct for the 2025/26 and 2026/27 UK tax years at the time of writing.