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How to close a limited company without paying tax

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Before closing a limited company, it is necessary to get agreement from directors and shareholders, and to identify whether the company is solvent or insolvent.

If the company is solvent, the two most common methods of closing are voluntary strike off or members’ voluntary liquidation. Voluntary strike off is the cheapest option. However, it is important to seek professional advice to assess tax liabilities.

If the company is insolvent, the interests of creditors take priority over those of directors or shareholders. Options for closing include voluntary liquidation, administration, or a Company Voluntary Arrangement. Professional advice from a solicitor or insolvency practitioner is necessary to choose the best option.

Solvent vs. Insolvent Companies

When it comes to companies, there are two types: solvent and insolvent. A solvent company is one that can pay its debts as and when they fall due. Conversely, an insolvent company cannot meet its obligations to creditors, meaning that it owes more than it owns.

If a company is solvent, owners have several options for closing it down while minimizing tax liability. One approach is voluntary strike off, which involves removing the company’s name from the register of UK limited companies. Another option is members’ voluntary liquidation (MVL), in which a liquidator sells the business’s assets and distributes any remaining money to shareholders.

On the other hand, if a company becomes insolvent, its available options for closing down are different. These include compulsory liquidation, where an appointed liquidator sells the company’s assets to pay back the creditors, and administration (for companies that need time to restructure their business), or a company voluntary arrangement allowing businesses to pay their debts over a defined period while still trading.

The priority of interests is essential when closing an insolvent company as some parties may get paid out before others. During the process leading towards cession of insolvency proceedings such as liquidation or administration, debts owed by the company will be ranked similarly in terms of importance based on priority.

In closing either a solvent or insolvent limited company, it is necessary to consider tax liabilities under UK law carefully. For instance, dormant companies with no trade require annual filing of HM Revenue & Customs returns even if they do not owe any tax.

To navigate these complexities successfully and maximize your financial outcome with minimal legal exposure always seek professional advice from an expert team specializing in this area to ensure complete compliance with all statutory requirements at every stage of the process.

If only breaking up with your significant other was as tax-efficient as closing a solvent company.

Closing a Solvent Company

Closing a limited company can be a complex process that requires a thorough understanding of tax laws and procedures. In this article, we will guide you through the process of closing a solvent company correctly.

The two main options for dissolution are voluntary strike off and members’ voluntary liquidation. Depending on your particular situation, one of these methods may be more appropriate for you, and we will provide you with all the necessary facts and figures to make an informed decision. Let’s get started!

Voluntary Strike Off

If a company wishes to cease operations and dissolve, one option is to apply for voluntary strike off. However, to qualify for this process, the company must meet certain criteria. It must not have traded within the last three months, changed its name recently, be at risk of insolvency, or have any outstanding obligations or liabilities. All directors must also agree to proceed with the voluntary strike off.

Once the company has met these requirements, it must submit an application to Companies House using form DS01 to initiate the process. This application requires details of the directors’ resolution to consent to the strike-off, a declaration of solvency signed by all directors, and confirmation from HM Revenue & Customs stating that they have no objections to the request.

It is crucial to note that if any objections arise during the two-month publication period that follows, Companies House will not approve the application for voluntary strike off.

One unique aspect of Voluntary Strike Off is that after the company dissolves through Companies House closure procedures, it cannot operate as a trading entity even if it is restored.

In conclusion, Voluntary Strike Off provides a way for companies to end their business operations without using Facebook Marketplace to sell their assets.

Qualifications for Voluntary Strike Off

To be eligible for voluntary strike off, a company must meet specific criteria, including qualifications for voluntary strike off outlined by Companies House. The company should not have been involved in any business activities or traded in the past three months, and all debts should be settled. Additionally, there should be no outstanding legal actions against it by creditors or regulatory agencies. If the company previously traded under a different name, that name should not have been used for at least three months before the application.

Before applying for voluntary strike off, the directors must pass a resolution approving the company’s dissolution. Once complete, the company must file relevant forms with Companies House, accompanied by a statement signed by all directors confirming that the organization meets the requirements for strike off.

It’s important to consider the qualifications for voluntary strike off, as well as the tax implications of dissolving your business. While voluntary strike off is an attractive option for companies that want to close their operations efficiently, seeking professional advice can help ensure compliance with regulations and minimize potential risks associated with closing a limited company.

In conclusion, while voluntarily striking off a company is a quick and painless way to close your business, make sure to consider all qualifications for voluntary strike off and seek professional advice to minimize risks.

Process for Voluntary Strike Off

Voluntary Strike Off is the simplest and most cost-effective method for closing down a company that no longer serves any purpose. The process for voluntary strike off involves several steps that businesses should follow to ensure compliance with all legal requirements and an effortless case when completing their paperwork.

After completing these steps, banks, creditors, and various other institutions will account for the closure of the firm voluntarily struck off from the register. It is advisable to approach experts in finance or lawyers who have assisted businesses in closing down companies earlier to avoid complications since each firm has unique processes during dissolution.

Members’ Voluntary Liquidation

During a Members’ Voluntary Liquidation, shareholders can appoint a licensed insolvency practitioner as a liquidator to oversee the distribution of assets. This process is only available for solvent companies and is not recommended for those facing financial difficulties or insolvency. However, one advantage of Members’ Voluntary Liquidation is that it allows for tax-efficient distribution of assets to shareholders. The proceeds from selling assets are treated as capital gains, with shareholders eligible for Entrepreneur’s Relief. At present, this attraction 10% tax on qualifying distributions of up to £1 million. In conclusion, Members’ Voluntary Liquidation provides an efficient way of closing down a solvent company, providing tax benefits to shareholders. It is advisable to seek professional guidance from a licensed insolvency practitioner to determine if Members’ Voluntary Liquidation is suitable for your company’s situation.

Advantages of MVL

MVL, or Members’ Voluntary Liquidation, is a process for closing a solvent company and offers several advantages to shareholders. One of the biggest advantages is the tax-efficient distribution of assets among shareholders as capital instead of income. This lowers their tax liability significantly. Compared to other forms of liquidation, the MVL process is relatively quick, usually taking around 3-6 months to complete.

In addition to being a simpler process, MVL may not require court involvement or approval from creditors. However, the company director must ensure that all debts and liabilities are paid within 12 months after the liquidation’s start, and the appointed liquidator must declare that the company is solvent. Shareholders have greater control over the process, as they can choose the liquidator and approve any decisions made during the process.

Another advantage of MVL is the potential to preserve business goodwill. If a company has valuable business goodwill, MVL can help preserve it by ensuring that creditors are paid, and assets are divided fairly among shareholders. This may prevent negative effects on future ventures involving those same shareholders.

It’s essential to note that MVL may not be suitable for all companies wishing to close down. In some cases, other options such as voluntary liquidation, administration, or company voluntary arrangement may be more beneficial or necessary. Seek professional advice to determine the most appropriate method for your specific circumstances.

In conclusion, MVL is a tax-efficient and straightforward method for closing a solvent limited company. It offers several advantages to shareholders, including control over the process, speedy processing, and potential preservation of business goodwill.

Process for MVL

The Members’ Voluntary Liquidation (MVL) is a process for solvent companies to lawfully shut down their business while being legally compliant. The first step is for the directors to convene a meeting and pass a resolution about winding up the company. They must ensure that the company has the ability to pay all its debts within 12 months of starting the liquidation and that it intends to cease trading. After passing the resolution, all shareholders must hold a general meeting within five weeks to confirm that they have decided to wind up the company via MVL. During this meeting, a licensed insolvency practitioner is appointed as the liquidator, who is responsible for realizing assets, paying creditors, and distributing any remaining funds among shareholders once all debts have been paid. The liquidator sells off all assets of the company to settle liabilities such as taxes and employee compensation. Any surplus funds from these sales are then distributed among shareholders in proportion to their shareholding.

It is important to note that after the appointment of a liquidator, they have control over the business accounts and bank authorizations. Hence, any pending payments should be cleared before appointing them. Seeking professional advice is crucial if this method is being used solely for tax purposes or if legal disputes or liability concerns arise during the closure of the limited company.

Closing an Insolvent Company

Closing an insolvent company can be a complicated process, especially if you’re trying to avoid paying taxes.

However, it is important to follow the proper procedures and prioritize interests in this situation.

By understanding your options for closing an insolvent company, you can navigate the process more smoothly. With the right knowledge and preparation, you can efficiently close your company while reducing the impact on your personal finances and avoiding legal trouble.

Options for Closing an Insolvent Company

When a company becomes insolvent, there are options for closing the business that the owners should understand. These options include voluntary liquidation, administration, and company voluntary arrangement.

Voluntary liquidation involves appointing an authorized insolvency practitioner to formally wind up the company’s affairs. The process allows for the sale of any assets to repay creditors before dissolving the company.

Administration involves appointing an insolvency practitioner who takes control of the company’s affairs with the aim of either rescuing it or selling its assets to repay creditors.

A Company Voluntary Arrangement (CVA) is where a limited company agrees with its creditors on a plan to repay all or part of its debts over a period, usually three to five years.

It is important to note that the priorities of interests in an insolvent company are different from those in a solvent one. Creditors hold higher priority than shareholders, and assets are used to pay debts before being distributed among shareholders.

An insolvent company may also face tax implications when closing down. It is advisable for owners to seek professional advice before proceeding with any action. Legal specialists recommend seeking early professional advice if there are concerns about solvency.

Voluntary liquidation is a practical option for companies with no future prospects. It allows owners to cut their losses and move on in a responsible manner. So, these are the options for closing an insolvent company.

Voluntary Liquidation

The process of Voluntary Liquidation is a legal process that is initiated by the company’s directors and shareholders. It involves appointing a liquidator who is responsible for winding up the affairs of the company. This includes selling the company’s assets, settling any outstanding debts, and distributing any remaining funds amongst creditors. The liquidator is legally required to ensure that all creditors are paid in full before any remaining funds are distributed to shareholders.

Voluntary Liquidation is a flexible option that can be initiated at any time by agreement of the directors and shareholders. It has several advantages over other methods of company closure. For instance, it allows for an orderly wind-down of business affairs, which ensures that all parties involved are able to settle their debts fairly.

It is important to note that the process of voluntarily liquidating a company involves complying with all relevant tax laws and regulations. Failure to do so can result in penalties and fines. Therefore, seeking professional advice before commencing the process is crucial.

According to Companies House records, there were 2,959 voluntary liquidations in England and Wales alone in 2020. It is worth noting that Voluntary Liquidation is not an option for closing an insolvent company; administration is the only legal option in that case.


Closing a limited company can be a complex process that requires careful consideration and planning to ensure that all legal and tax obligations are met. Among the options available for closing an insolvent company is administration, which involves an independent insolvency practitioner taking control of the company’s affairs to protect its creditors.

During administration, the appointed practitioner will seek to achieve one of three outcomes:

The administrator has wide-ranging powers to manage the company’s affairs and may continue trading during this period, subject to obtaining necessary consents from creditors and other stakeholders.

It is important to note that the appointment of an administrator effectively stays any legal action or enforcement against the company, including winding-up petitions and claims by unsecured creditors. This provides valuable breathing space for companies facing severe financial difficulties and allows them to focus on restructuring their business with specialist support.

In summary, administration provides an effective way of protecting a limited company’s assets while enabling it to continue trading under supervision. However, it is crucial to seek professional advice before embarking on this route as it has significant implications for directors, shareholders, and other stakeholders.

Company Voluntary Arrangement

When a company faces financial difficulties, it may look into a Company Voluntary Arrangement (CVA) as an option to avoid bankruptcy. A CVA is a legally binding agreement between a company and its creditors, which involves paying off debts over an agreed period of time while the business continues to operate.

The CVA process begins with appointing an Insolvency Practitioner (IP) who will work with the company’s directors to prepare a proposal for a repayment plan. This proposal must be accepted by at least 75% of creditors by value for it to be approved. Once approved, the company must strictly adhere to the repayment plan over a period of typically three to five years. The CVA provides breathing room for the business and avoids liquidation.

One significant advantage of a CVA is that it keeps control of the business in the hands of its directors rather than being taken over entirely by administrators or liquidators. It also allows directors to retain their reputation and continue trading while repaying their debts.

A key aspect of the agreement is that once approved and adhered to, any outstanding debts covered under the CVA will be written off upon completion. While this may seem like an obvious benefit, note that non-compliance with payment plans can result in automatic termination of the agreement, leaving all existing debt obligations back on track.

Overall, provided there is support among creditors and commitment from directors toward meeting obligations, CVAs are a preferable option compared with alternative measures such as filing for bankruptcy or insolvency processes. Sorting out priorities in an insolvent company can be challenging, but with the implementation of CVA, businesses can survive and recover from tough financial situations.

Priority of Interests in an Insolvent Company

When a company becomes insolvent, the priority of interests in an insolvent company must be considered before closing it down. The type of creditor and their status determines the order of priority.

Secured creditors have the top priority, followed by preferential creditors like employees owed wages and taxes to HM Revenue & Customs. Unsecured creditors such as suppliers and customers with outstanding debts come after them. Shareholders are at the bottom of the list and will only receive any leftover funds after all others have been paid.

It is important to note that even if shareholders are directors, they cannot use their position to move up the priority list. The law treats their role as a shareholder separate from their director duties.

To determine the category of each creditor, the Insolvency Act 1986 provides guidelines on how to distribute assets based on specific criteria. This ensures that all involved parties receive a fair share of what is left of the company’s assets.

Although this may not benefit shareholders who invested large amounts into the company, ensuring that creditors receive what is owed to them before any extra money or benefits are given out to shareholders is important.

Tax Implications of Closing a Limited Company

Closing a limited company is a significant milestone for any business owner. However, it’s essential to keep in mind the tax implications that come along with it. In this section, we’ll discuss the various taxes that a limited company may need to pay when closing down.

A company that is closing down must pay Corporation Tax on any profits made up until the closure date. The company should also pay Capital Gains Tax on any assets that have increased in value when they are sold or transferred. If the company has employees, it must also pay outstanding payroll taxes and National Insurance contributions.

Now, let’s take a deeper look into the tax implications of a dormant company. In the UK, a company is considered dormant if it has had no significant transactions for the financial year. If a company remains dormant, it does not have to pay Corporation Tax or file annual accounts. However, if the company becomes active again, it must start paying these taxes and filing its accounts.

It’s crucial to follow the correct legal processes when closing down a company to avoid any tax liabilities or legal consequences.

Dormant Company Definition

A dormant company is a legal entity that has been registered with Companies House but has not engaged in any significant accounting transactions within a financial year. Simply put, it is a company that remains inactive and does not trade or carry out any business activities.

When a limited company becomes dormant, it does not cease to exist, and the directors are still responsible for submitting annual accounts and tax returns to HMRC and Companies House. It is critical for business owners to understand the formal definition of a dormant company before making any decisions related to their limited company status.

A dormant company must comply with all statutory obligations, including filing annual confirmation statements. However, there are certain exemptions for dormant companies when it comes to taxes.

Dormant companies are not required to pay Corporation Tax or VAT if they have not traded and earned any income during the financial year. Additionally, there is no need to pay any National Insurance contributions for directors who did not receive salaries.

Registering your company as dormant could save you money on taxes and administrative costs if your business is inactive, but non-compliance could lead to severe penalties imposed by law enforcement agencies. Therefore, it is important to understand the dormant company definition and ensure that all statutory obligations are met.

Taxes for Dormant Companies

Dormant companies refer to those which are inactive and not involved in any business transactions. These companies, unlike active ones, do not generate any income, and as a result, their tax obligations differ. Reference Data defines a dormant company as one that does not carry out significant accounting transactions during its financial year. Thus, it is exempted from paying corporation tax or filing annual tax returns, unless requested by HM Revenue & Customs.

Nevertheless, there are specific circumstances where a dormant company must report its tax return, even if it has no taxable income. For example, if the company acquires interest on its bank balance or owns properties that generate rental income, it must declare this non-trading income on its tax return. Likewise, if a dormant company had taxable activities before becoming inactive or stopped trading at the end of the accounting period, it must file a tax return.

It is critical to note that despite being inactive and not paying corporation taxes, dormant companies still need to meet other legal requirements such as maintaining precise records and submitting annual confirmation statements with Companies House. Neglecting these obligations may lead to harsh penalties.

To sum up, dormant companies are only obliged to pay taxes when there is non-trading income or taxable activities before they became inactive or stopped trading. Otherwise, they are exempted from paying corporation taxes, until they undergo changes in their status. However, it’s necessary to comply with all other statutory obligations besides taxation to avoid possible fines and liabilities in the future.

Professional Advice and Considerations

Planning to close a limited company without paying the appropriate tax requires careful consideration and professional advice.

It is crucial to seek guidance from a qualified accountant or tax advisor to ensure compliance with legal requirements and minimize tax liability.

Several important factors need to be considered, including outstanding debts, assets, outstanding taxes, and employee redundancies.

Moreover, HM Revenue and Customs (HMRC) must be informed of the company’s dissolution to avoid legal consequences and financial penalties.

Another critical consideration is the distribution of the company’s assets among shareholders based on their shareholding percentages. Appropriate tax advice should be obtained to ensure proper asset distribution and minimize unnecessary taxation.

It is also essential to comply with statutory requirements and file all necessary paperwork. Failure to meet these requirements can lead to legal consequences and financial penalties. Appointing a liquidator can expedite the dissolution process and guarantee compliance with legal requirements.

A true story exemplifies the importance of seeking professional advice when closing a limited company.

A business owner failed to do so and incurred unexpected tax liabilities following the asset distribution. Seeking professional guidance could have saved significant amounts of money and avoided unwanted legal consequences.

Therefore, it is vital to plan carefully and seek advice when dissolving a limited company to minimize tax liability and avoid legal issues.

Conclusion and Summary of Tax-Efficient Methods for Closing a Limited Company

As a business owner, closing a limited company can be quite challenging, but there are tax-efficient methods that can help minimise taxation.

One such method is distributing assets before the company’s dissolution.

It is crucial to settle all liabilities in full when liquidating a company. Any remaining assets can be distributed among shareholders as capital gains, which are taxed at a lower rate compared to income tax.

Entrepreneurs’ relief can also be utilized to further reduce the tax burden.

This relief permits a reduction in the capital gains tax rate to 10% on any qualifying assets up to a lifetime limit of £1 million.

Five Facts About How To Close A Limited Company Without Paying Tax:

  • ✅ To close a limited company without paying too much tax, it is important to find the most tax-efficient method. (Source: Future Strategy)
  • ✅ A Voluntary Strike Off is a tax-efficient and common way of closing a solvent limited company. (Source:
  • ✅ Members’ Voluntary Liquidation (MVL) is another tax-efficient method of closing a solvent limited company. (Source: Future Strategy)
  • ✅ A dormant company is one that’s not carrying out any business activity, trading, or receiving income and is not required to pay corporation tax while it is dormant. (Source: 1st Formations)
  • ✅ The process of closing a limited company without paying tax depends on whether the company is solvent or insolvent, but professional advice from a solicitor or insolvency practitioner may be necessary to choose the best option. (Source: Experlu)

FAQs about How To Close A Limited Company Without Paying Tax

What is the process for closing a limited company without paying tax?

There are several ways to close a limited company without paying tax, including Voluntary Strike Off and Members’ Voluntary Liquidation (MVL).

It is important to find the most tax-efficient method to extract the highest value possible.

What is a Voluntary Strike Off, and how does it work?

A Voluntary Strike Off is a tax-efficient way to close a solvent company. It involves a formal process of having your business struck off the Companies House register.

To qualify for Voluntary Strike Off, the company cannot have traded, changed its name, sold assets, or engaged in any activity, unless it’s for the purpose of striking off in the previous three months.

The process involves holding a board meeting to pass a resolution in writing, notifying all employees and creditors and making an application using a DS01 form.

A notice will be published giving interested parties three months’ notice that the company intends to be struck off. The business will be struck off if there are no objections during this time.

What is Members’ Voluntary Liquidation (MVL), and how does it work?

Members’ Voluntary Liquidation (MVL) is another method of closing a limited company. It involves appointing a liquidator to sell the company’s assets and distribute the proceeds to shareholders.

MVL is typically used when there are significant assets to distribute or when shareholders want to extract the value in a tax-efficient manner.

MVL is more complex than a Voluntary Strike Off and requires expert knowledge to navigate.

Directors themselves will start the MVL process by passing a resolution and appointing a liquidator.

What is the process for appointing a new director if the company doesn’t have one?

If the company doesn’t have a director, a new one must be appointed to manage assets and close the company.

To appoint a new director, shareholders must agree, and if there are no shareholders, the executor of the estate can appoint one if the company’s articles allow it.

What happens if a company can’t afford to pay its debts when closing?

If the company is insolvent and cannot afford to pay its debts, the interests of creditors take priority over those of directors or shareholders.

Options for closing an insolvent company include voluntary liquidation, administration, or a Company Voluntary Arrangement.

Professional advice from a solicitor or insolvency practitioner may be necessary to choose the best option.

Can a company be dormant for tax purposes when closing?

If the company is no longer trading, it can become dormant for tax purposes as long as it’s not carrying on any business activity, trading, or receiving income.

The company will still be registered at Companies House, and it must still pay corporation tax and file a tax return, even if there’s no director.

A dormant company will not be required to pay any Corporation Tax while it is dormant.

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