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We're frequently asked questions like - should I keep my company going? Should I close it? If I decide to close it, how do I do it and what are the tax and other financial implications of doing so?
Here we look at some of the questions regularly asked by limited company directors who are deciding on the future of their company. And the legitimate tax savings which can be made on a company closure if the right advice is given.
The process by which a company is closed will depend upon several factors. Generally, all the company’s assets are realised, and its remaining debts paid. The cash that is left (if any) can then be distributed to the shareholders (usually the director /shareholder).
An informal closure of a small company can be achieved by striking off from the Companies House Register. If a company has a potential capital distribution of more than £25,000, then it must be closed via a Members Voluntary Liquidation (MVL) which involves the use of a licensed Insolvency Practitioner.
No, you don’t necessarily have to close your company. Even if your company is not actively trading you can keep it dormant while working under an umbrella company or as a direct employee.
If you later obtain work outside IR35, you can simply resume trading through your company without needing to go through the process of closing and reopening it.
Once that’s over and you obtain future work outside IR35 you can resume trading through your company.
This will depend on the tax rates applicable to your earnings and other income. Dividend tax rates are generally lower than income tax rates, and you are entitled to a 0% dividend allowance of £500 each year (2025/26). However, rates could change in the future. You should consider whether some of the other options covered by answers to other questions below might be more appropriate for you.
Probably not. Unless you have a reason to keep the company name for future business purposes, you may wish to apply for the company to be struck off the Companies House Register.
No. If your company has outstanding debts to HMRC, they will object to the strike-off request. As a director, you may also be personally pursued for the settlement of the outstanding tax liability
Yes, but if you have other significant employment income, the bonus will be subject to PAYE tax. Additionally, your company may need to account for both Employee and Employer National Insurance Contributions (NICs) on the bonus payment, which could reduce the net amount you receive.
You are only required to proceed with a formal Members' Voluntary Liquidation (MVL), involving an insolvency practitioner, if the amount to be distributed exceeds £25,000 and is being distributed as capital rather than as a dividend. For amounts below this threshold, you can extract the funds as dividends. Keep in mind that the dividend tax-free allowance for the 2025/26 tax year is £500. Any dividends above this allowance will be subject to dividend tax at the applicable rate based on your income tax band.
In such cases, a Members' Voluntary Liquidation (MVL) may be the most appropriate course of action. This process involves appointing a licensed Insolvency Practitioner to formally close the company, and professional fees will be incurred for their services.
Through an MVL, the final distribution of profits can be treated as capital, allowing you to utilise the Capital Gains Tax (CGT) Annual Exemption, which is £3,000 for the 2025/26 tax year. Any capital gains exceeding this exemption are subject to a CGT rate of 24%, which is lower than the higher rates of income tax.
Additionally, you may be eligible for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief), which, for disposals made on or after 6 April 2025, reduces the CGT rate to 14% on qualifying gains, subject to a lifetime allowance of £1 million.
It's advisable to consult with a tax professional to fully understand the implications and ensure that all conditions for these reliefs are met.
Not necessarily. Again, speak to your Accountant or the PayStream Tax Team on different options. They can also explain how to account for say, a company vehicle, which you want to take into personal ownership on closure of the company. Read more about Director's Loan Accounts here.
You can see from the range of questions and answers that there are a lot of scenarios which arise on company closure. It is very important to seek advice before acting on the closure of your company. Doing so will help you to avoid potential tax pitfalls and highlight tax saving opportunities for you.
If you’re an existing client, we recommend that you contact your dedicated accounts team in the first instance to talk through any closure plans which you may have.
Updated April 2025.
If you would like to know more about our Tax Advice Service, contact our Tax Team today.
