Last updated: 16 October 2026
How do you close a company and take out the cash?
When a company has stopped trading or is no longer needed, there are two main ways to close it: a voluntary strike-off or a members’ voluntary liquidation (MVL). How you take out the remaining cash decides whether it is taxed as income (dividends) or as a capital gain, and the difference can be large.
Strike-off or MVL?
| Feature | Voluntary strike-off | Members’ voluntary liquidation |
| Cost | £13 online (£18 by paper) Companies House fee | Usually a few thousand pounds in liquidator fees |
| Tax on distributions | Capital if total distributions are £25,000 or less; otherwise all treated as income | Capital, whatever the amount |
| BADR | Available on capital distributions if conditions are met | Available if conditions are met |
| Best for | Small balances | Larger cash or assets |
The £25,000 rule
If you strike off a company, distributions to shareholders in anticipation of striking off are treated as capital only if the total is £25,000 or less. Go even £1 over, and the whole amount is taxed as a dividend.
Tax rates for 2026/27
- Dividends: 10.75% basic rate, 35.75% higher rate, 39.35% additional rate, after a £500 allowance.
- Capital gains: 18% and 24%, after a £3,000 annual exempt amount.
- Business Asset Disposal Relief: 18% on up to £1 million of lifetime gains.
Worked example
Peter’s company has £150,000 of cash after paying all its debts and corporation tax. He is a higher rate taxpayer.
- As a dividend: about £53,450 in tax at 35.75% (after the £500 allowance).
- Through an MVL with BADR: £147,000 taxable after the annual exemption, at 18% = £26,460, less the liquidator’s fee.
The MVL saves around £27,000 even after a fee of a few thousand pounds.
The targeted anti-avoidance rule (TAAR)
Distributions in a winding up can be taxed as income instead of capital if, within two years, you carry on a similar trade or activity, whether as a sole trader, a partner or through another company, and the main purpose was to get a tax advantage. This targets “phoenixism”, where people close a company and start the same business again. Contractors who close one company and start another are a common target.
Steps before closing
- Collect debts, sell assets and pay creditors, including HMRC.
2. File final accounts and the final corporation tax return.
3. Deregister for VAT and close the payroll scheme.
4. Decide on the strike-off or MVL route before distributing cash.
5. Make sure no money is left in the company bank account: on dissolution it passes to the Crown.
Frequently asked questions
Can I take a final dividend and then strike off?
Yes. Some owners pay dividends spread over two tax years to use lower bands, then distribute up to £25,000 as capital.
Do I need accounts for the final period?
Yes, HMRC expects returns up to the date trading stopped.
Can HMRC object to a strike-off?
Yes, if tax is owed. HMRC can also restore a company to collect tax.
Is BADR available if the company stopped trading a while ago?
The distribution must normally be within three years of the trade ceasing.
Related: striking off a dormant company, planning profit extraction and BADR rules.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with closing a company tax-efficiently. See our limited company accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
