How to Close a Limited Company

At Towerstone Accountants we provide specialist limited company accountancy services for directors and owner managed businesses across the UK. We created this webpage for people running a company who want clear answers on tax, payroll, Companies House duties, and day to day compliance without jargon. Our aim is to help you understand your responsibilities, reduce the risk of penalties, and know when to get professional support.

Closing a limited company is something many directors put off for far too long. I often speak to business owners who have stopped trading months or even years ago, yet the company still exists on paper, quietly building up filing obligations, penalties, and stress. Others know they want to close but are unsure which route applies, what HMRC will expect, or whether there will be tax to pay.

In reality, closing a limited company is a structured legal process. The right approach depends on whether the company is solvent, whether it has debts, and whether there is money left to extract. Done properly, closing a company can be straightforward and tax efficient. Done badly, it can become expensive and messy.

In this guide I will walk you through how to close a limited company in the UK, explain the different closure routes, outline the steps involved, and highlight the common mistakes I see. My aim is to help you choose the right method and close the company cleanly, with no loose ends.

The first question to answer before closing a company

Before doing anything else, you need to answer one key question.

Is the company solvent.

A solvent company is one that can pay all its debts in full, including tax, within the required timeframes. An insolvent company cannot.

This distinction matters because the closure options are completely different.

If your company is solvent, you usually have two main routes available. If it is insolvent, you must follow a formal insolvency process and should seek specialist advice.

Common reasons directors close limited companies

Companies are closed for many reasons, and none of them are unusual.

Common scenarios include:

• The business never really took off

• The company has stopped trading

• You are moving back to employment

• You want to start a new venture

• The company has served its purpose

• You are restructuring or simplifying

Closing a company is not a failure. In many cases it is simply a sensible administrative decision.

Option one, striking off a solvent limited company

The most common way to close a solvent limited company is by applying to have it struck off the register.

This is often referred to as voluntary strike off or dissolution.

What striking off means

When a company is struck off:

• It is removed from the register at Companies House

• It legally ceases to exist

• Its obligations come to an end

This route is suitable for companies that:

• Are no longer trading

• Have no outstanding debts

• Have settled all tax liabilities

It is a low cost and relatively simple process when done correctly.

Conditions you must meet before applying for strike off

You cannot apply to strike off a company at any time. Certain conditions must be met.

Before applying, the company must:

• Have stopped trading for at least three months

• Not have changed its name in the last three months

• Not be subject to insolvency proceedings

• Not have agreements with creditors in place

You must also deal with all company assets and liabilities before applying.

Clearing debts and liabilities before strike off

This is one of the most important steps and one of the most commonly mishandled.

Before strike off, you must ensure:

• All creditors are paid

• All loans are repaid or written off

• All taxes are settled

• Bank accounts are dealt with

This includes liabilities to HMRC such as Corporation Tax, VAT, PAYE, and any penalties or interest.

If you strike off a company with outstanding debts, creditors can object or apply to have the company restored, which reopens the problem.

Dealing with company bank accounts and assets

Any money left in the company belongs to the company, not the director.

Before strike off you should:

• Pay outstanding expenses

• Repay director loans

• Extract remaining funds correctly

• Close the business bank account

If there is less than £25,000 left in the company, this can usually be treated as capital and taxed under capital gains rules.

If there is more than £25,000, a formal liquidation is normally required to access capital treatment.

This is a key tax planning point that should not be ignored.

How to apply for strike off

To apply for strike off, you must submit form DS01 to Companies House.

This can be done:

• Online

• By post

There is a small filing fee.

The application must be signed by a majority of directors.

Once submitted:

• Companies House publishes a notice

• Interested parties have the opportunity to object

• If no objections are raised, the company is struck off

The process typically takes several months from start to finish.

Who must be informed about strike off

When applying for strike off, you are legally required to inform certain parties within seven days.

These include:

• Shareholders

• Employees

• Creditors

• HMRC

• Pension providers

Failure to notify relevant parties can lead to penalties and objections.

What happens once the company is struck off

Once struck off:

• The company ceases to exist

• Any remaining assets pass to the Crown

• The company cannot trade or enter contracts

This is why it is critical to deal with all assets before the strike off is completed.

If you later discover money in a closed bank account or an unresolved asset, it can be difficult and costly to recover.

Option two, members’ voluntary liquidation

If a solvent company has significant assets or cash, a members’ voluntary liquidation, often shortened to MVL, may be more appropriate.

This is a formal liquidation process carried out by a licensed insolvency practitioner.

When an MVL is usually used

An MVL is typically used where:

• The company has more than £25,000 to distribute

• The director wants capital treatment on funds

• There are valuable assets to realise

Although an MVL has professional costs, the tax savings can often outweigh the fees.

Tax treatment when closing a solvent company

Tax is often the deciding factor in how a company is closed.

Key tax considerations include:

• Corporation Tax on final profits

• VAT deregistration

• PAYE and payroll closure

• Capital gains tax on distributions

If conditions are met, distributions on closure may qualify for Business Asset Disposal Relief, reducing the tax rate on gains.

Timing and structure matter greatly here.

Final accounts and tax returns

Before a company can be fully closed, final compliance steps must be completed.

These usually include:

• Preparing final statutory accounts

• Submitting a final Corporation Tax return

• Paying any outstanding tax

• Deregistering for VAT if applicable

HMRC expects companies to remain compliant right up until the point of closure.

Ignoring final filings is one of the most common mistakes I see.

Closing an insolvent limited company

If a company cannot pay its debts, it should not apply for strike off.

Insolvent companies must follow formal insolvency procedures such as:

• Creditors’ voluntary liquidation

• Administration

• Company voluntary arrangements

Attempting to strike off an insolvent company can lead to serious consequences for directors, including personal liability and disqualification.

If there is any doubt about solvency, professional advice is essential.

Director responsibilities when closing a company

Directors have legal duties even when closing a company.

These include:

• Acting in the best interests of creditors

• Avoiding preferential payments

• Keeping proper records

• Providing accurate information

Closing a company does not remove director responsibilities overnight.

Common mistakes when closing a limited company

Over the years, I see the same issues repeatedly.

Leaving the company dormant but not closing it

Dormant companies still have filing obligations.

Forgetting HMRC

Companies House strike off does not automatically close things with HMRC.

Taking money out incorrectly

Extracting funds without understanding the tax consequences can create personal tax problems.

Ignoring objections

If an objection is raised, it must be addressed properly, not ignored.

What happens if you change your mind

If you apply for strike off and then change your mind, you can withdraw the application before the company is dissolved.

Once dissolved, restoring a company is possible but involves cost, time, and legal process.

This is another reason to be certain before starting the closure process.

How long should you keep company records

Even after a company is closed, records should be retained.

I recommend keeping:

• Accounts and tax returns

• Bank statements

• Contracts

• Correspondence

For at least six years after closure.

These may be needed if HMRC raise queries later.

How I advise clients on closing companies

When clients come to me about closing a company, I focus on three things.

First, confirming solvency.

Second, choosing the most tax efficient route.

Third, making sure everything is properly wrapped up, with no loose ends.

Most problems arise not from the decision to close, but from rushing the process or trying to cut corners.

Final thoughts

Closing a limited company does not need to be stressful, but it does need to be done properly. The right method depends on whether the company is solvent, how much money is left, and what future plans you have.

In my experience, directors who take advice early close their companies cleanly, efficiently, and with no surprises. Those who ignore the process often find that a company they thought was gone continues to cause problems years later.

If your company has stopped trading or no longer serves a purpose, dealing with it now is almost always easier than leaving it dormant and hoping it sorts itself out. Closing a limited company is not the end of a journey, it is often the start of a cleaner and more focused next step.

You may also find our guidance on how do i close or dissolve a limited company correctly and what happens to company assets when i close the business helpful when exploring related limited company questions. For a broader overview of running and managing a company, you can visit our limited company hub.