Closing a solvent company: strike off or liquidation, and the £25,000 cliff edge
A solvent company can be closed cheaply with a DS01, or properly wound up by a liquidator. The choice turns on one number: what is left after every liability is paid. Below £25,000 the strike-off route gives capital treatment; a single pound above it turns the whole distribution into a dividend. Here is how to work through the fork, with the arithmetic and the traps.
Start with one number, and get it right
The whole decision turns on one figure: what will remain once every liability has been settled and the final Corporation Tax bill paid. Not the balance in the business account this morning, but what is left after the last supplier, the last payroll, the accountancy fee and HMRC are paid. Comfortably below GBP 25,000, a simple strike off serves; meaningfully above, a members voluntary liquidation usually wins despite the practitioner's fee. Within a few thousand pounds of it, a careless payment can cost several times the fee you were trying to avoid. Most people who come unstuck have not chosen the wrong route. They chose a route before pinning down the number.
Why GBP 25,000 is a cliff edge, not a threshold
Section 1030A of the Corporation Tax Act 2010 lets money leave a company on a strike off as capital, not income. It applies to a distribution in respect of share capital made in anticipation of dissolution, usually where the company has applied or intends to apply for striking off under section 1003 of the Companies Act 2006. Two conditions apply. Condition A is that the company intends to secure, or has secured, payment of sums due to it, and intends to satisfy, or has satisfied, its debts and liabilities. Condition B is that the distribution, or the total if there is more than one, does not exceed GBP 25,000. It is a total across every payment and every shareholder, not an allowance each: three shareholders do not get GBP 75,000 between them. And it is a cliff, not a taper. The relief applies only if Condition B is met, so exceeding GBP 25,000 by a single pound puts normal distribution treatment on the whole amount, not merely the excess. Section 1030B holds the second trap: if two years pass and the company has not been dissolved, or has failed to secure sums due or satisfy all its debts, the capital treatment is undone as if section 1030A had never applied.
Illustrative example one: the extra GBP 2,000 that cost GBP 3,354
Illustrative only, on assumed facts. A sole shareholder and director subscribed GBP 100 for her shares, is a higher-rate taxpayer with her basic rate band used up by salary, has her GBP 3,000 Capital Gains Tax annual exempt amount and GBP 500 dividend allowance available, and qualifies for Business Asset Disposal Relief. She closes the company with GBP 24,000 left. The distribution is capital, so her gain is GBP 23,900; less the GBP 3,000 exempt amount, GBP 20,900 is taxed at 18 per cent, which is GBP 3,762. She keeps GBP 20,238. Now run it again with GBP 26,000 left. Condition B fails, so the entire GBP 26,000 is taxed as a dividend. After the GBP 500 allowance, GBP 25,500 is taxed at the 2026 to 2027 higher dividend rate of 35.75 per cent, which is GBP 9,116. She keeps GBP 16,884. Leaving an extra GBP 2,000 in the company has made her GBP 3,354 worse off.
The liquidation route, and what the fee actually buys
Above GBP 25,000 the answer is usually a members voluntary liquidation. The capital treatment comes from section 1030 of the Corporation Tax Act 2010: a distribution made in respect of share capital in a winding up is not a distribution for the purposes of the Corporation Tax Acts. There is no cap. The price is procedure. You need a liquidator, who must be a licensed insolvency practitioner, and the directors, or where there are more than two of them a majority, must make a declaration of solvency under section 89 of the Insolvency Act 1986: an opinion, supported by a statement of the company's assets and liabilities, that it can pay its debts in full with interest at the official rate within a stated period not exceeding twelve months from the start of the winding up. It must be made in the five weeks before the winding-up resolution, with a copy delivered to the registrar within fifteen days after it. Making it without reasonable grounds is a criminal offence, and if the resolution follows within five weeks and the debts are not paid in the stated period, the director is presumed, unless the contrary is shown, to have had none. Fees vary widely, so get a fixed quotation first.
Illustrative example two: what the fee earns on GBP 300,000
Again illustrative. Same shareholder and GBP 100 base cost, no other income in the year, Business Asset Disposal Relief available with her GBP 1 million lifetime limit unused, and an assumed liquidator fee of GBP 5,000 borne by the company. Through a liquidation, GBP 295,000 is distributed as capital. The gain is GBP 294,900; less the GBP 3,000 exempt amount, GBP 291,900 is taxed at 18 per cent, which is GBP 52,542. She keeps GBP 242,458. Now suppose she strikes the company off and pays out the full GBP 300,000 as income. Her personal allowance is entirely withdrawn because her income exceeds GBP 125,140. After the GBP 500 dividend allowance, GBP 37,200 falls in the basic rate band at 10.75 per cent, GBP 87,440 at 35.75 per cent, and GBP 174,860 at 39.35 per cent, a total of GBP 104,066. She keeps GBP 195,934. The liquidation leaves her roughly GBP 46,500 better off, after the fee.
The rule that can undo all of it two years later
Section 396B of the Income Tax (Trading and Other Income) Act 2005 recharacterises a capital distribution from a winding up as income where four conditions are all met. Condition A: the individual holds at least a 5 per cent interest immediately before the winding up. Condition B: the company is close when wound up, or was in the two years before. Condition C: within two years of the distribution the individual carries on a similar trade or activity, alone, in partnership, through a 5 per cent stake in another company, or through a connected person. Condition D: it is reasonable to assume that a main purpose of the winding up is the avoidance or reduction of a charge to income tax. HMRC frames the real question as whether the individual is carrying on the same business having extracted the profits in capital form. What is most often missed is scope: the rule bites only where the company is wound up, so on its terms it does not reach a strike off. That is no licence: section 684 of the Income Tax Act 2007 makes a repayment of share capital a transaction in securities in its own right, and an income tax advantage obtained as a main purpose can be counteracted. Closing one company and opening a near-identical one is what both provisions exist to catch; genuine retirement or a genuine change of direction is not.
The mechanics, and where cash goes if you get them wrong
A voluntary strike off is filed on form DS01. It costs GBP 13 online, the digital fee having changed on 1 February 2026, and GBP 18 on paper. You cannot pay with a cheque drawn on the company being struck off. Section 1004 of the Companies Act 2006 bars the application if, in the previous three months, the company has changed its name, traded or otherwise carried on business, or disposed of property held for gain in the normal course of trading. Acts necessary to make the application, conclude the company's affairs or meet a statutory requirement are permitted, and settling an old trading liability is not trading. Under section 1006 a copy must go within seven days to anyone who could be affected, members, creditors, employees and pension trustees included. The registrar advertises the application in the Gazette and may not strike the company off for two months after that notice; an objection stops it proceeding, so treat two months as a floor. The most expensive mistake is leaving money behind: under section 1012 all property vested in the company at dissolution is bona vacantia and belongs to the Crown, bank balances and later HMRC refunds included. Empty the accounts first.
What to do next, and what to put to your accountant
Work in this order. Draw up a closing balance sheet showing what is left after all liabilities, including the final Corporation Tax charge. Send final statutory accounts and a final Company Tax Return to HMRC, marked as final, then settle all tax due. Cancel the VAT registration within 30 days of ceasing to be eligible, online or on form VAT7, or a penalty may follow. Tell HMRC the company has stopped employing people and close the PAYE scheme. Only then distribute, and only then file the DS01. Four questions are worth putting to your accountant in writing. What is the reserve figure after tax, and is it within GBP 5,000 either side of GBP 25,000. Do I meet the Business Asset Disposal Relief conditions for shares: 5 per cent of shares and votes, 5 per cent of either distributable profits and winding-up assets or sale proceeds, employee or officer status, two years of all of it; and if trading has ceased, am I inside the three-year window. Given what I intend to do next, does section 396B bite. And what would a fixed-fee liquidation cost, so the comparison runs on real numbers. If you plan to carry on doing much the same thing, the tax analysis is not the hard part, and that is where the conversation should start.
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This article is general information only and does not constitute tax advice. Figures and dates are current as at the date of writing; any worked example is illustrative. Always consult a qualified adviser before acting.