Closing a solvent company through a liquidator: what the accountant must have ready, and when
Since December 2023 HMRC have not given tax clearance when a solvent company is liquidated, so the comfort a liquidator once obtained at the end now has to be built at the start. Here is the timetable: what the accountant settles before the resolution, the accounting periods that follow, the tax on assets distributed in kind, and the questions to ask before the final distribution.
The confirmation that no longer comes
For years, the liquidator of a solvent company would write to HMRC before paying the final distribution and wait for confirmation that nothing was outstanding. On 6 December 2023 HMRC stopped giving that clearance, for members' voluntary liquidations and for every other procedure under the Insolvency Act 1986. Their guidance to insolvency practitioners now says that, before a company enters liquidation, enquiries should establish its current tax position with the directors and the current or previous accountant, and that the liquidator should be satisfied that all outstanding returns have been submitted and all debts paid in full, together with interest, before finalising. HMRC also say that they will report conduct issues to the insolvency regulators where a company has been dissolved without resolving its tax affairs. The work has not disappeared. It has moved to the months before the liquidator is appointed, and most of it falls to the accountant.
Two to three months before: bring every return up to date
Start with the returns, because nothing else can be finalised until they are in. HMRC say they cannot submit an accurate claim for what the company owes until all returns have been submitted, and they recommend allowing reasonable time for returns to be processed before a case is closed, to reduce the risk of a later compliance check. In practice that means corporation tax returns for every period, VAT returns to date, final payroll submissions and any outstanding benefits returns. Outstanding returns go through the normal channels, not by email to HMRC's liquidation team. Alongside the returns, agree the date on which trading stops, collect the debts owed to the company, settle any director's loan account and decide which assets are to be sold and which are to be handed to the shareholders as they are.
The accounting periods the liquidation creates
Section 12 of the Corporation Tax Act 2009 ends an accounting period immediately before the winding up starts and begins a new one when it does, and for a voluntary liquidation the winding up starts when the members pass the resolution. Each later period runs for twelve months, or ends earlier when the winding up is completed. A cessation of trade also ends an accounting period, so a company that stops trading in the spring and goes into liquidation in the autumn may need returns for two short periods before the liquidator's own. The return to the day before the resolution is the one the accountant should aim to have filed before appointment. The illustrative case that follows uses assumed dates. A company with a 31 March year end ceases to trade on 31 May 2026 and passes its winding up resolution on 15 September 2026. Its periods are 1 April to 31 May 2026, then from 1 June to 14 September 2026 if it remains within the charge to tax, and then from 15 September 2026 for up to twelve months in the liquidator's hands.
The declaration of solvency rests on the accountant's figures
Before the resolution, the directors must make a statutory declaration under section 89 of the Insolvency Act 1986 that the company will pay its debts in full, with interest at the official rate, within a stated period of no more than twelve months, supported by a statement of its assets and liabilities. It must be made within the five weeks before the resolution and delivered to Companies House within fifteen days after it. A director who makes it without reasonable grounds commits an offence. The liabilities in that statement are largely tax: the corporation tax for the periods not yet assessed, any VAT and payroll balances, and the tax on assets the company will dispose of during the liquidation. That last item is the one most often left out.
Assets handed over in kind are taxed on the company
A liquidator can distribute an asset itself, a property, a vehicle or an investment, instead of selling it and paying out cash. That is a distribution in specie. For the company it is still a disposal, and section 17 of the Taxation of Chargeable Gains Act 1992 treats an asset acquired by way of a distribution from a company in respect of shares as passing at market value. A building that cost GBP 200,000 and is worth GBP 500,000 produces a corporation tax gain of up to GBP 300,000 for the company, before any indexation allowance frozen at December 2017, even though no cash comes in. That tax belongs in the declaration of solvency and has to be paid before the final distribution, so the company needs enough cash, or enough other assets sold, to meet it.
The shareholders' side: capital, spread over tax years
Distributions in a winding up are capital rather than income under section 1030 of the Corporation Tax Act 2010, so each one is a part disposal of the shares for capital gains tax. Business asset disposal relief, at 18 per cent for 2026/27 within a lifetime limit of GBP 1 million, can apply where the conditions are met, including where trading ceased no more than three years before the disposal. Because tax is assessed on the distributions received in each tax year, an interim distribution before 6 April and a final one after it brings a second annual exempt amount of GBP 3,000 into play and moves part of the bill to a later 31 January. Where the shareholders mean to carry on a similar trade within two years, section 396B of the Income Tax (Trading and Other Income) Act 2005 can treat a distribution as income instead. That question is worth settling before the resolution, not after it.
Before the final distribution
Before anything final is paid, the liquidator needs to be satisfied that every return, pre-appointment and post-appointment, has been filed and processed, and that every tax debt has been paid with interest. Where HMRC have lodged no claim, HMRC's guidance notes that issuing a notice of intended dividend gives them a final opportunity to do so. Once the affairs are fully wound up, the liquidator delivers a final account to the registrar, and under section 201 of the Insolvency Act 1986 the company is deemed dissolved three months after it is registered. Any refund that reaches a dissolved company belongs to the Crown, which is a further reason to have every repayment claim settled first.
Five questions for your accountant before you instruct a liquidator
Are all returns filed for every tax and every period, and has HMRC had time to process them? What is the corporation tax for the periods to the date of the resolution, and is it in the statement of assets and liabilities? Which assets will be distributed in kind, and what tax does the company pay on each? How should distributions be timed across tax years, and does business asset disposal relief apply? And what do the shareholders intend to do next, given the two year rule? A liquidation completed in nine months is usually one where those answers were written down before the directors signed anything.
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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.