How to close a limited company down

When you start a business, it’s never going to be smooth sailing, as there are a lot of hurdles and challenges you’ll face.

Unfortunately, sometimes these difficulties mean that you’ll have to face a complete closure of your company. Whether it’s financial problems, unexpected market changes, or internal management issues, shutting down can become the only viable option.

We understand this can be frustrating and disheartening, but that doesn’t mean it’s the end of your entrepreneurial journey; it’s merely a setback that can also be a valuable learning curve to help you prepare for future ventures.

Below, we’ll share the steps you need to take to close a limited company, including the type of closures you can take, who you need to inform, and the legalities involved.

How do you close a limited company?

There are two ways to close a limited company: through voluntary closure or compulsory closure.

Voluntary closure is when a company’s directors or shareholders decide to end its operations and legally dissolve it.

On the other hand, a compulsory closure refers to a legal process where a company is forced to close down through a court order. 

Voluntary closure options explained

You can close a business through a voluntary strike off or a Members’ Voluntary Liquidation (MVL). 

For a voluntary strike off, you must submit a DS01 form to Companies House. This costs £33 to complete online and £44 on paper, and must be signed by the majority of the company’s directors.

Once Companies House confirms the form is correct, your strike-off request will be published as a notice in the Gazette. After two months, if there are no objections, the company will officially be struck off the register.

The MVL route is a more formal process, which begins with the directors signing a Statutory Declaration of Solvency. This statement confirms that the affairs and all debts, including interest, can be paid within 12 months.

Next, shareholders must appoint a licensed insolvency practitioner, whom shareholders appoint during an extraordinary general meeting (EGM). Following this meeting, it will be the insolvency practitioner’s responsibility to realise the company’s assets and settle any outstanding debts, like corporation tax, PAYE, and value-added tax (VAT). 

Once the debts and liabilities have been settled, the remaining funds will be distributed to the stakeholders. The liquidator will then submit a final report to Companies House, and the company will be officially dissolved and removed from the register three months after the report is registered.

Compulsory closures explained

A compulsory closure is when a company is closed forcibly by Companies House. 

This can happen for a couple of reasons, such as annual accounts being overdue (e.g. balance sheets, profit and loss accounts, and statement of cash flows), and Companies House hasn’t received a response to notification letters.

Additionally, a company may be forced to close if it has unpaid debts that it cannot pay off. This happens after a creditor has exhausted all their efforts to recover the money, and so petitions the court to wind up an insolvent company (known as a “Winding Up Petition”). 

Once this is passed, an Official Receiver is appointed and will start liquidating the company’s assets, such as stock, vehicles, property, and machinery, to repay the outstanding debts. After these assets are sold off, the company will be officially closed down and removed from the Companies House register. 

Directors can face serious consequences if their company is forcibly closed. Not only do they land in serious debt with creditors, but they can also face disqualification from company registration, fines, or even personal liability for company debts. 

Step-by-step: How to close a limited company

Unfortunately, closing a company isn’t as easy as submitting a single application. There are many things you need to take care of first, such as paying your debts, outstanding taxes, and informing the right people. Here’s a rundown of how the process typically works:

1. Decide the right closure method

First, you will need to decide whether to voluntarily strike off your company or go through MVL. 

A voluntary strike off is easier and cheaper to do, but it’s only possible if the business is solvent (able to pay all its debts). It’s a good option for smaller companies that are no longer trading and don’t have many assets left.

An MVL, on the other hand, is usually chosen when there are larger amounts of cash or assets to distribute. While it’s more formal and requires appointing a licensed insolvency practitioner, it can be a lot more tax-efficient, as funds can be treated as capital rather than income — meaning you might pay less tax overall.

2. Inform relevant parties

You must announce your closure plans to HMRC, as well as shareholders, creditors, and employees. This will keep everything transparent and ensure that everyone with a stake in the business is informed about what’s happening.

Meanwhile, creditors will need the opportunity to raise claims, while employees need enough notice to prepare for workplace redundancies or look for new opportunities.

Additionally, shareholders will want to know how and when any remaining assets will be shared, which you should inform them of as soon as possible to avoid disputes later on.

3. File final accounts and company tax returns

As a company director, you’ll still be required to file a Self-Assessment tax return, along with final company accounts and a Company Tax Return to HMRC.

These filings are important because they show exactly what the business made up to its closure date and ensure that all tax responsibilities are completed.

Before applying for a strike off or liquidation, make sure corporation tax, VAT, and PAYE obligations are fully paid. If you’re registered for VAT, you’ll need to cancel that registration as well. This will help avoid delays, penalties, or unexpected bills in the future.

4. Distribute remaining assets

Once all debts and liabilities have been cleared, any remaining funds or assets can be distributed among shareholders.

In the case of a strike off, this is usually done before submitting the DS01 form; otherwise, anything still held by the company (e.g. money in the bank) could end up going to the Crown.

With an MVL, the insolvency practitioner will handle the process for you and make sure everything is shared in a structured and tax-efficient way, so that shareholders receive what they’re entitled to.

5. Apply for strike off/appoint an insolvency practitioner

To start the process of deregistering your company, you will have to fill out a DS01 form and send it to Companies House. Remember to get this signed by the majority of the company’s directors and to pay the deregistration fee.

For MVL insolvencies, you must assign a licensed insolvency practitioner, as they will ultimately take control of the company, settle any remaining liabilities, and distribute assets to shareholders.

6. Inform employees and close the PAYE scheme

You must inform employees of your decision to close the company as soon as possible. If you’re applying for a voluntary strike off, you also have to send a copy of the strike off application within seven days.

To close your company’s PAYE scheme, you will need to submit a final payroll return, either through a Full Payment Submission (FPS) or an Employer Payment Summary (EPS). 

You will also need to deduct and pay any outstanding taxes and National Insurance Contributions (NICs), send your expenses and benefits returns, enter a leaving date on each employee’s record, and provide staff with a P45 on their last day. Most accounting software, such as Xero, QuickBooks and FreeAgent, can provide P45 forms for leaving employees.

What are the legal considerations of closing a company?

Closing a company, whether it is solvent or insolvent, has significant legal implications. This includes the taxes that still need to be paid, such as: 

• Corporation tax: The tax paid by limited companies on the profits earned from trading, investments, and selling assets.
• Capital gains tax (CGT): Tax paid on profits made from the sale of non-inventory assets, such as stocks, bonds, and real estate. 
• Value-added tax (VAT): A consumption tax collected on most goods and services. You’ll need to submit a final VAT return and deregister if your company is VAT-registered.
• National Insurance (NI): Contributions that must be paid on employee wages and director salaries through the PAYE system.

We recommend seeking advice from an accountant or an insolvency practitioner to make sure all your tax obligations are met, the right closure method is chosen, and the process is handled correctly throughout.

Can I get relief on my taxes?

You can get relief on your capital gains tax through the government’s Business Asset Disposal Relief scheme. 

This allows business owners to pay a reduced 14% on qualifying capital gains disposed of from 6 April 2025, or 10% on qualifying capital gains disposed of on or before 5 April 2025.

To be eligible for relief, you must have owned the business for at least two years and be either a sole trader, business partner, or company shareholder. You must also dispose of your business assets within three years to qualify.

What happens after your company is closed?

After your company’s closure is published in the Gazette and taken off the register, your company will no longer be able to trade, hold assets, or enter into contracts. Any business bank accounts will also be frozen and eventually closed.

However, even after the company is dissolved, former directors have a few post-closure responsibilities. This includes ensuring that all company records, including accounts, tax returns, and statutory records, are retained for at least six years.

On the other hand, if the closure is compulsory or if there is an investigation into the company, former directors must cooperate fully with the liquidator or Official Receiver.

Also, while there is limited legal and financial liability (compared to being a sole trader), this can be breached in certain circumstances. For example, directors can face personal liability if they signed personal guarantees, committed wrongful or fraudulent trading, or failed to fulfil their legal obligations during the closure process.

Do I need to close my company down?

When it comes to deciding the future of your business, shutting down isn’t the only option. Depending on your circumstances, there are several alternatives you can take to help you protect your business and its value, or even grow in a new direction.

Dormant company status

Having a dormant company basically means that you’re putting things on hold. Your business will still be registered, but it won’t be trading or receiving income.

The main advantage of this is that you don’t have to pay corporation tax or file another company tax return, unless you’ve been asked to submit one. 

Your business name will also be protected (no one else can register a company with the same name), and if you want to restart trading, you can reactivate the company instead of starting from scratch.

However, you’ll still need to file annual accounts and a confirmation statement, and deregister for VAT within 30 days of your company becoming dormant. You also won’t be able to buy, sell, employ staff, or conduct any business activities while dormant.

Selling the business

You could also consider selling your business instead of closing it down completely.

If you find someone to sell to, you can cash in on the value you’ve built and secure a lump sum payout. Selling your business will also free up time to start a new venture or career, and you’ll be eligible for Business Asset Disposable Relief if you meet the previously mentioned criteria.

The main downside of selling is that once the deal is done, you can’t influence decisions, meaning the business may take a direction you don’t agree with. Employees and loyal clients might also feel unsettled by the change in ownership, especially if there’s a risk of redundancies or changes to the way the business operates.

Restructuring

Restructuring is when a company’s operations, finances, or structure is reorganised to improve efficiency or profitability. 

A popular approach is merging, which is when two or more companies combine to form a single business. Additionally, you could restructure through pivoting, which involves completely changing your strategy, target market, and product/service to respond to market changes or find new opportunities.

Whichever way you choose, restructuring can help your business respond to market conditions, new technologies, or customer needs more effectively. Mergers, acquisitions, or pivoting can also strengthen your company’s market position.

That being said, changes in structure, staff, or processes can temporarily slow down the business. Employee engagement and morale are likely to suffer as well, as job cuts, role changes, or uncertainty can impact motivation and retention.

When can I start another company?

You can only start a new venture after you’ve settled all outstanding debts and obligations. If you are disqualified as a director, you will not be able to manage a company or be involved in its formation until the disqualification period ends.

It’s also important that you understand the rules around phoenixing in the UK, which is when a company repeatedly goes into liquidation and then re-registers under a new name, sometimes to avoid tax bills and other debts. This means you shouldn’t use an identical or similar name if your old company is liquidated, or you could end up being investigated for fraud.

All in all, remember that closing a company doesn’t mean the journey is over. Even the most successful entrepreneurs face setbacks, including having to close their businesses. 

It’s not a failure on your part, but a valuable lesson that can help you refine your approach to and prepare you for your next venture with more confidence and experience.