How to Close a Limited Company in the UK

Closing a limited company in the UK requires careful planning and compliance with legal protocols.

We’ll guide you through the necessary steps to close your limited company in accordance with UK law and minimize risks.

How to Close a Limited Company

If you decide to close your limited company, the approach you take will depend on the company’s financial status.

For a solvent business, directors can opt for voluntary striking off by applying to Companies House. This process involves settling all business debts, notifying relevant parties, and submitting the DS01 form. Alternatively, a more formal route is a members’ voluntary liquidation, which requires appointing a licensed insolvency practitioner to liquidate the company’s assets and distribute the proceeds among shareholders.

In the case of insolvency, where the company cannot meet its financial obligations, directors might consider a creditors’ voluntary liquidation. This process requires the agreement of a majority of the shareholders, specifically at least 75% by share value, to pass a winding-up resolution. An insolvency practitioner is appointed to oversee the process, which includes selling assets to pay creditors and concluding the company’s affairs.

Each route has specific legal requirements and implications, so seeking professional advice is recommended to ensure compliance and the most appropriate course of action for your company’s circumstances.

4 Ways to Close a Company 

Striking off a solvent company

Striking off a limited company from the Companies Register is a relatively straightforward and cost-effective way to close a company that is solvent and no longer trading. It is a popular choice for small business owners who are retiring or moving on to other ventures.

(1) Eligibility Criteria

Before applying to strike off your limited company, you must ensure that it meets the following eligibility criteria:

• It is not trading and has not traded in the last three months.
• It has no outstanding debts, including those to HMRC, suppliers, and employees.
• It is not subject to any ongoing legal proceedings.

(2) Application to Companies House

Once you’ve confirmed your company’s eligibility, submit an application to Companies House online or by post. There is a fee, and you’ll need to provide essential details such as the directors’ and shareholders’ names.

(3) Public Notice in the Gazette

After submitting and accepting your application, Companies House will publish a legal notice in the Gazette. The Gazette is the official public record of the United Kingdom, and it is where all legal notices are published. This notice informs the public and potential creditors that your company is being struck off.

(4) Waiting Period and Objections

After the Gazette publication, there is a two-month waiting period during which objections can be raised against the company’s striking off. If any objections are received, these must be resolved before the striking-off process can proceed.

(5) Receipt of Dissolution Notice

Upon successful completion of all the above steps and in the absence of any objections, Companies House will formally strike off your company. You will then receive a notice of dissolution confirming that your company has been officially closed and no longer exists.

Members’ voluntary liquidation of a solvent company

An MVL is a formal process of winding up a solvent company, meaning that it has enough assets to pay off all of its debts. It is best suited for companies with at least £25k in assets.

One of the main advantages of closing a company with an MVL is the potential tax savings. When a company is wound up voluntarily, any distributions to shareholders are treated as capital gains rather than income. This means that they are taxed at a lower rate, especially for higher-rate taxpayers.

(1) The Initial Resolution

The MVL process begins with a resolution passed at a general meeting of shareholders. In order to proceed, the directors must affirm the company’s solvency, meaning that it can meet all of its financial obligations within one year. Passing this resolution marks the start of the MVL process.

(2) Appoint a Licensed Insolvency Practitioner

An integral part of the MVL process is appointing a licensed insolvency practitioner (IP) to act as the liquidator. The IP is responsible for overseeing the entire liquidation process, including selling the company’s assets and distributing the proceeds to shareholders in a tax-efficient manner.

(3) Notification to Creditors

As part of the MVL procedure, the liquidator must send formal notifications to creditors, giving them the opportunity to submit any outstanding claims. This ensures that all financial obligations are addressed transparently and in accordance with the law.

(4) Asset Realization and Distribution

The liquidator then proceeds to realize and sell the company’s assets, converting them into cash. The funds acquired are then distributed among the shareholders according to their entitlements. This phase is carefully executed to maximize returns while complying with taxation regulations.

(5) Dissolution and Company Closure

Once all of the assets have been distributed and all financial matters have been resolved, the liquidator will apply for the company’s dissolution. This formalizes the closure, removing it from the Companies House register and marking the conclusion of the Members’ Voluntary Liquidation process.

Creditors’ Voluntary Liquidation of an insolvent company

Creditors’ voluntary liquidation (CVL) is a formal process for closing a company with debt. It is a good option for companies that are insolvent but want to avoid compulsory liquidation, which is the process of winding up a company by court order.

(1) The Shareholders’ Vote

The journey towards a CVL begins with a formal resolution to wind up the company. This resolution must be passed at a general meeting of shareholders, with at least 75% of the shareholders voting in favour. This step sets the stage for the formal liquidation process and is mandatory for proceeding with a CVL.

(2) Appointing a Licensed Insolvency Practitioner

Upon passing the resolution, the next step involves appointing a licensed insolvency practitioner (IP) to act as the liquidator. The liquidator’s role is critical; they are responsible for shutting down the company, valuing and selling its assets, and overseeing the payment to creditors.

(3) Advertising the Liquidation

Once the liquidator is appointed, it is mandatory to publish a notice about the liquidation in The Gazette. This step is crucial to inform creditors, suppliers, and other stakeholders about the company’s status and impending liquidation.

(4) Paying Creditors

The liquidator will then proceed to sell off the company’s assets and use the proceeds to settle debts. Creditors are paid in a specific order, usually starting with secured creditors. It’s imperative to follow this sequence to adhere to legal requirements.

(5) Company Dissolution

After settling all debts and fulfilling any remaining legal obligations, the liquidator will apply to have the company dissolved. This is the final step in the CVL process and marks the official end of your company.

Compulsory Liquidation of an insolvent Company

Compulsory liquidation occurs when creditors, including HM Revenue and Customs (HMRC), apply to the court for a winding-up order against a company that cannot pay its debts. This is a more severe route compared to voluntary liquidation and typically arises when negotiations with creditors fail or if the company ignores or cannot comply with payment demands.

The process begins with a creditor issuing a statutory demand for debt repayment. If the company fails to pay or reach an agreement within 21 days, the creditor may petition the court for a winding-up order. HMRC frequently uses this approach for unpaid taxes.

Once a winding-up petition is filed, the company faces serious risks. The court can freeze the company’s assets, and if the petition is advertised, it may lead to bank account closure. The court’s decision to issue a winding-up order will result in the appointment of an official receiver or an insolvency practitioner to liquidate the company’s assets and distribute the proceeds to creditors.

During compulsory liquidation, directors lose control of the company and face scrutiny regarding their conduct. If wrongful or fraudulent trading is uncovered, directors can be held personally liable for company debts.

How to close a limited company that has never traded

If you have a limited company that has never traded, you can close it down using a voluntary strike-off. This is a relatively simple process, but there are a few things you need to do first.

1. Pass a resolution to strike off the company. This must be done at a general meeting of shareholders. All shareholders must agree to the resolution.
2. Complete and submit Form DS01 to Companies House. This form must be signed by all of the company’s directors.
3. Pay a filing fee to Companies House. The current fee is £10.
4. Once Companies House has processed your application, your company will be struck off the register and will cease to exist.

If you are unsure whether your company is eligible for voluntary strike-off or you need help completing the form, you can seek professional advice from an accountant or solicitor.

How much does it cost to close a limited company?

The cost of closing a limited company in the UK depends on several factors, such as the closure method, company size, and specific circumstances. Key costs include:

• Professional fees for advice from accountants, solicitors, or insolvency practitioners.
• Companies House fees for processing closure applications, varying with the closure method.
• Fees for an insolvency practitioner if opting for a process like Creditors’ Voluntary Liquidation (CVL) or Company Voluntary Arrangement (CVA).
• Employee redundancy costs, including statutory redundancy pay, notice periods, and holiday pay.
• Settlement of outstanding debts and liabilities, such as paying off creditors and loans.
• Tax implications, potentially incurring Corporation Tax or Capital Gains Tax, and costs for professional tax handling.
• Asset valuation costs if liquidating or transferring assets.
• Costs for filing necessary paperwork with Companies House and other authorities.

You can read our full article here on The Costs of Closing a Limited Company. 

What permissions do I need to close my company?

To close your limited company in the UK, you need to obtain specific permissions and comply with certain legal procedures, depending on the method of closure you choose:

1. Voluntary Striking Off: If you’re opting for voluntary striking off, you must first secure consent from shareholders. A majority of the company’s directors must agree to this course of action. Additionally, you should inform all interested parties, including employees, creditors, and clients, about your decision. The formal step involves submitting a DS01 form to Companies House, along with the required fee.
2. Members’ Voluntary Liquidation (MVL): In an MVL, where the company is solvent, the directors must make a statutory declaration of solvency. This declaration includes a statement that the company can pay its debts in full within 12 months. Shareholders must pass a resolution for voluntary winding up, typically requiring a 75% majority.
3. Creditors’ Voluntary Liquidation (CVL): For a CVL, applicable when the company is insolvent, the directors must convene a meeting of shareholders to pass a resolution for winding up. Additionally, they must hold a meeting with creditors, usually on the same day, to inform them of the company’s financial situation and the proposed steps for liquidation.
4. Compulsory Liquidation: In the case of compulsory liquidation, often initiated by creditors, the company doesn’t need to obtain permissions as such. Instead, the focus is on responding to legal actions taken by creditors, such as a winding-up petition. Directors should engage with legal and financial advisors to navigate this process.

In all scenarios, professional advice from an accountant or insolvency practitioner is crucial to ensure that you are following the correct legal procedures and acting in the best interests of all stakeholders involved.

Do I need to notify HMRC if I want to close a limited company?

If you are closing a limited company, it is typically the responsibility of the appointed Insolvency Practitioner (IP) to notify HM Revenue and Customs (HMRC) as part of the liquidation process. When a company enters into any form of liquidation, be it Members’ Voluntary Liquidation (MVL), Creditors’ Voluntary Liquidation (CVL), or Compulsory Liquidation, the IP manages all aspects of closing the company, including communication with HMRC.

This means that as a director, you do not personally need to notify HMRC when the company is being closed through a formal liquidation process, as the IP will handle all necessary notifications and submissions, including final tax returns and settling any outstanding tax liabilities.

However, if you are closing your company through a voluntary striking off, you are responsible for informing HMRC of your intent to close the company and for settling any outstanding tax affairs before applying to Companies House. This includes submitting final accounts and tax returns and ensuring all tax liabilities are paid.

Making your Company Dormant instead of Closing it

Making your company dormant means that it is still registered with Companies House but is not actively trading and is not generating any income. Dormant companies are still subject to some legal requirements, but they have fewer obligations than trading companies.

There are a number of reasons why a company owner might choose to make their company dormant. For example, they may be planning to start trading again in the future, or they may simply want to keep their company name and registration intact.

To make your company dormant, you need to follow these steps:

1. Notify HMRC that your company is dormant. You can do this online or by phone.
2. File your dormant company accounts with Companies House. You can do this online or by post.
3. Submit a confirmation statement to Companies House each year. You can do this online or by post.

If your company has any significant transactions during the year, it will not be considered dormant and you will need to file normal company accounts and tax returns.

Do I need to tell HMRC my company has been closed if it never traded?

Yes, if your company has been closed and it never traded, you still need to inform HM Revenue and Customs (HMRC) about the closure. Even if the company had no business activities or tax liabilities, HMRC should be notified to ensure their records are updated, and no further tax obligations or filings are expected from the company.

Legal Responsibilities When Closing a Limited Company

When closing a limited company, key legal responsibilities include:

1. Adhering to the Companies Act 2006, including proper notification to Companies House and compliance with legal obligations towards creditors, shareholders, and employees.
2. Directors must ensure all debts and liabilities are addressed, with failure to do so potentially leading to personal liability.
3. Legally compliant employee redundancy processes, including notice periods, wages settlement, and redundancy entitlements.
4. Informing creditors of the closure and settling outstanding payments.
5. Handling intellectual property and assets appropriately, including transfer or protection of rights and liquidation or distribution of assets.
6. Considering shareholders’ rights and interests, and adhering to shareholders’ agreements in case of disputes.
7. Preparing and executing legal documentation, such as resolutions and agreements with creditors or insolvency practitioners.
8. Ensuring tax compliance to avoid penalties from tax authorities.

Seeking advice from legal professionals or business advisers is recommended to navigate these complex requirements for a legally compliant dissolution process.

Can I Close a Company and Start a New One?

The answer is that you can start another business providing all the requirements of Companies House are adhered to.

What HMRC is keen to prevent, however, is the process known as phoenixing, whereby a liquidated company rises from the ashes with the same or similar name, but within a new limited company structure.

This is prohibited by Section 216 of the Insolvency Act.

You can’t for example, use the same company name again.

How Long Does it Take to Close a Company?

Assuming the company is simply being struck off the register at Companies House, expect a time frame of around 3 months before you receive confirmation.

Liquidation is likely to take much longer, especially if there are assets to dispose of.

Get in touch if you Would Like Our Help With Closing Your Limited Company

If you want help liquidating your company voluntarily or fear you will be handed a winding-up petition by a secured creditor or HMRC, you should contact Company Debt at your earliest opportunity.

We can put the provisions in place to help you wind up your business seamlessly or act quickly to help you avoid compulsory liquidation.

Company Closure FAQs