What Are the Costs of Closing a Limited Company?

How Much Does it Cost to Close a Limited Company?

The costs of closing down a limited company in the UK can vary significantly depending on the company’s financial situation and the closure method used.

If you wish to close a debt-free limited company simply via dissolution, the costs typically range between £100-£1,000.

For closing down a limited company with debts through creditors’ voluntary liquidation (CVL), the likely costs are around £5,000 plus VAT for a small company, based on typical insolvency practitioner fees in the UK. However, this can increase if there are significant assets to realise and distribute.

When hiring an insolvency practitioner for a members’ voluntary liquidation (MVL) of a small, solvent company with minimal complexities, the average fees are approximately £2,000 plus VAT.

It’s important to note that these are just rough averages for small companies based on typical UK insolvency practitioner fees. Actual costs can be higher or lower depending on the specific circumstances, complexities involved, and the insolvency practitioner’s rates.

As experienced Insolvency Practitioners and company debt advisors, we can provide expert advice on available options and costs, handling the entire closure process on your behalf. Don’t hesitate to reach out for an initial discussion, free of charge.

Costs of Closing an Insolvent Company via a CVL

A CVL is usually the most expensive way to close a company, with the liquidator’s fee costing anywhere from £3,000 to £6,000 based on the complexity of the case.

A creditors’ voluntary liquidation or CVL is a formal insolvency procedure that is used to liquidate a limited company that is unable to pay its bills.

Although the name may lead you to assume otherwise, a creditors’ voluntary liquidation is a process that the company directors initiate. They will call a general meeting of the shareholders to begin the winding up process. A sale of company assets may cover the liquidator’s fees, because the liqiodator gets paid in priority to any other creditors. 

If the company’s assets do not cover these fees, the directors may be personally liable for the costs. However, it’s worth considering that using this form of limited company closure, you could be entitled to director’s redundancy pay. That averages around £12,000 and would more than cover the cost of liquidation.    

Costs of Closing an Insolvent Company via Compulsory Winding Up

If your company cannot pay its bills and you have not been able to reach an agreement with your creditors, your creditors can make an application for a winding up petition to be issued against your business. If the debt remains unpaid, the court can make a winding up order to shut down your company via a process known as compulsory liquidation. 

Cost: Forcing a company into compulsory liquidation is expensive. It costs creditors between £500-£800 to issue the winding up petition, around £1,600 for the court deposit and a filing fee of £280. These costs will initially be paid by the petitioning creditor, who will hope to recover them from the funds raised by the sale of the company’s assets. A liquidator must also be appointed if there are assets to recover. Their fee will be around £1,500 to £3,000 based on the complexity of the case.

What are the Costs of Closing Solvent Company?

You have two main options if you want to close a solvent limited company. The right method for you will typically come down to the value of the company’s physical assets and the cash in the business.

Costs of Closing a Company via Company Dissolution

The quickest and cheapest method of closing a solvent limited company is via a process called company dissolution, also known as voluntary strike off. This method is best suited to businesses with very few physical assets or that never really made much money. It’s also well suited to businesses that are no longer active and are unlikely to be used again. 

• Striking Off Fees – £10 to file for voluntary strike off with Companies House to dissolve the company.
• Accountant Fees – Approximately £500-£1000+ to handle the closing of books, final tax returns, and advising on process.
• Legal Fees – Around £300+ for a solicitor to review contractual obligations, terminate agreements, and provide closure guidance.
• Creditor/Supplier Payments – Fulfilling any outstanding payments owed to creditors, lenders, suppliers, and contractors.
• Redundancy Pay – Cost of making any remaining employees redundant with proper notice and severance.
• Early Termination Fees – Penalty costs for breaking equipment leases, service contracts, and licenses prematurely.
• Director Loan Repayment – Repaying any loan from directors must be done before applying for dissolution.
• Document Storage – Any costs associated with properly storing company records, accounts, tax filings for the retention period.

Costs in the range of £1000-£5000 are common for closing a limited company, depending on its complexity and obligations. However, dissolving correctly avoids greater costs later.

Costs of Closing a Solvent Company via MVL

A member’s voluntary liquidation (MVL) is a formal procedure for closing a solvent limited company. A licensed insolvency practitioner must be appointed to realise the company’s assets, repay any creditors, and distribute the money among the shareholders.

Cost: Members’ voluntary liquidations start at around £1,500 for companies with a small number of assets and rise to £3,000 or more when a greater number of more valuable assets are involved.

Entrepreneurs Relief

When you’re calculating the cost of closing a limited company which is solvent, it’s not just the cost of the closure method that you should consider. The amount of tax payable on the assets you realise will have a big impact on the money you walk away with. At just £10, company dissolution is by far and away the cheapest way to close a solvent limited company. However, something called Business Asset Disposal Relief (BADR), previously known as Entrepreneurs’ Relief, is available on the assets realised through a members’ voluntary liquidation. That could help to reduce the tax payable on retained profits and the gains you make through the sale of company assets significantly.

Do You Have to Pay Tax If You Close a Limited Company?

Yes, you typically have to pay tax when closing down a limited company in the UK. The specific taxes due will depend on the company’s financial situation and the method of closure, but common taxes include:

• Corporation Tax: If the company made profits in its final accounting period, corporation tax will be due on those profits. The tax rate is currently 19%.
• Capital Gains Tax: If the company has any chargeable assets that are sold/distributed during the liquidation process, capital gains tax may apply on any gains realized.
• Income Tax: Shareholders/directors may need to pay income tax on any distributions received from the company during the winding up, such as dividend payments.
• National Insurance: NI contributions may be payable on any salaries/dividends taken by directors/shareholders in the final period.
• VAT: Any VAT owed up to the company’s closing date must be paid and final VAT returns filed.

The key is to properly calculate and pay any outstanding tax liabilities up to the date of dissolution or the start of liquidation. Penalties can apply if taxes are not settled correctly. An insolvency practitioner or accountant can ensure all tax obligations are fulfilled during the closure process.

Finding the Most Cost-Effective Closure Method for your Company

At Company Debt, we can advise you on the most cost-effective closure method for your limited company based on your circumstances. Our licensed insolvency practitioners are also well-placed to support you throughout your company closure. Our initial consultation is free and without obligation, so please give us a call on 0800 074 6757 or start a web chat with one of our team. 

FAQs about the Costs of Closing a Limited Company