When you’re ready to close your limited company, the method you choose has significant tax consequences. Members’ Voluntary Liquidation (MVL) and striking off are both legitimate routes — but the right choice depends on how much money is in the company and what you plan to do next.
At a Glance: MVL vs Striking Off
| Feature | MVL | Striking Off |
|---|---|---|
| Formal process required | Yes — licensed insolvency practitioner | No |
| Cost | £1,500–£4,000 | £33 (Companies House fee) |
| Tax treatment of distributions | Capital (CGT rates) | Income (dividend tax) if >£25,000 |
| BADR eligibility | Yes (if conditions met) | No (not a disposal of shares) |
| TAAR anti-avoidance risk | Low (formal process protects) | Higher (if you continue similar work) |
| Time to complete | 3–6 months typically | 3–6 months (includes 2-month creditor notice) |
| Suitable for | Companies with significant assets/profits | Dormant or minimal-asset companies |
The Tax Difference — Why It Matters
This is the core issue. How your retained profits are taxed on closure depends on the method used.
MVL — Capital Gains Tax treatment:
Distributions from an MVL are treated as a disposal of shares — subject to Capital Gains Tax, not Income Tax.
| Profit in company | Tax via MVL + BADR (10%) | Tax via MVL (no BADR, 18%/24% CGT) |
|---|---|---|
| £50,000 | £5,000 | £9,000–£12,000 |
| £100,000 | £10,000 | £18,000–£24,000 |
| £200,000 | £20,000 | £36,000–£48,000 |
Striking off — Income Tax treatment (if assets > £25,000):
Distributions up to £25,000 on dissolution are treated as capital. Distributions above £25,000 are treated as a dividend distribution — taxed at dividend tax rates:
| Rate | Applies to income in band |
|---|---|
| 8.75% | Basic rate band (£12,570–£50,270) |
| 33.75% | Higher rate band (£50,270–£125,140) |
| 39.35% | Additional rate (above £125,140) |
Example: £100,000 retained in company, higher rate taxpayer:
- Via MVL + BADR: £10,000 tax (10% on £100,000)
- Via striking off (£75,000 above the £25k threshold): £25,313 tax (33.75%)
- Tax saving from MVL: £15,313 — vs MVL cost of £2,000–£3,000
At any retained profit above approximately £50,000, an MVL almost always wins on pure tax grounds.
Business Asset Disposal Relief (BADR) — The 10% Rate
To qualify for BADR (formerly Entrepreneurs’ Relief) on an MVL distribution, you must have been:
- An officer or employee of the company
- Held at least 5% of the ordinary share capital
- For at least 24 months before the start of the winding-up
Most one-person contractor companies will meet these conditions easily if the company has been trading for over 2 years.
BADR lifetime limit: £1,000,000 of qualifying gains. The 10% rate applies to gains up to this limit.
The Anti-Avoidance Risk (TAAR) — Striking Off
Since 2016, HMRC can apply the Targeted Anti-Avoidance Rule (TAAR) to striking off distributions where:
- The company has significant assets
- You (or a connected person) continue to carry out “the same or similar activities” within 2 years
If TAAR applies, HMRC reclassifies the distributions as dividends — removing the capital treatment of the £25,000 threshold.
Who is at risk:
- Contractors who dissolve a company then continue contracting through a new company or as a sole trader within 2 years
- Directors who set up a new company in the same field immediately after closing the old one
An MVL provides a degree of protection because the formal process is harder for HMRC to challenge as avoidance.
How to Strike Off a Company
If your company has minimal assets (under £25,000 total) and no outstanding debts, striking off is straightforward:
Step 1: Cease trading and ensure no pending liabilities (tax, creditors, contracts). Step 2: File final accounts and a final Corporation Tax return with HMRC. Step 3: Pay any remaining Corporation Tax and close the PAYE scheme. Step 4: Apply to Companies House for voluntary strike-off using form DS01 (£33 fee online). Step 5: Companies House places a notice in the Gazette — a 2-month objection period begins. Step 6: If no objections, the company is dissolved and removed from the register.
Warning: You must notify HMRC, employees, creditors, and any other stakeholders before applying. Failing to do so is a criminal offence.
How MVL Works
Step 1: Appoint a licensed insolvency practitioner (IP). Step 2: Director(s) sign a Declaration of Solvency (a formal legal statement that the company can pay all its debts in full within 12 months). Step 3: Shareholders pass a special resolution (75%+ majority) to wind up the company. Step 4: The IP takes control, realises all assets, pays all creditors, and distributes remaining funds to shareholders. Step 5: The IP files a final return at Companies House — the company is dissolved.
Typical timeline: 3–6 months for a straightforward one-person company.
Which Route Should You Choose?
| Situation | Recommendation |
|---|---|
| Retained profits under £25,000 | Striking off — save the IP fees |
| Retained profits £25,000–£50,000 | Borderline — MVL may be worthwhile depending on your tax rate |
| Retained profits over £50,000 | MVL — the tax saving almost always justifies the cost |
| You plan to continue contracting in same field within 2 years | MVL — protects against TAAR |
| Company has creditors or complex liabilities | MVL — formal process provides protection |
| Company has been dormant and has no assets | Striking off — simple and cheap |