Strike-off vs MVL in one paragraph: the cheap route is voluntary strike-off via Companies House form DS01 (£44 fee). Distributions are taxed as capital (subject to CGT, with BADR if eligible) BUT only up to £25,000 of reserves. Above £25,000, the strike-off route reclassifies all distributions as income (dividend rate up to 39.35%). For larger reserves, a Members' Voluntary Liquidation (MVL) is needed — costs £2,000-£5,000 but allows unlimited capital distribution at potentially 10% (BADR) or 18-24% (standard CGT) rates.
The two routes summarised
| Feature | Strike-off (DS01) | MVL |
|---|---|---|
| Cost | £44 + accountant fees | £2,000 - £5,000+ |
| Time | 3-4 months | 6-12 months |
| Eligibility cap on capital distribution | £25,000 total reserves | Unlimited |
| BADR applicable | Yes (if conditions met) up to £25k | Yes (if conditions met) unlimited |
| Above £25k cap | Reclassified as dividend | Remains capital |
| Director's loan accounts | Must be settled before | Can be cleared during process |
| Outstanding HMRC issues | Cannot proceed | Insolvency practitioner handles |
| Company status | Dissolved at Companies House | Liquidated formally |
Voluntary strike-off (DS01)
The "easy" route, suitable for small/simple closures:
- Settle all debts. Pay all suppliers, creditors, HMRC. Close bank accounts.
- Distribute all remaining cash to shareholders (this is the "capital distribution" step).
- Submit form DS01 to Companies House (£44 fee).
- Companies House publishes notice in the Gazette. After 2 months without objection, the company is struck off.
The £25,000 cap applies to the total amount distributed in the lead-up to strike-off. If you distribute £30,000 and then strike off, HMRC will reclassify all distributions as dividend income — not just the excess over £25,000. Don't get this wrong.
The £25,000 cap mechanics
The cap was introduced in 2012 to stop director-shareholders extracting all retained earnings as capital (low tax) just before strike-off. The exact rules:
- Includes all distributions in the period leading up to strike-off (not a fixed time window, but de facto the period after the decision to wind up).
- Above £25,000, HMRC treats the entire amount as a dividend — not just the excess.
- BADR (10% / 14% from April 2026) can apply to the capital portion if conditions are met.
- Includes return of share capital and reserves alike.
If you have, say, £40,000 to distribute on closure:
- Strike-off route: all £40,000 treated as dividend. At 33.75% (higher rate) = £13,500 tax.
- MVL route: all £40,000 treated as capital. At 14% BADR (April 2026 rate, assuming qualifying conditions) = £5,460 tax (or 10% pre-April 2025 = £4,000).
- Saving: £8,000 of tax. MVL cost ~£3,000. Net benefit: £5,000.
When MVL definitely makes sense
- Reserves above £25,000. The break-even is roughly £25,000-£35,000 depending on professional fees vs tax savings.
- Reserves above £75,000. MVL is unambiguously better — the tax saving is large vs the fixed MVL cost.
- BADR conditions met (working director, >5% holding, 2-year ownership): the saving multiplies.
- Complex assets to distribute (intellectual property, property, business assets in specie): an insolvency practitioner can manage the transfer.
- Need to release director from any contingent liabilities (warranties, guarantees): formal liquidation provides cleaner closure.
When strike-off is the right choice
- Total reserves under £25,000. No tax advantage from MVL.
- Need to close quickly with minimal cost. Strike-off can be done in 3-4 months for a few hundred pounds.
- Solvent company with no contingent issues. No suppliers chasing, no HMRC disputes, no contingent liabilities.
- Director willing to accept loss of "fresh start" formalities. Strike-off doesn't formally absolve directors of potential claims; a liquidation does.
BADR (Business Asset Disposal Relief) — the key benefit
BADR (formerly Entrepreneurs' Relief) gives a reduced CGT rate on qualifying disposals:
- 2026/27 rate: 14% (rising from 10% in April 2025). Set to rise to 18% from April 2026 in the most recent Autumn Statement.
- Lifetime cap: £1,000,000 of qualifying gains.
- Conditions: the company must be a trading company (NOT a CIC), you must have held at least 5% of shares and voting rights, you must have been an officer or employee for at least 2 years before disposal.
On MVL, the capital distribution counts as a disposal of shares for CGT. If BADR conditions are met, the rate drops dramatically.
Without BADR (CIC, or you don't qualify), CGT applies at standard rates: 18% within unused basic-rate band, 24% above.
Anti-avoidance: the "phoenixing" rule
HMRC introduced a "Targeted Anti-Avoidance Rule" (TAAR) to stop director-shareholders from repeatedly:
- Building up reserves in CompanyA
- Taking MVL with capital distribution + BADR (low tax)
- Opening CompanyB doing the same trade
- Repeating
The TAAR applies if:
- You receive distribution from a wind-up
- Within 2 years you carry on a "similar" trade or activity
- A main purpose of the wind-up was to obtain a tax advantage
If TAAR applies, the distribution is reclassified as income. The "similar trade" test is broad. If you're planning to continue working in the same industry, MVL may not deliver the BADR savings.
Practical steps for each route
Strike-off (DS01)
- Settle all debts and creditors
- Settle director's loan accounts (clear any overdrawn DLA)
- Distribute reserves (up to £25,000 for capital treatment)
- File final accounts and CT return
- Close bank accounts
- Submit DS01 to Companies House
- Wait 2 months for Gazette notice
- Company dissolved
MVL
- Appoint a licensed insolvency practitioner (IP)
- Pass shareholder resolution to wind up the company
- Directors swear a declaration of solvency (mandatory: must declare company is solvent and can pay debts in full within 12 months)
- IP handles realisation of assets, creditor payments, final tax returns
- Capital distribution to shareholders — usually in two tranches (initial, then final on completion)
- Final reports filed with Companies House
- Company struck off, debt-free
Common closure mistakes
- Distributing more than £25,000 then using strike-off. All distributions retrospectively reclassified as dividends.
- Striking off with creditors still active. Companies House requires no outstanding claims; debts can revive a struck-off company.
- MVL without BADR qualifying. Pays full standard CGT rates — cost-benefit may not work.
- Triggering the phoenixing TAAR. Continuing the same trade within 2 years can undo the entire MVL tax saving.
- Forgetting to file all tax returns. Pre-closure CT return, VAT deregistration, PAYE final submission — all must be done.
- Underestimating MVL cost. Quoted £2-5k can run higher for complex estates with multiple asset types.
Sources
Related content for Ltd company directors
- Salary vs dividend calculator
- Dividend tax calculator
- Director's loan accounts (DLA)
- Close investment companies
- Associated companies and CT bands
- Optimal extraction by profit level
- Employer pension contributions
- Closing a company: strike-off vs MVL
- Business Asset Disposal Relief
- Dividend waivers and settlements
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