If your company is dormant and no longer needed, the next step is usually to close it down. Two common routes are a Members’ Voluntary Liquidation (MVL) and a company strike-off.
Both are used to close solvent companies, but they offer different benefits and come with different risks. The right option depends on your company’s financial position, how much it holds in retained profits or assets, and your goals as a director or shareholder.
This article compares MVLs and strike-offs in detail, helping you decide which method is best for closing a dormant company the right way.
What Does a Company Strike-off Involve?
A company strike-off is the simplest and lowest-cost way to close a company. It involves submitting a DS01 form to Companies House and requesting that the company be removed from the register. This can be done online for a small fee, and once processed, the company is legally dissolved.
To be eligible, the company must be solvent, not have traded or changed names in the previous three months, and not be facing legal proceedings or creditor objections. Strike-off is typically used for dormant companies with no assets, income, or outstanding liabilities.
What Does a Members’ Voluntary Liquidation Involve?
An MVL is a formal process that involves appointing a licensed insolvency practitioner to close down a solvent company. It is commonly used when the business has ceased trading but still holds retained profits, property, or other assets that must be distributed to shareholders.
The insolvency practitioner helps the directors throughout the process, including with all the necessary statutory requirements and distributing the assets to shareholders. Once everything is finalised, the company is dissolved and removed from the Companies House register.
Although more costly than a strike-off, an MVL gives shareholders access to capital distributions, often at a lower tax rate than dividends. This method is generally more tax-efficient than a Company Strike-off for companies holding more than £25,000 in retained profits. The tax savings achieved typically outweigh the cost of the liquidation – which makes MVL so appealing.
Why Does the Level of Retained Profits Matter?
The amount of money or assets left in the company plays a key role in deciding between a strike-off and an MVL. Under current HMRC rules, if you close a company via strike-off and withdraw more than £25,000, that amount may be treated as income and taxed accordingly — often at a higher rate.
By contrast, funds distributed through an MVL are treated as capital and subject to Capital Gains Tax. Many shareholders qualify for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), which reduces the CGT rate for qualifying gains.
As a result, if the company holds a significant balance in retained profits or assets, the tax savings from using an MVL can far outweigh the cost of the liquidation process itself.
When Is an MVL the Better Choice?
An MVL is typically the better option when the company holds more than £25,000 in retained profits or assets, especially if tax efficiency is a priority. It is also suitable when:
- There are multiple shareholders involved
- The company has valuable assets that need to be distributed properly
- Directors want legal certainty that all liabilities have been settled
- A formal, compliant closure is preferred.
Because a licensed insolvency practitioner handles an MVL, it offers directors and shareholders peace of mind that the company has been wound up correctly and in accordance with the law.
When Might a Strike-off Be More Suitable?
A company strike-off may be suitable when the business has no retained funds or assets, no liabilities, and no ongoing activity. This often includes companies that have never traded or have already distributed all their funds through regular operations.
Strike-off is also commonly used for small, one-director companies where the administrative and tax advantages of an MVL do not outweigh the cost. Provided all accounts have been settled, and there is no risk of creditor objections, this route can efficiently close a dormant company.
That said, to avoid unintended consequences, it is essential to ensure the company is completely cleared of assets and liabilities before applying for strike-off.
Choosing the Right Method for Your Dormant Company
A strike-off may be a quick and simple solution if your company is dormant, with no liabilities and no remaining assets. However, if retained profits or assets are still within the company, or if you want to ensure the closure is handled in a tax-efficient and legally secure way, a Members’ Voluntary Liquidation is likely to be the better choice.
Understanding the differences between these options can help you close your company correctly, avoid unexpected tax bills, and protect your position as a director. Your accountant and an insolvency practitioner will be able to advise you on your best option. Their advice will normally be free of charge.
