One of our Associates and Licensed Insolvency Practitioners Alastair Fish contributed to this article, along with Tom Russell, President of R3 and Mark Stigwood, Partner, Attwater Solicitors. The article, written by Rebecca Burn-Callander, originally featured in the Autumn 2025 edition of NICEIC Connections Magazine. Original publisher – Think Publishing.
When Does Winding Down Make Sense?
In the last of our series on succession planning, Rebecca Burn-Callander
Sometimes, when there’s no buyer or successor to take on a company, a business owner who wants to step away will have no other option but to wind it down. Just as there are many ways to end a marriage – from an amicable separation to a heartbreaking one – there are many ways to close a company. This practical guide will take you through all the relevant options.
By creating a strategy, being proactive about informing staff, customers and partners, and giving yourself plenty of time to tie up loose ends, you can shut up shop smoothly and in a tax-efficient way.
Three kinds of liquidation
A business owner’s first task is to decide on the type of liquidation that’s right for their company. Broadly, there are three options.
1. Strike off (no assets, no debts)
If the business has ceased trading for three months, owes no money to creditors and has little or nothing left in the bank, you can apply to strike your company from the Companies Register.
This costs £44, but you’re only eligible to dissolve your company in this way if you aren’t currently threatened with liquidation.
After applying at:
gov.uk/strike-off-your-company-from-companies-register,
you have seven days to inform anyone affected by the closure of the company or you face a fine.
You’ll lose access to the company bank account and any monies left will be sent bona vacantia to the Government Legal Department (formerly the Treasury Solicitor).
2. Insolvent liquidation
If you’re unable to meet your obligations to creditors, then your company is insolvent. When this happens, your company may be forced into compulsory liquidation or you can arrange a creditors’ voluntary liquidation.
There’s a lot of information about insolvency on the government website:
gov.uk/closing-a-limited-company
3. Solvent liquidation (MVL)
If you have a healthy business but can’t sell it or pass it on, and you have a fair amount of cash in the bank, you can apply for a solvent liquidation.
Take professional tax advice to confirm whether you can also access Business Asset Disposal Relief (BADR) when distributing the remaining assets to shareholders.
Solvent liquidations are also known as members’ voluntary liquidations (MVLs).
Understanding Solvent Liquidations
Solvent liquidations are a way to wind down a business while extracting value in a tax-efficient way. This is the only form of liquidation that falls under the umbrella of succession planning, as the others require the business to go into significant decline.
Between 7,000 and 10,000 business owners use the solvent liquidation procedure each year. It’s the most tax-efficient way to close a solvent business because the distributions are treated as capital, subject to capital gains tax rather than income tax (which would be taxed at higher rates).
“This can be a good way to access a tax-efficient lump sum of cash.”
Mark Stigwood, Partner, Attwater Solicitors
“Liquidations don’t always have the best reputation, but a solvent liquidation can make good sense,” adds Stigwood, who specialises in corporate transactions.
Assets don’t have to be cash. Liquidators can distribute assets in specie, such as book debts, property, vans — and even motorcycles. There’s still tax to pay on these business-owned assets.
Business Asset Disposal Relief (BADR)
If individual members (shareholders) qualify for BADR, this offers a reduced capital gains tax rate of 14% on qualifying capital distributions, up to a lifetime limit of £1 million.
The Chancellor’s 2024 Autumn Budget announced that this rate will increase to 18% for capital distributions on or after 6 April 2026.
The lifetime limit means that if you were to make £900,000 through a solvent liquidation now, you would only be able to access £100,000 of BADR in the future.
“Once the capital gains distributions go above £25,000, you need an insolvency practitioner to help you access BADR.”
Alastair Fish, Licensed Insolvency Practitioner, BRI Business Recovery & Insolvency
“We handle both cash distributions and distributions in specie,” he adds.
The Benefits And Drawbacks
Business owners should always seek expert advice about their individual situation.
As a rule of thumb, the cost of a solvent liquidation comes in at £5,000–£10,000 in liquidator fees, though complex cases can cost more. Tax must then be paid out of the remainder.
Because of this, it’s usually only worthwhile if you have more than £75,000 to unlock.
“For smaller amounts, your tax adviser may recommend making a one-off pension contribution from the company to bring you below the £25,000 threshold instead,” says Fish.
“We wouldn’t start a solvent liquidation without a tax adviser confirming that the tax saving is greater than the cost of the MVL.”
Business owners can influence costs. If assets are already realised and there’s just cash at the bank, fees will be lower.
“The liquidator has the power to realise assets and a duty to pay creditors before paying the surplus funds to shareholders.”
Tom Russell, President of R3
“There will be a cost to these duties. Most owner-directors prefer to do as much as possible themselves to save on professional fees.”
For example, an electrician may get a better price selling tools privately over time rather than relying on a last-minute fire sale.
“However,” Russell adds, “if the director found the process stressful or had other issues to deal with, the liquidator could do it all.”
The Clock Is Ticking
MVLs surged during the Covid pandemic as business owners reacted to uncertainty. There was another boom last year.
“We got a tremendous spike in MVLs when Rachel Reeves stood up in October,” says Fish. “She changed the rules so that on 6 April 2025 the capital gains tax rate went up to 14% from 10%.”
“That was the busiest I’ve been with solvent liquidations in 20 years.”
Employer National Insurance hikes also pushed many owners to move forward with MVLs.
MVLs tend to spike in response to economic shocks.
“Sometimes the compliance cost of keeping a company open is too high,” says Fish. “MVLs can be a better long-term option than paying bank charges, accountancy fees and other costs.”
However, MVLs shouldn’t be undertaken lightly.
“To preserve favourable tax treatment, anyone choosing the MVL procedure isn’t allowed to start a similar business for two years.”
From 6 April 2026, BADR rates are expected to rise again (potentially to 18%), so another spike in MVLs is anticipated.
The Case For The Electrician
There’s no specific data on how many electro-technical businesses choose MVLs, but it’s likely to be increasingly relevant for SMEs.
“The value of many of these businesses lies in the name, relationships and customer lists — all closely tied to the individual,” says Russell.
Selling that kind of business without the owner can be difficult. Many don’t have long-term contracts and work ad hoc.
Electricians may also have significant value tied up in assets such as vans and tools.
“These tools can be quite niche and bespoke,” Russell says. “But people don’t usually buy a business just to acquire a van or tools.”
When weighing an MVL against striking off the company, MVLs offer finality.
“If the owner paid out money as dividends and then struck the company off, there may be loose ends,” Russell explains.
“With an MVL, the liquidator deals with all creditors and ensures HMRC is satisfied. It demonstrates that directors are taking their responsibilities seriously by employing a regulated professional.”
Timeline Of A Liquidation
Company ceases to trade and collects outstanding debts, settling all bills including taxes.
Sell business assets to convert as much as possible into cash (private sale or auction).
- Accountant prepares cessation accounts.
- Prepare the declaration of solvency (final balance sheet).
- Directors notify shareholders in accordance with the Articles and Memorandum.
- Directors sign and swear the declaration of solvency before a solicitor.
- Insolvency practitioner is appointed (meeting or written resolution).
- Capital distribution is made to members (cash or in specie).
- Liquidator issues final report.
- Company is dissolved.