Corporation Tax When Closing Your Company

When you close your limited company, you still have important Corporation Tax obligations to complete. Even though your company is winding down, you must continue to file tax returns and pay any outstanding tax until the company is formally dissolved. Getting this right means...

When Corporation Tax obligations continue

Your company remains liable for Corporation Tax throughout the entire closing process, whether you're winding up through formal liquidation or striking off the company from the Companies Register. The tax obligations don't end when you stop trading—they continue until your company is formally dissolved and ceases to exist as a legal entity.

What triggers the winding up process

For Corporation Tax purposes, the winding up of your company begins on whichever happens first:

Your company's shareholders pass a winding-up resolution to shut it down
A court imposes a winding-up order on your company
A liquidator is appointed

When winding up starts, your current Corporation Tax accounting period immediately ends and a new one begins. From that point, accounting periods run for 12 months at a time until the winding up is complete.

Tax returns and payments during closure

Throughout the closing process, your company must continue to file Company Tax Returns and pay Corporation Tax on any taxable profits. This includes:

Trading income and other income such as investment income
Chargeable gains from selling goods or assets (for example, to pay off creditors)

The Corporation Tax rates remain the same as before the winding up started. You cannot avoid these obligations simply because your company is closing.

Your final tax return and accounts

Before your company can be struck off, you must complete specific tasks with HMRC:

Send final accounts and tax return: You must submit final statutory accounts and a Company Tax Return to HMRC. When filing, you should clearly state that these are the final trading accounts and that the company will soon be struck off. Note that you don't need to file final accounts with Companies House.

Pay all outstanding tax: You must pay all Corporation Tax and any other outstanding tax liabilities before closure.

Terminal loss relief: If your company made a loss in its final year of trading, you may be able to offset the tax against profits from previous years. This is called terminal loss relief, and you can claim it on your final tax return.

Selling company assets separately

If your company stops trading and you sell its assets separately at market value—such as plant, machinery, vehicles, computers, or customer lists—your company will owe Corporation Tax on any chargeable gains and other profits from disposing of these assets.

Selling your company as a going concern

When a company is sold as a going concern, you're selling the shares in the business for the market value of the business as a whole. This has different tax implications.

The company itself may face Corporation Tax consequences from the sale. As an individual shareholder, you'll be liable for Capital Gains Tax on the sale or disposal of your shares. You'll pay tax on any increase in the value of the shares above their net value when you acquired them, after deducting any relevant reliefs such as Business Asset Disposal Relief.

Tax implications for shareholders when closing

When you close your company, the tax treatment for you as a shareholder depends on how you handle the closure:

Capital Gains Tax: You'll normally pay Capital Gains Tax on the increase in what would have been the value of the shares above their value when you acquired them, after deducting any available reliefs or winding-up costs.

Income Tax instead of Capital Gains Tax: If you sell company assets and then let the company be struck off (rather than properly wound up) while keeping the cash proceeds, you may have to pay Income Tax instead. However, you'll pay Capital Gains Tax (not Income Tax) if all of the following conditions apply:

The company's debts are settled
Any debts due to the company are collected
The amount you take is £25,000 or less

If the amount is worth more than £25,000, it will be treated as income and you'll have to pay Income Tax on it. You'll work this out on your personal Self Assessment tax return.

What happens if you don't pay

Failing to pay Corporation Tax during the closing process can have serious consequences. In some cases where you continue not to pay your company's Corporation Tax, HMRC will apply to the court for a winding-up order to have your company closed down.

Dealing with assets before strike off

You should ensure that all business assets are shared among the shareholders before the company is struck off. Anything left in the company when it's dissolved automatically passes to the Crown under a legal principle called Bona Vacantia (meaning "vacant goods").

This includes any future payments your company might receive, such as tax refunds from HMRC. If you want to recover these assets, you'll have to restore the company, which is a complex and costly process.

After your company is dissolved

Once a company is struck off the Companies House register, it ceases to exist as a legal entity. At this point, HMRC cannot respond to any correspondence from former directors, agents, or shareholders about the company.

If you discover outstanding tax liabilities after dissolution, you can still make a voluntary payment to HMRC for the dissolved company.

Record keeping requirements

After your company is struck off, you should keep business documents for 7 years. This includes bank statements, invoices, and receipts. If the company employed people, you should also keep copies of its employers' liability insurance policy and schedule.

Eligibility for striking off

You can only strike off your company if it:

Has not traded or sold off any stock in the last 3 months
Has not changed names in the last 3 months
Is not threatened with liquidation
Has no agreements with creditors, such as a Company Voluntary Arrangement

If your company doesn't meet these conditions, you'll need to liquidate your company through formal liquidation instead.

Sources

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.