You’ve done it. After years of hard work, late nights, and dedication, you’ve built a successful limited company here in Crawley. You’ve served your clients, paid your staff, and now, for a well-deserved retirement or a new adventure, it’s time to close the doors and enjoy the fruits of your labour.

Your company is solvent (meaning it's not in debt) and you have a healthy sum of cash—your retained profits—sitting in the business bank account.

Your first instinct might be to simply pay that final lump sum to yourself, shut down the company, and ride off into the sunset.

Be very, very careful. HMRC is waiting.

This is one of the most dangerous and costly financial traps a successful business owner can fall into. At Curve Accountancy, we’ve seen Crawley business owners get this wrong and face an avoidable—and devastating—tax bill.

This guide explains the tax trap and the formal, correct way to close your solvent company, ensuring you keep the money you’ve earned.

The £25,000 Tax Trap: Capital vs. Income

When you close a limited company, any money you take out is called a "distribution." How HMRC treats this distribution depends entirely on how you close the company.

The "DIY" Mistake (The Wrong Way) If you just wind down the company and pay the leftover cash to yourself (a process known as an "informal strike-off"), HMRC sets a limit. If the total cash you take out is under £25,000, the taxman is usually happy to treat it as a capital gain.

But if your retained profits are over £25,000, HMRC’s rules state that the entire amount can be reclassified. It’s no longer a capital gain; it’s treated as an income distribution—essentially, a giant dividend.

Why this is a disaster:

• As Income (a dividend), it’s added to your other earnings for the year and taxed at your dividend tax rate, which could be 33.75% or even 39.35%.
• As a Capital Gain, it’s taxed at the much lower Capital Gains Tax rates.

On £100,000 of retained profit, making this one mistake could cost you over £20,000 in extra, unnecessary tax.

The Solution: A Members' Voluntary Liquidation (MVL)

If you have over £25,000 in the bank, you need to use the formal, legal, and tax-efficient process to close your company. This is called a Members' Voluntary Liquidation (MVL).

An MVL is simply the official process for closing down a solvent company (one that can pay all its bills) and distributing its assets to its shareholders.

Its one, crucial benefit? The money distributed through an MVL is always treated as a capital gain, not income, regardless of whether it's £26,000 or £2.6 million.

The Real-World Benefit: Capital Gains Tax & BADR

So, why is a "capital gain" so much better than "income"? Two words: Business Asset Disposal Relief (BADR).

Business Asset Disposal Relief (formerly known as Entrepreneurs' Relief) is a government incentive for entrepreneurs. It means that when you sell or close your business, the first £1 million of qualifying lifetime gains are taxed at a flat, rock-bottom rate of just 10%.

Let’s look at a real-world example:

A Crawley-based consultant is retiring. She has £150,000 in retained profits in her limited company bank account and is a higher-rate taxpayer.

• Scenario A: The "DIY" Strike-Off She doesn't take advice and just transfers the £150,000 to her personal account. Because it’s over the £25,000 limit, HMRC reclassifies it as a dividend.
  
  • Tax @ 33.75%: £50,625
  • Cash in her pocket: £99,375
• Scenario B: The Professional MVL She speaks to us first. We advise her to use an MVL. The £150,000 is treated as a capital gain, and she qualifies for Business Asset Disposal Relief.
  
  • Tax @ 10%: £15,000
  • Cash in her pocket: £135,000

By choosing the right process, she is £35,625 better off. This isn't a loophole; it's the correct, professional way to close a successful business.

This Is Not a DIY Job: Your Accountant + an Insolvency Practitioner

An MVL is a formal legal process and it has two key players.

1. Your Accountant (Your First Call): Your role is to plan the exit. We will work with you before you stop trading to ensure your accounts are perfectly clean, all final taxes are paid, and the company is ready for the MVL process.
2. A Licensed Insolvency Practitioner (IP): An MVL must be legally handled by a licensed IP. This is not something your accountant can do themselves. The IP is the official who files the legal declarations, liquidates the assets, and formally distributes the cash to you.

Your accountant and the IP work together. We do all the preparation to make the IP’s job as smooth and cost-effective as possible.

Your Final, Most Important Business Decision

Closing your company is the last and most important financial step in your journey as a business owner. After years of hard work, don’t fall at the final hurdle.

That profit sitting in your company account is your reward. It’s your pension, your nest egg, your next adventure. Don’t give 40% of it to the taxman by mistake.

If you are a business owner in Crawley or West Sussex and are starting to think about your exit, let’s have a conversation. Get in touch for a friendly, no-obligation chat today.