Every year, thousands of businesses close in the UK. In fact, Britain has reported its highest level of company closures in 20 years, with 198,046 businesses removed from the official register in the final quarter of 2024. Understanding the correct procedure is crucial to avoid legal and financial complications. This article walks you through the key steps for closing a business properly and minimising stress during the process.

Reasons for dissolving a business

Businesses dissolve for various reasons, including:

  • Ceasing operations permanently due to financial difficulties or strategic decisions.
  • Relocating the business to another country.
  • Mergers or acquisitions.
  • Legal succession.
Note

Depending on the size and structure of your business, dissolution may be a relatively quick process, but larger businesses with creditors and employees may require more time. In certain cases, dissolving a company may not be the best solution, and voluntary liquidation might be necessary instead.

Sole traders and freelancers

If you are a freelancer or sole trader with no employees, the process is simpler:

  • Inform HM Revenue & Customs (HMRC) about your change in circumstances.
  • File and pay your final Self Assessment tax return.
  • Cancel any business licences and VAT registration (if applicable).
  • Settle any outstanding business debts.

How to dissolve a company step by step

Much like registering a business, dissolving a company requires informing the relevant authorities, including HMRC and Companies House.

Step 1: Ensure eligibility for strike-off

Before applying for dissolution, ensure your company meets these conditions:

  • It has not traded or sold stock in the last three months.
  • It has not changed its name in the last three months.
  • It has no ongoing legal disputes, insolvency proceedings, or voluntary arrangements with creditors.

If your company does not meet these conditions, you must go through voluntary liquidation instead.

Step 2: Get approval from stakeholders

  • Limited Companies (LLC, Ltd): Shareholders must agree on the dissolution.
  • Partnerships: All partners must be in agreement.
  • Community Interest Companies (CICs) and Charities: You must follow sector-specific regulations before dissolving.

Step 3: Notify creditors and settle outstanding debts

Before applying for dissolution, inform:

  • Creditors and allow time for final claims.
  • HMRC, ensuring all tax obligations are met (Corporation Tax, PAYE, VAT, etc.).
  • Employees, processing final wages and redundancy pay if necessary.

Failure to notify creditors can lead to legal action or the company being restored to the register.

Step 4: File for dissolution

  • Limited Companies (Ltd, CICs) must submit a DS01 form.
  • Limited Liability Partnerships (LLPs) file an LL DS01 form.
  • Charities and CIOs must apply via the Charity Commission.

Once submitted, Companies House will publish a notice in The Gazette. If no objections are raised within three months, the company will be officially dissolved.

How much does it cost to dissolve a company?

The DS01 filing fee is £10, but additional costs may apply, such as:

  • Legal fees for settling disputes or finalising contracts.
  • Employee redundancy payments.
  • Outstanding business loan repayments.

What happens after dissolution?

Once a company is struck off the register:

  • It no longer legally exists.
  • Remaining assets pass to the Crown (bona vacantia) unless distributed beforehand.
  • Creditors can apply for company restoration to reclaim debts.
Note

If directors change their minds or dissolution conditions are not met, they must file a DS02 form immediately. Failing to do so may result in penalties.

Register your company as dormant as an alternative

If you’re unsure whether to close your company permanently, you can register it as dormant instead, which is useful if you may resume operations later. HMRC considers a company dormant if it hasn’t started trading yet, exists only for holding intellectual property, or is no longer trading but may resume in the future. While dormant companies are exempt from paying corporation tax, they must still file annual accounts and a confirmation statement with Companies House.

Important final steps before dissolving a company

Make sure to:

  • File final tax returns.
  • Cancel business contracts, including:
  • Rental agreements.
  • Utilities (electricity, internet, phone).
  • Insurance policies (liability, vehicle, health, etc.).
  • Supplier and customer contracts.
  • Advertising and marketing subscriptions.
  • Business bank accounts and mandates.

Please refer to the legal disclaimer for this article.

Was this article helpful?
Go to Main Menu