Closing a company does not always mean it has failed. Many profitable businesses are closed by choice. The owners plan it. The timing makes sense. They are ready to move on.
But how you close the company matters. It affects how much tax you pay, whether everything is handled properly and how smooth the process feels. Getting it right gives peace of mind. Getting it wrong can lead to avoidable problems later on.
Why Directors Decide to Close a Profitable Company
There are many reasons directors choose to close a profitable company. Some want to retire. Some want to try something new. Others find that the business no longer aligns with their long-term goals, even if it continues to generate revenue.
Profit does not always mean long-term happiness or value. A company can be financially strong yet still feel like a burden. Keeping a business running takes time, energy, and focus. For many directors, closing at the right moment feels like a reset button.
Choosing to close while the business is profitable also gives directors more control. They can decide when to stop and plan how to handle the value left in the company.
How Common Are Company Closures in the UK
Company closures happen more often than many people realise. According to recent figures from the Office for National Statistics, around 280,000 UK businesses closed in 2024, representing about 9.8% of active businesses last year, the lowest share of closures since 2016.
This statistic shows closures are part of the normal life cycle of companies, whether or not they are struggling. Some closures are linked to insolvency. Others happen because directors have reached a strategic decision.
Options for Closing a Solvent and Profitable Company
When a company is solvent, directors have a few ways to close it. One of the most straightforward is a voluntary strike-off. This is where the company applies to be removed from the register after it has stopped trading.
The problem with strike-off is tax. If the company still has retained profits or assets, the funds withdrawn may be taxed as income rather than capital gains. This often leads to a much higher tax bill than directors expect.
Where there are substantial profits to extract and all debts can be paid, a Members’ Voluntary Liquidation (MVL) is often the more tax-efficient option. An MVL allows qualifying distributions to be treated as capital rather than income, meaning directors may benefit from Capital Gains Tax rates rather than Income Tax, and, in many cases, may also qualify for Business Asset Disposal Relief.
Strike off Versus Liquidation
Many directors consider striking off first because it appears simple and inexpensive. That is understandable, especially if the company is no longer trading. But simplicity can be misleading.
Strike-off works well when a company has no significant assets and minimal funds remaining. When there are profits or assets, the tax treatment becomes more complex. Funds may be treated as income rather than capital. That can make a big difference to the amount directors and shareholders actually receive.
Liquidation, on the other hand, is designed for companies with assets — typically over £25,000. It ensures assets are realised and distributed properly. The legal framework provides directors and shareholders with certainty about how the closure will be handled.
Tax Matters When Closing a Profitable Company
Tax is one of the most significant factors when closing a profitable company. How profits are taken out of the business can make a big difference to the final tax bill.
If profits are taken out in the wrong way, directors may end up paying more tax than necessary. Timing matters too. Small decisions, like when accounts are finalised or when the company is closed, can change how profits are taxed.
This is why planning ahead is so important. Directors who think about tax early are usually in a better position to keep more of what they have built over the years.
Common Issues When Closing a Profitable Limited Company
Many problems happen because directors rush or assume the process will be straightforward. Some start closing the company without checking what money or assets are still inside it. Others apply for strike-off while substantial funds remain or miss important filing steps. These mistakes can lead to delays and extra costs.
Closing a company properly means carefully checking the details. Each step needs to be completed in the right order to avoid problems later.
How to Close a Profitable Company with Peace of Mind
Closing a profitable company should feel straightforward and calm. It should be organised, clear, and leave directors confident that everything has been handled properly.
Taking time to understand the options helps directors stay in control. It makes it easier to choose the right route for their situation. Whether the plan is to retire, start something new, or simply move on, doing it the right way makes the process much smoother. Your accountant will be able to give you the professional advice you need to ensure you pick the best option.