What money are we talking about?
Your company has stopped trading. You've filed the final accounts and the final Corporation Tax return, and you've paid the last tax bill. (That whole job is a separate piece: see Closing or striking off your company: what about Corporation Tax?)
Now there's cash sitting in the company bank account, and it isn't yours yet. The company owns it. You have to move it from the company to you, and how you move it decides what you personally pay on it.
Two things to sort first. If you owe the company money, that has to be cleared before you go anywhere near this: see What's a director's loan? And if you haven't settled on closing the company for good, read Strike off or go dormant? first, because the choice below only applies when you're striking the company off.
What are my two options?
Option 1: take it as a dividend. You vote yourself a dividend in the normal way, the same as you would in a trading year. It lands on your personal tax return as dividend income. Your first £500 of dividends in a year is free of tax; after that you pay 10.75% if the money sits in the basic band, 35.75% if you're a higher earner, and 39.35% at the top. (How dividends work generally is covered in Paying yourself: salary, dividends and the company tax angle.)
Option 2: take it as part of closing the company down. When a company is being struck off, money paid out to shareholders can be treated as a capital gain rather than income. That matters because a capital gain gets its own £3,000 tax-free slice each year, and it's charged at 18% or 24% depending on your other income. If you qualify for a relief called Business Asset Disposal Relief, the rate can be 18% even for a higher earner.
The catch is a size limit.
What's the £25,000 rule?
Option 2 only works if the total the company pays out to its shareholders as part of closing is £25,000 or less. That's the whole company's payout added up, not £25,000 each.
And don't read it as a spare £25,000 sitting on top of a big goodbye dividend. If your plan is to vote yourself a large dividend on the way out and claim capital treatment on £25,000 as well, that is exactly the kind of plan to put in front of an accountant first, because whether those two can sit side by side depends on the facts of what the company actually paid and why.
Two other things have to be true. The company has to have chased in anything owed to it and settled what it owes, so no leaving a supplier unpaid and calling it done. And the company does have to get struck off. If two years pass from the payment and the company is still sitting on the register, the tax office treats the money as income after all, and you'd owe the difference.
What if the total goes over £25,000?
This is the part people get wrong, so read it twice.
If the total goes over £25,000, you don't get capital treatment on the first £25,000 and income treatment on the rest. The whole amount becomes income. A company paying out £26,000 doesn't have £1,000 taxed differently; it has £26,000 taxed as dividend income.
There's no sliding scale, and nothing gets rounded in your favour.
If your company has more than £25,000 left, the normal answer is a members' voluntary liquidation, usually shortened to MVL. You appoint a licensed insolvency practitioner to wind the company up properly, the directors sign a formal statement that the company can pay everything it owes, and the practitioner pays the money out to shareholders as capital. The practitioner has to be paid, so an MVL carries real professional fees of its own and only makes sense once there's a decent sum at stake. Get a quote and weigh it against the tax saving before you commit to it.
Which one costs less?
The answer flips depending on your other income. Here is the same company two ways.
Your company has £20,000 left after the final tax bill is paid. You put £100 in for your shares. You're the only shareholder.
If you already earn enough to be a higher-rate taxpayer
| Route | Rough personal tax bill |
|---|---|
| Take it as a dividend | about £6,970 |
| Take it as capital when closing | about £4,060 |
| Take it as capital, and you qualify for Business Asset Disposal Relief | about £3,040 |
The closing route wins by roughly £3,000.
But if your only other income is a small salary and you're a basic-rate taxpayer
| Route | Rough personal tax bill |
|---|---|
| Take it as a dividend | about £2,100 |
| Take it as capital when closing | about £3,040 |
The dividend wins by about £900.
The same company and the same £20,000 give opposite answers, because a basic-rate dividend is charged at 10.75% while a gain in the same band is charged at 18%. Your other income for the year decides it.
(Those figures assume your salary uses up your £12,570 tax-free personal allowance, you've made no other gains that year, and nobody else holds shares. Change any of those and the numbers move.)
Does Business Asset Disposal Relief apply to me?
Maybe, and it's worth knowing up front that it might not save you anything. It caps the rate at 18% on up to £1 million of gains across your whole life. That only helps if you'd otherwise be paying 24%. If your gain already sits inside the basic band it's charged at 18% anyway, so the relief changes nothing for you.
If you would otherwise pay 24%, there are hoops. For the two years up to the payout you need to have held at least 5% of the shares and 5% of the votes, to have been entitled to at least 5% of the profits and of whatever is left over if the company is wound up, and to have been a director or an employee. The company has to have been a trading company rather than one that only held investments. And if the company stopped trading before the payout, you normally need the payout to happen within three years of it stopping. This is one to have checked rather than assumed.
What if I want to start another company?
Take care here. There is a rule aimed squarely at people who close a company, take the money as capital, and then start doing much the same kind of work again within two years. It exists to stop people closing and reopening a company on a loop to turn dividends into gains, and where it applies, the money is taxed as income after all.
That particular rule is written for the liquidation route above, not for a plain striking off. Don't read that as a green light. The tax office has separate powers it can use where the point of an arrangement was to turn income into a gain, and those can reach a striking off too. If your plan is "close this one, open a fresh one in a few months", say so out loud to an adviser before you take a penny out.
So how do I decide?
Honestly: this one is worth paying for an hour of an accountant's time.
It's a personal tax decision, not a company one. It turns on your own income for the year, whether you qualify for the relief above, whether you've used your £3,000 gains allowance elsewhere, and what you plan to do next. Nobody can answer it from the company's figures alone, and the £25,000 wall is unforgiving if you get the total wrong.
What SimpleReturns does, and what it doesn't
We handle the company side: the final accounts and the final Corporation Tax return, filed to Companies House and HMRC, so you know exactly what the company owes and exactly what's left over once it's paid.
We don't do your personal Self Assessment, and we don't decide the dividend-or-capital question for you. That sits with you and your adviser. What we give you is the clean, final number to make that decision on.