If your company is no longer trading, you may be wondering whether to keep it dormant or close it. While a dormant company has no significant financial activity, it still comes with ongoing responsibilities, which is why many Directors choose to close it.
The necessity for closure can stem from financial distress, such as insolvency. This occurs when a company can no longer meet its financial obligations, whether it’s because liabilities exceed assets or because it’s simply unable to pay debts as they fall due. Often, Directors will consider closing their company for strategic or personal reasons, such as pursuing other ventures or retiring after a successful trading period.
In this guide, we’ll explain exactly how to close a dormant company in the UK and provide a simple step-by-step process to help Directors clearly understand the closing methods applicable to both solvent companies (e.g., Members’ Voluntary Liquidation or Strike Off) and insolvent companies (e.g., Creditors’ Voluntary Liquidation or Compulsory Liquidation).
What is a dormant company?
A dormant company is exactly that — one that does not actively trade, and does not have any “significant accounting transactions”. Essentially, if a company has no ongoing commercial transactions and does not seek to generate revenue through other means, it is considered dormant.
Although a company is not pursuing any activities, it remains on the Companies House register, retaining its status as a legal entity. For a company to be considered dormant, the Directors must first cease active trading, then submit an application to HMRC to change the company’s status.
Should you close a dormant company?
If a company has ceased all trading and commercial activity — meaning it has no significant transactions — Directors are often faced with a critical choice: keep the company dormant or proceed with a formal closure.
The necessity of ongoing duties, which consume time and incur professional costs, is often the reason many Directors eventually choose to close the company altogether once they are certain they will not resume trading under that entity. Formal closure completely removes these administrative burdens and liabilities.
Before starting the process, it’s important to decide whether closing your company is the right move.
You may want to close your company if:
- You have no intention of trading again
- The company has no assets or liabilities
- You want to avoid ongoing admin and compliance
- You want to simplify your financial affairs.
You may want to keep it dormant if:
- You plan to restart trading in the future
- The company name has value
- You want to hold intellectual property or assets.
For most Directors with no future plans, closure is the simplest and most cost-effective option. A dormant company does not require the same amount of work as an active one, but Directors will still have several legal and fiduciary liabilities, including submitting annual company accounts. If you have no intention of bringing your company out of its dormant state, it makes sense to close it.
Ways to close a dormant company
Closing a dormant company in the UK can be done in one of three ways. The right option depends on your company’s financial position, namely, whether it is solvent or insolvent. If your dormant company is solvent (i.e. it can pay all of its debts / has no debts), you have two main options to consider: Members’ Voluntary Liquidation (MVL) and company dissolution. If your dormant company is insolvent (i.e. it has debts it cannot pay), a Creditors’ Voluntary Liquidation (CVL) is the most popular option.
1. Voluntary Strike-Off (Dissolution)
This is the most common method for dormant companies that are small and have no debts. Strike-off is managed by Directors, and is an inexpensive and simple way to close your dormant company, while MVL requires paying a licensed Insolvency Practitioner like Clarke Bell.
Dissolution is suitable if:
- The company has no debts
- It has not traded recently
- It has no significant assets.
You apply to have the company removed from the Companies House register. Once approved, the company legally ceases to exist. For those who qualify for this method, we go further into the strike-off process in the next section.
2. Members’ Voluntary Liquidation (MVL)
An MVL is used for solvent companies with retained profits or substantial assets (typically over £25,000). It requires a licensed Insolvency Practitioner and is more complex than dissolution.
This process allows you to:
- Close the company formally
- Extract funds in a tax-efficient way (often as capital rather than income).
3. Creditors’ Voluntary Liquidation (CVL)
A CVL is used when the company has debts it cannot pay.
Even if a company is technically dormant, if there are liabilities, a CVL ensures:
- Creditors are treated properly
- Legal risks for Directors are reduced.
Related: What Are the Consequences of Creditors’ Voluntary Liquidations for Directors?
How to close a dormant company via dissolution
If your company is dormant and has no debts, voluntary strike-off is usually the best course of action. The Directors can manage this. Although dissolution is designed to be accessible, it still requires careful preparation and adherence to specific rules. Directors must ensure that the company meets the eligibility criteria and that all necessary steps are completed before submitting an application. The process is as follows:
Step 1: Ensure the company qualifies for strike-off
Before applying, your company must meet certain conditions. If any of these conditions are not met, you may need a different closure method.
It must have:
- Not traded in the last 3 months
- Not changed its name in the last 3 months
- No threat of liquidation
- No agreements with creditors.
Step 2: Close company bank accounts
Make sure all company bank accounts are closed before applying. Leaving accounts open can delay or complicate the process.
You should:
- Withdraw any remaining funds
- Transfer money to shareholders (if applicable)
- Keep clear records of transactions.
Step 3: Settle all liabilities
Even dormant companies can have outstanding obligations. If debts remain, creditors can object to your strike-off application.
Make sure you:
- Pay any Corporation Tax due
- Clear outstanding fees or penalties
- Resolve any creditor balances.
Step 4: Distribute remaining assets
Before closure, you must deal with any assets the company owns. It’s important to note that if assets are left in the company when it is dissolved, they automatically pass to the Crown (known as Bona Vacantia).
This may include:
- Cash
- Equipment
- Intellectual property.
Step 5: Notify HMRC
You should inform HMRC that:
- The company is dormant
- You intend to close it.
You may also need to:
- Submit a final Corporation Tax return
- Confirm that no further trading will take place.
Step 6: File final accounts and confirmation statement
Before applying for strike-off, ensure all filings are up to date. Failure to do this can result in penalties or rejection of your application.
This includes:
- Dormant accounts
- Confirmation statement.
Step 7: Submit the DS01 form
To officially apply for closure, you must submit a DS01 form to Companies House. A small fee applies, and a majority of Directors must sign the application.
Step 8: Inform interested parties
Within 7 days of submitting the DS01 form, you must notify all relevant parties, including:
- Shareholders
- Creditors
- Employees (if applicable)
- HMRC.
Step 9: Wait for approval
Once your application is submitted:
- Companies House will publish a notice in The Gazette
- There is a period for objections (usually around 2 months)
- If no objections are raised, the company is struck off.
The full process typically takes 3-6 months.
We recommend that, if you have any queries about the process, you speak to your accountant for their professional advice.
Related: How Long Does It Take to Liquidate a Company?
How to close a dormant company via MVL
A Members’ Voluntary Liquidation (MVL) is a formal process used to close a solvent company, whether it is dormant or still trading. The process is initiated voluntarily by the Directors following board approval and requires the appointment of a Licensed Insolvency Practitioner like Clarke Bell to oversee the liquidation.
Once appointed, the Insolvency Practitioner takes control of the process by identifying and valuing the company’s assets, settling any outstanding liabilities (if there are any), and distributing the remaining funds to shareholders. After all assets have been realised and distributed, the company is formally dissolved and removed from the register at Companies House, at which point it ceases to exist.
The MVL procedure entitles Directors/Shareholders to apply for Business Asset Disposal Relief, formerly known as Entrepreneurs’ Relief. If eligible, Directors can reduce their tax rate on profits to 18%, though Business Asset Disposal Relief can only apply to a lifetime limit of £1 million. If you are unsure whether you qualify for Business Asset Disposal Relief or have questions about how it works, read our complete guide to the process.
How to close a dormant company via CVL
If your dormant company is insolvent — meaning it cannot repay its debts within a 12-month period — a Creditors’ Voluntary Liquidation (CVL) is often the most appropriate course of action. This process allows Directors to voluntarily close the company and appoint a licensed Insolvency Practitioner of their choice as liquidator, rather than waiting for creditors to act.
The Insolvency Practitioner will assess and sell the company’s assets, using the proceeds to repay creditors as a priority. In most cases, there are no remaining funds for shareholders. Entering into a CVL demonstrates that Directors are acting responsibly and in the interests of creditors, helping to reduce the risk of allegations of wrongful trading or misconduct.
In more serious cases, a Compulsory Liquidation may occur when a creditor attempts to force your company out of business to recover debts owed to them. If your creditors are successful in their petition, your company will be forced into liquidation, and all its assets will be sold to generate funds to repay outstanding debts. Clarke Bell can help if you’ve been issued a winding-up petition.
Common mistakes to avoid
While closing a dormant company is generally straightforward, common mistakes can lead to delays, objections, or even legal complications. Many Directors assume that because the company is inactive, the closure process will be simple and risk-free — but this is not always the case. Failing to follow the correct procedure or overlooking key obligations can result in unnecessary stress and, in some cases, financial consequences for the Company Directors. Closing a dormant company is relatively straightforward, but there are several common pitfalls.
1. Applying with outstanding debts
- Creditors can block your application and potentially take legal action.
2. Forgetting HMRC
- Failing to inform HMRC can lead to penalties or delays.
3. Leaving assets in the company
- Any remaining assets will be lost to the Crown after dissolution.
4. Missing filing deadlines
- Even dormant companies must stay compliant until closure is complete.
5. Using the wrong closure method
- If your company has assets or debts, a strike-off may not be appropriate.
Clarke Bell can help
If you are considering closing your dormant company, let Clarke Bell help. We have three decades of experience in helping Directors find the best methods for closing their companies, and we can do the same for you. Contact us today for your free and confidential advice, and find out exactly what we can do for you.
Contact us today to arrange a free consultation with one of our experienced advisers.
Frequently asked questions
Can I close a dormant company myself?
Yes, if the company has no debts and meets the criteria for strike-off. Speak to your accountant if you have any queries about it.
Do I need to pay tax when closing a dormant company?
Usually not, but you must ensure all tax obligations are settled before closure. Your accountant will be able to advise you about this.
How do you notify HMRC that a company has stopped trading?
You notify HMRC that a company has stopped trading by submitting a final Corporation Tax return (CT600) and marking it as the final return. This should include final accounts covering the last trading period and confirm the date the company ceased trading.
What happens if I don’t close a dormant company?
You must continue filing accounts and statements, or risk penalties and eventual compulsory strike-off.
Can a dissolved company be restored?
Yes, but the process can be complex and costly.
