Contractor limited companies are among the most common types of UK company to close. Whether you are moving to a permanent role, retiring, or switching to umbrella employment, closing your contractor company correctly protects you from future tax problems. Here is everything you need to know.
Why contractor closures need extra care
Contractor companies often have:
Accumulated retained profits (cash sitting in the company)
Salary and dividend structures to unwind
VAT registration to close
PAYE schemes to deregister
Potential IR35 considerations
Getting the order of operations right matters, particularly around the final dividend, salary, and any tax-efficient extraction of retained profits.
Step 1: decide how to extract remaining profits
Before closing, you need to deal with any retained profits in the company. You have two main options:
Option A — Pay dividends before strike-off
If retained profits are under £25,000 net of all costs, you can pay a final dividend to shareholders before applying for strike-off. Shareholders pay income tax on dividends received.
Option B — Members' Voluntary Liquidation (MVL)
If retained profits are over £25,000, an MVL is usually more tax-efficient. Distributions from an MVL are treated as capital rather than income, meaning you pay Capital Gains Tax (potentially at 10% with Business Asset Disposal Relief) rather than income tax. The saving on a £100,000 distribution can be significant.
Speak to an accountant before deciding — the right choice depends on your personal tax position.
Step 2: run the final payroll
If you pay yourself a salary through the company, you need to:
Run a final payroll for the last month of trading
Submit the final Full Payment Submission (FPS) to HMRC, marking it as the final submission
Submit a final Employer Payment Summary (EPS) with the closing indicator
Pay any outstanding PAYE and National Insurance
Issue yourself a P45
Deregister as an employer with HMRC after the final submissions.
Step 3: file and pay the final VAT return
If your contractor company is VAT-registered (most are, for the turnover threshold or to claim input VAT):
Submit your final VAT return for the period up to the date you ceased trading
Pay any VAT owed
Apply to deregister from VAT (online or using form VAT 7) within 30 days of ceasing to make taxable supplies
Step 4: notify HMRC of cessation
Write to HMRC Corporation Tax Services (BX9 1AX) to notify them:
The company name and number
Your UTR
The date you ceased trading
That you intend to apply for voluntary strike-off
This gets ahead of any HMRC objection to the strike-off application.
Step 5: file the final Corporation Tax return
File a CT600 covering the final accounting period (from the end of the last full year to the date trading ceased). Pay any outstanding Corporation Tax within 9 months and 1 day of the period end.
Step 6: consider IR35
If any of your contracts were inside IR35, HMRC may scrutinise your affairs more closely. Make sure:
All deemed salary calculations are correct
All PAYE deductions under IR35 are accounted for and paid
You have retained records to demonstrate compliance
If you have any doubt, take advice from a specialist contractor accountant before striking off.
Step 7: close the bank account
Do not close your business bank account until:
All payments have cleared
Any VAT repayments have been received
All final salaries and dividends have been paid
After everything is settled, transfer any remaining funds (as a final dividend if appropriate) and close the account.
Step 8: apply for voluntary strike-off (DS01)
With all the above completed, you are ready to apply for strike-off:
Download form DS01 from Companies House
Notify all shareholders, creditors, and interested parties
Submit the form online or by post with the £33 fee
Wait for the two-month Gazette notice period
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If you are going down the strike-off route rather than MVL, our platform generates a personalised closure plan covering all the PAYE, VAT, Corporation Tax, and Companies House steps for your specific situation.
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