How to close or pause your limited company (including career breaks)

Many contractors take time out at some stage. It might be for travel, family reasons, training, or because the market has gone quiet. Some decide to take a permanent job for a while, with the option of returning to contracting later.

Whether you are taking a career break or looking to wind things up for good, the practical question is the same: should you close your limited company, make it dormant, or keep it running?

Your main options: close, pause, or keep trading

Your main decision is whether to keep your limited company open or not.

If you do not plan to contract again

Closing the company permanently is often the most straightforward and effective route.

A voluntary strike off is usually suitable if the company reserves are modest (up to around £25,000). Below this level, final distributions can usually be treated as capital. The process typically takes several months from application to dissolution.

You need to complete the Companies House DS01 form and pay a £44 fee. More details here.

If retained profits exceed £25,000, any distributions will be taxed as dividends unless you use a Members’ Voluntary Liquidation (MVL).

An MVL is often chosen in this scenario because funds can be distributed as capital rather than dividends. This means they may qualify for Business Asset Disposal Relief (BADR), reducing the tax rate on gains to 14% (from April 2025) if the conditions are met.

An MVL usually takes a few months to distribute most funds, with the balance released after HMRC clearance. Professional fees for an MVL can run to several thousand pounds, depending on complexity.

When you apply for strike off, Companies House will publish a notice of the proposed dissolution in the London Gazette. This gives creditors and other interested parties the opportunity to object before the company is formally removed from the register.

It is also important to ensure that all company cash and assets are dealt with before dissolution. Anything left undistributed automatically passes to the Crown under the Bona Vacantia rules and will be lost to shareholders.

If you want to keep the company ‘on ice’

Many contractors keep the company dormant until they are ready to trade again.

This avoids having to incorporate a new company later and keeps your business name protected.

Some filings still need to be made each year, and there will be some ongoing costs to maintain dormant company accounts and to file your annual Confirmation Statement.

VAT and PAYE

VAT

If you are not invoicing, deregistration usually makes sense as it removes the need to file nil returns. Be aware of potential VAT repayments due on assets still held by the company where input VAT was previously reclaimed.

If you use cash accounting, unpaid sales invoices can create VAT liabilities at the time of deregistration.

The Flat Rate Scheme rules have their own quirks, so discuss your plans with your accountant first.

See our VAT guide for contractors.

PAYE

If you have been running a company payroll for yourself and any co-directors or employees, issue a P45 to yourself and any other employees, such as a spouse, and then close the PAYE scheme.

This stops monthly RTI submissions. Benefits in kind already provided to any employees must still be reported for the tax year.

Financial housekeeping

• Reimburse yourself for any unclaimed business expenses.
• Calculate and pay any Corporation Tax that is due. See our Corporation Tax guide.
• Decide how to handle surplus cash: keep it within the company, distribute it as dividends, or plan for a tax-efficient closure in the future.
• Review any director’s loan account position. If you owe the company, plan your repayment or understand the tax consequences if a loan is written off or if Section 455 has been paid and may be reclaimed upon repayment.
• Consider any remaining company assets, such as laptops or equipment. Transfers to you personally may trigger a tax liability. Keep a note of the market value of any company assets if they are sold or transferred.
• Company pension contributions may need to be paused during dormancy. Speak to your provider about switching to personal contributions if you want to maintain saving while there is no company payroll.

Ongoing filings and responsibilities

Your company remains a legal entity, even if it is dormant. So, you may still need to:

• Prepare and file accounts at Companies House.
• Submit a Corporation Tax Return to HMRC. If no trading has taken place, a nil return may be required if HMRC has asked for one.
• File a yearly Confirmation Statement at Companies House. The online filing fee is £34.

As a director, you are responsible for keeping records and meeting deadlines. Missed filings can lead to penalties and the company being struck off.

Timing considerations

The timing of closure or dormancy can also impact your administrative workload and tax obligations.

For this reason, some contractors prefer to complete a financial year and then strike off, keeping their reporting tidy.

If you plan to extract cash, consider your personal allowance, dividend allowance and capital gains allowance timings.

If you expect to resume trading soon after your year-end, dormancy may be simpler than closing and later starting a new company.

Reactivating a dormant company

Bringing a dormant company back to life is relatively straightforward:

• Tell HMRC the company is active again and update Corporation Tax registration details.
• Reopen PAYE if you will pay a salary.
• Re-register for VAT if you expect taxable turnover to exceed the threshold, or register voluntarily if that suits your clients and expenses profile.
• Restart bookkeeping, bank feeds and invoicing, and resume normal accounts and tax cycles.

IR35 and future contracts

A career break has no impact on IR35 whatsoever.

Your employment status always depends on the nature of the contract work you do. So, if you are not working, IR35 is not a consideration.

However, you should always keep paperwork related to your past contracts, as well as run-off insurance, if applicable.

And, when you return to the contracting world, be prepared to explain any gaps on your CV.

Record keeping during dormancy

Minimal record-keeping does not mean no record-keeping.

Keep bank statements, invoices, payroll records, board minutes, dividend vouchers and VAT records in a safe place. Find out how long you must keep your records for.

If you have accounting software—whether you use it independently or through your accountant—make sure to create backups if you don’t intend to maintain the subscription.

Given how much important data most of us have in FreeAgent or Xero, it might be prudent to keep your subscription in place. Your accountant may already include these costs in any reduced monthly fees you negotiate.

Store everything in an accessible location so you can file on time and respond to queries.

Communication

If you have regular clients, suppliers, or memberships with professional bodies, notify them of your change in status.

Update your website profiles and contractor platforms (e.g., LinkedIn) to inform people that you are not available for contract work, and disable auto-renewals for tools you will not be using for an extended period.

You should also formally notify key parties such as your bank, business insurer, accountant and any professional advisers. If you have other directors or shareholders, written agreement will usually be required before submitting a DS01 application.

What are the costs of taking a break?

• Staying dormant: Lower accountancy fees for dormant accounts filings, plus the £34 Confirmation Statement fee. Some banks charge monthly fees unless on a free plan.
• Strike off: Online filing fee £44. The £25,000 limit is a tax threshold, not a Companies House rule. Below this level, final distributions can usually be treated as capital. Above it, distributions will be taxed as dividends unless you use an MVL.
• MVL: Professional fees are typically several thousand pounds. Often used where retained profits are significant (over £25,000) and capital treatment is the most tax-efficient route. Funds distributed through an MVL may qualify for Business Asset Disposal Relief, reducing the CGT rate to 14% (18% from April 2026) if conditions are met.

Closing vs. taking a break – which is right for you?

Ultimately, the right choice depends on your circumstances:

• Strike off: Permanent, low cost, and usually best if the company’s reserves are modest.
• MVL: Permanent, more costly but often tax-efficient if reserves are higher than £25,000.
• Dormant: Temporary pause, keeps your company name, and avoids having to incorporate again later. Some filings and small costs continue.

If you are unsure, discuss timings and costs with your accountant before making a final decision.

Other practical steps

• Review your bank account. Some providers charge monthly fees even when there is no activity. Switching to a low fee account or closing it can save money. You can open a free business account with Tide or Zempler. See our banking guide.
• Discuss ongoing fees with your accountant. If the company is dormant, compliance work is lighter, and fees should reflect that. Some firms offer a specific package for dormant companies.
• Check any insurance policies. Professional indemnity and other business covers may not be needed during a break. Cancel or pause where appropriate. Consider run-off cover for past work where required by contracts.

This article provides general guidance only. Always seek professional advice before making decisions about your own company.