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.

If you’re taking a break from contracting, you need to decide what to do with your limited company. You can keep it running, make it dormant, or close it down altogether.

Your options: close the company or keep it open

If you’re unlikely to contract again, closing the company may be the obvious choice. If you’re only taking a break, you can keep it open and make it dormant until you’re ready to return.

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 £13 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 qualifying gains to 18% from April 2026 if the conditions are met.

An MVL usually takes a few months to complete, although most of the money may be distributed earlier. Professional fees can run to several thousand pounds.

If you strike off the company instead, Companies House publishes a notice in the London Gazette, giving creditors and other interested parties a chance to object.

Make sure you deal with all remaining cash and assets before the company is dissolved. Anything left behind passes to the Crown under the Bona Vacantia rules.

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’re only taking a temporary break and plan to trade again, you can remain VAT-registered and submit nil returns in the meantime.

If you’re stopping trading altogether, you’ll need to deregister for VAT. You may also have VAT to pay on any company assets for which you previously reclaimed VAT.

If you use cash accounting, unpaid sales invoices can create VAT liabilities upon 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 and don’t plan to restart trading during the tax year, you should close the PAYE scheme and make the appropriate final payroll submissions to HMRC.

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.
• If you’re pausing company pension contributions during the break, speak to your provider about making personal contributions instead.

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 £50.

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

When you close your company, it can affect both the paperwork involved and the taxes you pay.

Some contractors prefer to wait until the end of their financial year before closing the company, as this can make the final accounts more straightforward.

If you’re taking money out before closing, consider the available personal, dividend and capital gains allowances.

If you expect to start contracting again fairly soon, keeping the company dormant may be easier than closing it and setting up another one later.

Reactivating a dormant company

Bringing a dormant company back to life is relatively straightforward:

• Inform HMRC that the company is active again and update your Corporation Tax registration details.
• Restart your PAYE (payroll) scheme for directors and any employees.
• Re-register for VAT if you expect the company’s taxable turnover to exceed the prevailing registration threshold, or register voluntarily if you want to reclaim VAT on expenses, and present a professional image to clients.
• Start invoicing and keeping records again once the company is trading.

IR35 and future contracts

Taking 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 tax protection and professional indemnity insurance, if applicable.

If you decide to return to the contracting world, be prepared to explain any gaps you have on your CV / LinkedIn profile.

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 let people know 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, a 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, plus the £50 Confirmation Statement fee. Some banks charge monthly fees unless on a free plan.
• Strike off: Online filing fee £13. 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 18% from April 2026 if the 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.

Closing down your company is a big step – you should always talk to your accountant to discuss timing, costs, and other practical considerations before you make a final decision.

Some more things to consider

• 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, your provider may offer a discounted rate, as there is significantly less work involved.
• Check the terms of your 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 contracts require it.

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