Written for independent consultants trading through their own companies, interim and fractional executives, and boutique consultancies that work with associates.
The short version
- Compare strike-off with a liquidation first.If strike-off distributions total more than £25,000 (As of Oct 2026), the whole amount is income. A members' voluntary liquidation (MVL) makes capital distributions.
- Get an insolvency practitioner's quote and tax advice.Before the resolution to wind up, get a chartered tax adviser's view on the anti-avoidance rule. Check the Business Asset Disposal Relief tests too.
- Buy PI run-off before the policy lapses.PI answers only claims first made while it is in force. Cover the years a former client could still sue.
Consultants close their companies when they retire, stop contracting or move on. Two things go wrong. The money left in the company is taxed as income when it could have been capital, and a former client sues over old advice after the insurance has stopped.
Strike-off or a members' voluntary liquidation
Strike-off distributions are capital only up to £25,000
Strike-off is cheap, but distributions made in anticipation of it are capital only if they total £25,000 or less; above that, the whole amount, apart from share capital returned by a formal reduction of capital, is income. Anything left in the company when it is dissolved goes to the Crown. A members' voluntary liquidation (MVL) uses an insolvency practitioner and makes capital distributions. As of Oct 2026.
Companies Act 2006 ss.641, 1003 and 1012; CTA 2010 ss.1000 and 1030A
| Insolvency practitioner's fees, assumed | £5,000 |
| Capital Gains Tax at the 18% Business Asset Disposal Relief (BADR) rate | £30,942 |
| Net to you | £144,058 |
| Reserves in the company | £180,000 |
| MVL advantage over strike-off, before the anti-avoidance rule | £26,973.88 |
£144,058 through the MVL minus £117,084.12 on strike-off (£180,000 less £60,401.88 of dividend tax on £179,900 and £2,514 of extra tax on the salary; the £100 of share capital, returned by a formal reduction of capital, is not income).Indicative worked example, as of Oct 2026: a taxpayer outside Scotland (Scottish rates would change the tax on the salary), a £12,570 salary in the same year and £100 of shares, so the gain is £174,900 on £175,000 distributed, less the £3,000 annual exemption. The 18% rate assumes you meet the BADR tests (two years as an officer or employee holding at least 5%) within the £1 million lifetime limit (£500,000 for disposals on or after 6 April 2027, announced at Budget 2026). Get an insolvency practitioner's actual quote.
The anti-avoidance rule
Income treatment can be restored where a 5% owner resumes the same or a similar activity within two years and a main purpose was to reduce tax. As of Oct 2026.
ITTOIA 2005 s.396B
Above the strike-off limit all of it is income. In the worked example the MVL leaves £26,973.88 more after its assumed fees, if the anti-avoidance rule does not apply.
The claim that arrives after you close
PI is claims-made: it answers claims first made during the policy year, for work done after the retroactive date. Stop the policy and you stop the protection for every past job, even though a client can still sue.
A dissolved company can be brought back to be sued
A former client can apply to restore a dissolved company to the register in order to sue it. It can reach you personally for negligent advice only if your words or conduct conveyed a personal assumption of responsibility and the client reasonably relied on it.
Companies Act 2006 s.1029; Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830
Buy run-off before the policy lapses, for the limitation period of the nation whose law governs your contracts. As of Oct 2026: in England and Wales, six years from breach in contract, twelve for a deed, six from damage in negligence, and for latent negligence three years from knowledge subject to a 15-year longstop; in Northern Ireland, six years for contract and twelve for a deed; in Scotland, five years for contract and delict claims, running from when the loss occurred or became known, with a 20-year long negative prescription.
If you sit on a client's board
A fractional director carries a director's duties
A fractional director carries the general duties of any director and can face a wrongful trading claim if the client fails. Before you accept the seat, check that the client's directors' and officers' policy names you, with run-off after you leave.
Companies Act 2006 ss.171 to 177; Insolvency Act 1986 s.214
Tell your insurer about anything that might lead to a claim as soon as you know of it. Late notification is the most common reason a PI claim is refused.
Asked in Greymill
Strike-off: you keep about £117,084
Members' voluntary liquidation (MVL): you keep £144,058
Difference: £26,973.88
Why: strike-off payouts are capital only if they total £25,000 or less (As of Oct 2026). Above that, it is all income, not just the excess. An MVL, run by an insolvency practitioner, pays out capital.
Indicative only: this assumes a £5,000 fee, Capital Gains Tax at the 18% Business Asset Disposal Relief rate (As of Oct 2026), that you live outside Scotland, that you meet the relief's tests and that the anti-avoidance rule does not apply.
On PI: it answers only claims first made while the policy is in force, and a former client can apply to restore a dissolved company to sue it. Buy run-off cover for the years a client could still sue, before the policy lapses.
Next: an insolvency practitioner's quote and a chartered tax adviser's view. Want my questions for each?
Ask it about your own business
Paste this into Greymill with your own figures, and Tax & Bookkeeping works it through for your business.
I run a consulting business in the UK. I plan to close my company by [date]. It holds about [amount] in reserves, I have paid myself [salary] this tax year, and my PI policy renews on [date]. My contracts are governed by the law of [England and Wales / Scotland / Northern Ireland]. My plans after closing are [what you will do next], and I [do / do not] sit on a client's board. Compare strike-off with an MVL at my numbers, tell me what to check on the anti-avoidance rule and the BADR tests, and list the run-off cover I need before the policy lapses.
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Open the interactive lesson · Every consulting and advisory lesson · What Greymill knows about the trade
Sources
The primary sources behind this lesson, checked Oct 2026.
- CTA 2010 s.1030A; CA 2006 ss.1003, 1012 (Closing the company: MVL against strike-off, worked)
- TCGA ss.169H to 169S (Selling the consultancy: earn-outs, BADR and eots)
- BAILII case header and headnote; HMRC Practice Note 3 ss.5.1 and 6; SVM107160 first two paragraphs; TCGA 1992 s.138A (Selling the consultancy: earn-outs, BADR and eots)
- ERSM110900 onwards (Selling the consultancy: earn-outs, BADR and eots)
- HMRC policy paper (Budget 26 Nov 2025); TCGA 1992 s.236H as amended by Finance Act 2026 (Selling the consultancy: earn-outs, BADR and eots)
- para 1.33; Annex A, BADR lifetime limit (Selling the consultancy: earn-outs, BADR and eots)
- ELCI Act 1969; SI 1998/2573 (Professional indemnity and other cover)
- only employers liability is compulsory (Professional indemnity and other cover)
- CA 2006 s.1029(1) and (2)(f), s.1031(1)(c) and (2), and s.1032(1) (Hard cases: associates, staff and insurance)
- Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 (Hard cases: associates, staff and insurance)
- SGSA 1982 s.13 (Engagement terms, care and liability caps)
- CRA 2015 ss.49, 50, 57 (Engagement terms, care and liability caps)
- regs 29, 31, 36 (Engagement terms, care and liability caps)
- ss.2(1), 2(2), 3, 11(4) (Engagement terms, care and liability caps)
- [55] (Engagement terms, care and liability caps)
- www.bailii.org (Engagement terms, care and liability caps)
- s.49(1)(c); s.61M (Office holders, fractional directors, agencies and umbrellas)
- CA 2006 ss.171 to 177; IA 1986 s.214 (Office holders, fractional directors, agencies and umbrellas)
- reg 32(9) (Office holders, fractional directors, agencies and umbrellas)
- ITEPA 2003 Part 2 Chapter 11; ESM2405 onwards (Office holders, fractional directors, agencies and umbrellas)