You’ve kept the business going for 12 years. You’ve got through a recession, a pandemic and an accountant who retired without warning. Lately, though, you’ve been paying yourself less than your eldest earns in his first graduate job, and Sunday nights come with a knot in your stomach.
Nobody starts a business planning to close it. But for a man in his fifties, knowing when to stop and how to leave can be worth more than anything the business earns in its final few years. Pick the right moment and the right exit, and you keep your savings, your reputation and your sanity.
How do you know when to close your business?
Begin with a question that has nothing to do with spreadsheets: if you didn’t already own this business, would you start it today, knowing everything you know now? If the honest answer is no, pay attention to that.
Next, look at what you actually earn. Add up everything you’ve taken out over the past three years in salary, dividends and drawings, then divide it by the hours you’ve put in. Many owner-managers find they’re earning less per hour than they would as an employee, and they’re carrying all the risk on top. If you’ve been taking £25,000 a year when a salaried job in your field would pay £45,000 plus an employer pension contribution, the business is costing you about £20,000 a year. Over five years that’s £100,000, before you count the pension you didn’t build.
Then come the warning signs that need action rather than more thought. You’re paying suppliers late to cover the wages. You’re putting personal savings into the company to keep it afloat. HMRC has gone from an annual bill to a monthly worry. The plan for next year is the same as the plan for last year, only with more hope in it.
The trap here is sunk cost. The decade you’ve put in, the money you’ve invested and the van you bought last spring are gone whatever you decide next. The only question that counts is whether the next pound and the next hour are better spent inside the business or outside it.
Selling, winding down or shutting the door
If the business is solvent and has some value, you have more options than you might think. You could sell it whole to a competitor, a management team or a family member. You could sell off parts of it, such as the client list, the equipment or the brand. Or you could stop trading, collect what you’re owed, pay what you owe and take out whatever is left.
If you sell a qualifying business or shares in a trading company, Business Asset Disposal Relief can cut the Capital Gains Tax you pay. The rate was 14% for disposals in the 2025 to 2026 tax year and is 18% for disposals made on or after 6 April 2026, subject to a lifetime limit of £1 million of qualifying gains. The usual higher rate of Capital Gains Tax is 24%. On a £400,000 gain, that’s £72,000 in tax with the relief and £96,000 without it, a difference of £24,000 before any allowances. The rules on how long you must have owned the business and worked in it are strict, so check them well before you agree a deal, not afterwards.
The relief’s rate has gone up twice in two years, so a ‘we’ll sell in five years’ plan is worth testing against the rules as they stand now, not as they stood when you made the plan.
Closing a business on your own terms isn’t failure. Waiting until your creditors close it for you is.
What is the cheapest way to close a limited company?
For a small company with no debts, the cheapest route is usually to apply to Companies House to have it struck off the register. First you stop trading, settle every bill, file your final accounts and tax returns, and give notice to anyone with an interest in the company, HMRC included. If the money left in the company is £25,000 or less, it can usually be paid out to shareholders as capital rather than income, which normally means a lower tax bill.
If more than £25,000 is left, the usual route is a members’ voluntary liquidation. The directors have to sign a formal declaration that the company can pay its debts in full, and a licensed insolvency practitioner handles the closure. That costs several thousand pounds, but on a large pot the tax treatment can more than cover the fee. If there’s a lot of money involved, get advice before you take the cash out.
It’s also worth thinking about your pension before you close. Paying money from the company into your pension as an employer contribution, within your annual allowance (£60,000 for most people in 2025 to 2026), can move cash out of the business tax-efficiently while the company still exists. Whether that suits you depends on your age, your other income and when you need the money. Pension Wise and MoneyHelper are a good free place to start, and an FCA-regulated financial adviser can model the numbers for you.
Can you be personally liable if your company goes bust?
Generally, no. A limited company’s debts belong to the company. But there are important exceptions, and they tend to catch people who left it too late.
The first is a personal guarantee. If you signed one for a bank loan, a lease or a supplier account, that debt can follow you home after the company has gone. Dig out every guarantee you’ve signed and add up what you’d owe in the worst case.
The second is wrongful trading. Under the Insolvency Act 1986, if a company keeps trading after the point where a director knew, or should have known, there was no reasonable prospect of avoiding insolvent liquidation, a liquidator can ask a court to make that director contribute personally. Once a company is insolvent, meaning it can’t pay its bills when they’re due or owes more than it owns, the directors’ duty shifts towards protecting creditors. The longer you hope for a miracle, the bigger the risk.
So if the company is insolvent, talk to a licensed insolvency practitioner early. Business Debtline offers free advice to the self-employed and small company directors. Insolvency law is mostly the same across Great Britain, but Scotland has some different procedures and terms, and Northern Ireland has its own legislation, so make sure your adviser knows the rules for your part of the UK.
What about the bit that isn’t money?
For many men the business is who they are, not just what they do. Closing it can feel like losing a limb. Expect that, and plan for it. Decide in advance what your days will look like, whether that’s a job, consulting, a shorter working week or proper retirement.
The skills don’t disappear when the company does. Plenty of former owners find that a part-time role or a few consultancy clients pays the bills with a fraction of the stress. And if you’re a sole trader, closing up is simpler still: tell HMRC you’ve stopped, file your final Self Assessment return and cancel your VAT registration if you have one.
In short
It’s time to think about closing when the business pays you less than a job would, needs your savings to survive, or wouldn’t be worth starting again knowing what you know now. If it’s solvent, selling or winding it down in an orderly way, with Business Asset Disposal Relief (18% from 6 April 2026) and a well-planned pension contribution, can protect what you’ve built. If it’s insolvent, getting advice early from a licensed insolvency practitioner is the best protection against personal liability.
Sources
Midcent Money
Andrew Ingram writes about money for men 45 and over – the years when retirement starts to feel real and the decisions get bigger. Pensions and retirement planning, investing, savings, mortgages and tax: what changed, what it means for your plans and what's worth doing about it. No hype, nothing to sell, and a clear steer on when it pays to get personal advice.
One of Midcent's writers. Spotted something? Write to andrew@midcent.uk.
