Strike-Off or MVL in 2026: How the BADR Rate Rises and the £25,000 Distribution Cap Are Reshaping Solvent Company Exits

For most of the last decade the solvent-exit decision has run on a single working rule. If a closing company's distributable reserves fit comfortably under £25,000, you used the DS01 strike-off route at Companies House; above that, you instructed an insolvency practitioner and ran a Members' Voluntary Liquidation. The £25,000 figure was the cap embedded in section 1030A of the Corporation Tax Act 2010, the provision that lets pre-dissolution distributions be treated as capital rather than income. Below it, you got capital treatment with a £33 filing fee. Above it, you needed the liquidator's certificate that an MVL produces by default.

That rule of thumb is still broadly right. But the calculus underneath it has shifted twice in fourteen months, and is about to shift again. The Autumn Budget 2024 staircased the Business Asset Disposal Relief (BADR) headline rate from 10 per cent to 14 per cent from 6 April 2025, and from 14 per cent to 18 per cent from 6 April 2026. The lifetime BADR allowance stays at £1 million per individual, as it has since the Spring 2020 reduction from £10 million. Every owner-managed company sitting on undistributed retained profits now faces a moving tax cost on the way out — and the closer that profit sits to the threshold, the more carefully the route needs choosing.

The two exits, side by side

The routes are easy to confuse because both end with a struck-off entry on the Companies House register. They are not the same procedure.

The DS01 route does almost no work for you. It is a notice procedure: a director signs the form, the Registrar advertises the proposal in the relevant Gazette (London, Edinburgh or Belfast, depending on the company's registered office), and if no one objects within two months the company is dissolved. Anything still on the balance sheet at that moment — a stray bank balance, a final trade receivable, a forgotten freehold — passes to the Crown under the bona vacantia rules. Recovery requires an administrative restoration application (£468 plus any penalties), or a court restoration, and is not always granted.

An MVL is the formal alternative. Directors swear a statutory Declaration of Solvency (Form 4.70), the IP takes appointment, agrees the tax position, settles creditors, files an SA800 / CT600 final return cycle, and pays distributions to shareholders before producing a final account. Slower, costlier, but watertight.

The tax overlay that actually drives the decision

Section 1030A's £25,000 ceiling is small for a reason. It was always meant for the genuine tail-end of a trading company — petty cash, a final supplier rebate — not for retained profits that should have been distributed before closure. Cross it, and HMRC reclassifies the entire distribution as an income distribution, taxed at the shareholder's dividend rate.

The 2026 rate stack looks like this:

Note the annual dividend allowance is now £500 (down from £1,000 in 2024/25 and £2,000 before that), so the income-distribution route is harsher than it looks for any sizeable extraction.

Apply that to an owner-managed company with £100,000 of distributable reserves and a single higher-rate shareholder. Take the DS01 route and treat the lot as a pre-dissolution distribution: you keep £25,000 at capital rates (BADR-eligible), and the remaining £75,000 becomes a dividend at 33.75%, a £25,312 tax bill on that portion alone. Take the MVL route in the same year and the entire £100,000 is capital, at 14 per cent BADR before April 2026 — £14,000, less around £3,000 of IP fees, for an effective £17,000 cost. The MVL is roughly £8,000 cheaper, net of professional fees, and that gap widens for every additional £10,000 of reserves.

A 2026 decision matrix

The right route depends on three numbers: the size of distributable reserves, the marginal rate of the recipient shareholders, and the date the funds need to leave the company. The matrix below assumes a single higher-rate-band shareholder and an IP quote of £3,000 for a routine MVL.

For companies holding non-cash assets — investment property, shares in trading subsidiaries, intellectual property — an MVL is almost always indicated regardless of reserve size. The liquidator can effect an in-specie distribution at market value, and the chain of title is documented in a way DS01 simply cannot replicate. A struck-off company's freehold quietly becomes Crown property; restoring it is slow, public, and expensive.

The phoenix overlay that nobody talks about

BADR's rate climb also magnifies the bite of the Targeted Anti-Avoidance Rule under section 396B of the Income Tax (Trading and Other Income) Act 2005. Introduced in 2016 to stop serial liquidation-and-reincorporation patterns, the TAAR can reclassify an MVL distribution as an income distribution if the shareholder carries on a similar trade through a connected entity within two years of receipt. The trigger conditions are subjective and HMRC's enforcement appetite has been quiet but persistent.

When BADR was a flat 10 per cent and dividend rates were lower, the TAAR's bite was painful but bounded. With BADR at 14 per cent and 39.35 per cent the worst-case dividend rate, a reclassification can more than double the effective tax cost — and the relief is fully clawed back, not pro-rated. Anyone closing one trading company while planning to start another in a related sector should treat the TAAR risk as live, document the commercial rationale contemporaneously, and consider a longer cooling-off period than the bare statutory two years.

This is also where the Disqualified Directors Register and director-network analysis become relevant — connections that look incidental on filings can become the evidence base for an HMRC challenge. /director-disqualification and /phoenix-companies-section-216 are useful background on the wider enforcement context.

The April 2026 cliff edge

For any company sitting on six-figure distributable reserves, the planning question for the rest of this tax year is straightforward. Completing the MVL — meaning the IP's appointment, the distributions being made, and the entry being made in the shareholder's CGT return — before 6 April 2026 locks in the 14 per cent rate. After that date the headline rate is 18 per cent. On £500,000 of distributable reserves that is the difference between £70,000 and £90,000 of personal tax. Twenty thousand pounds for the sake of a calendar quarter.

IPs are already reporting elevated MVL enquiry volumes through Q1 2026 and capacity tightening for fast-track appointments. Realistic lead time for a clean, single-shareholder estate is six to ten weeks from instruction to distribution; complex estates, longer. Anyone treating early April 2026 as the working deadline is leaving very little margin.

What this means for the working rule

The £25,000 threshold is still the first filter, and the strike-off route still dispatches the vast majority of solvent closures — roughly 300,000 DS01s a year against around 15,000 MVLs, per the most recent Insolvency Service and Companies House data. But the price of getting it wrong above the threshold is rising every twelve months. For 2026, the working rule reads: under £25,000, file DS01 and forget about it. Between £25,000 and £75,000, model the maths properly — IP fees can still eat the saving. Above £75,000, default to MVL, and finish it before April.

Companies House is a cheap exit. HMRC is the expensive one. The two BADR rises have widened that gap, and the rule of thumb needs to widen with it.