Yes, most liquidation costs can be deducted against your company’s Corporation Tax bill, provided they meet HMRC’s criteria. But it’s important to clarify exactly what’s meant by liquidation costs.
Liquidation costs are all the business expenses involved in closing your company. These go beyond just the insolvency practitioner’s fee and can include:
- Legal advice connected to the liquidation process
- Professional valuations for business assets
- Statutory advertising of the liquidation notice
- Final accountancy fees to prepare closing statements
- Storage or destruction of business records
- Costs of selling company assets
As long as these costs are necessary and directly related to winding up the business, they usually qualify.
What HMRC allows—and doesn’t
To qualify as a deductible expense, HMRC expects the cost to be:
- wholly and exclusively for the company’s trade, or
- incurred in the process of bringing that trade to an end.
That means costs like ongoing rent, marketing, or salaries after trading has ceased won’t usually count unless they’re part of the winding-up process. It’s also worth noting these factors:
Loan repayments themselves aren’t deductible, though the interest element may be.
Personal expenses are never deductible. If you pay something yourself as a director and don’t claim it back from the company, it’s not a company expense.
Fines and penalties (e.g. for late filings) are not allowable deductions.
Timing matters
The point at which a cost is incurred can affect whether it’s tax deductible. Ideally, liquidation costs should be incurred:
- while the company is still trading (and so solvent), or
- as part of the immediate closure process (when it could be solvent or insolvent).
Costs that appear long after trading has ended may raise red flags. Especially if it looks like they were avoidable or unrelated to business operations.
Good record-keeping and a clear audit trail help prevent issues. It’s your insolvency practitioner’s responsibility to handle the process, so they should ensure the timeline and documentation support your deductions.
MVL vs CVL: does it make a difference?
Yes, slightly.
In a Members’ Voluntary Liquidation (MVL), your company is solvent, and you’re distributing retained profits to shareholders. Costs are still deductible, and they reduce the final Corporation Tax liability before distributions are made.
In a Creditors’ Voluntary Liquidation (CVL), the company is insolvent and closing with unpaid debts. Here, liquidation costs take priority alongside other expenses when calculating what’s left to repay creditors.
In both cases, proper treatment of these costs improves transparency and can reduce your overall tax burden. are serious indicators that HMRC is actively reviewing your case. Seeking professional advice at this stage is essential to minimise the risk of personal financial consequences.
A real-world example
Let’s say your company is entering an MVL and you incur:
- £6,000 in IP fees
- £2,000 in legal and accountancy support
- £1,000 in advertising and admin
Your company also has a final profit of £20,000. You’d typically be able to deduct the £9,000 in costs before calculating Corporation Tax. If you qualify for Business Asset Disposal Relief, the remaining funds (after tax) may then be paid out at the lower capital gains rate.
Want to know what your company can claim?
Liquidation is a legal and professional process—and HMRC recognises that it comes with costs. If you handle it properly, those costs can work in your favour by reducing the final tax bill. To get it right:
- Keep records of every expense
- Ensure costs are paid by the company, not personally
- Choose a licensed insolvency practitioner who understands the tax landscape
Speak to one of our experts today for free, confidential guidance tailored to your situation.
