The good news is, most liquidation fees are tax deductible for the company. But how they’re treated depends on timing, the type of liquidation and how your records are handled.
Liquidation fees refer to the professional costs charged by a licensed insolvency practitioner (IP) to manage the formal closure of your company. This includes:
- Statutory paperwork and compliance
- Communicating with creditors
- Selling off assets
- Filing final accounts
- Distributing any surplus (if applicable)
These are distinct from general business costs like rent or wages. They’re tied directly to the winding-up process.
Are they tax deductible?
Yes, in most cases liquidation fees are deductible against the company’s Corporation Tax. That means the company can treat these fees as allowable expenses when working out its final tax bill.
The logic is simple: if a cost is wholly and exclusively for the purpose of trade—or for bringing the trade to a close—it’s generally deductible. This is true whether you’re entering Creditors’ Voluntary Liquidation (CVL) or Members’ Voluntary Liquidation (MVL).
Timing is key
HMRC pays close attention to when costs are incurred. If your company is in a solvent position and still trading at the time the liquidation fees are agreed it strengthens the case for tax deductibility.
If the company has already ceased trading and the fees are more about distributing surplus cash or filing final returns, HMRC may apply tighter rules. But even then, reasonable costs tied to formal closure are usually allowed.
To protect your position:
- ensure there’s a clear paper trail showing these are business-related costs
- make sure fees are properly invoiced to the company, and
- keep a record of when the company formally ceased trading.
Can you deduct fees personally?
No. If you, as a director, pay liquidation fees out of your own pocket and aren’t reimbursed by the company, you can’t claim these on your personal tax return.
Liquidation is a company process. The deductions apply to the company’s Corporation Tax, not to your personal Self Assessment. If the company is still solvent, make sure it pays the fees directly.
A special note on MVLs
In a Members’ Voluntary Liquidation, the goal is to close a solvent company and distribute surplus funds. HMRC will expect:
- all company debts to be settled first
- final accounts to be submitted accurately, and
- liquidation costs to be clearly itemised.
The fees themselves can reduce the size of the final distribution but they can also reduce Corporation Tax liability. That’s a win-win if handled correctly.
Just be cautious: if HMRC suspects you’re using an MVL for tax avoidance, they may apply the Targeted Anti-Avoidance Rule (TAAR) and deny the favourable treatment., we can give you the advice you need before moving forward.
The bottom line
Yes, liquidation fees are typically tax deductible—but only when:
- they are incurred by the company (not personally)
- they relate to the winding-up process, and
- you maintain good financial records.
Handled properly, this deduction can significantly reduce the overall cost of closing your company.
Need help understanding what your company can claim? Speak to one of our licensed insolvency practitioners today for free, confidential advice.
