Over the past year, Business Asset Disposal Relief (BADR) has seen more changes than contractors wanted, and with the rate set to rise to 18% from April 2026, it's no surprise there are lots of last-minute questions about closing a limited company.
From my experience as an insolvency practitioner, preparation is everything.
Contractors who have their accounts and paperwork ready in advance usually find the MVL process far more straightforward, with fewer delays and complications along the way, writes Richard Hunt, a licensed insolvency practitioner at the Liquidation Centre.
Before I continue, please note that this article is for general information only and should not be taken as tax advice. Contractors should speak to their accountant for advice on how the rules apply to their own circumstances.
What are the BADR changes from 2026-27?
BADR has been through several changes since the days of Entrepreneurs' Relief.
When it was first introduced, qualifying gains were taxed at 10%, and that tax rate stayed the same for many years. The 'Lifetime Allowance' of the tax in play here, Capital Gains Tax, was reduced along the way. But the 10% rate became something contractors came to expect.
That's why last year's rise in the capital gains rate to 14% — only applicable where BADR applies — caught a lot of people by surprise.
With the rate set to increase again to 18% from April 2026, it's understandable that some contractors are now thinking about whether to close their companies before the higher rate applies from the 2026-27 tax year.
How much will the BADR increase cost me?
For those contractors with significant reserves, the difference isn't small. On £100,000 of qualifying gains, the jump from 14% to 18% adds £4,000 in tax. For contractors who've built up profits over several years, that extra cost can be quite substantial.
The government's reasoning is fairly straightforward.
They want to reduce the gap between capital gains tax and income tax. Their view is that lower CGT rates can make it easier for someone to treat what is essentially income as a capital gain.
By increasing BADR, the aim is to reduce that incentive. Whether this achieves the right balance is open to debate, and accountants, advisers, and business owners may all have different opinions.
HMRC activity and what to expect
Alongside the rate changes, it would seem that HMRC has been paying closer attention to contractor liquidations.
They are reviewing distributions more carefully, checking that BADR claims genuinely qualify for capital treatment and that companies aren't being closed and reopened in a way that could be seen as tax avoidance.
Could contractors receive another batch of HMRC letters?
I think it's entirely possible. The most important thing is not to panic if a letter arrives.
Some BADR nudge letters are straightforward, while others may require more detailed information.
The best thing to do is to send the letter to your insolvency practitioner or your accountant to review first. Your accountant will be able to advise you on any tax-specific issues.
What contractors should be doing now
With April 2026 getting closer, most of the questions I'm being asked about the BADR changes are about timing.
If you're thinking about closing your company before the 18% rate applies, it's important to start preparing now. Make sure:
- Your accounts are ready;
- All paperwork is in order, and
- Speak to your accountant early, so they have time to complete their tasks.
A MVL (Members' Voluntary Liquidation) cannot be rushed, and leaving things until late March usually leads to delays.
This year, there's also a greater focus on keeping options open.
Even if you're not certain about closing, having your accounts prepared means the choice is available. When everything is ready, you can make an informed decision. If nothing is prepared, timing alone could push you into the new tax year without meaning to.
What to expect in 2026
Contractors often ask me what might happen after April 2026, and at the moment, the government has not announced anything definitive. In my experience, when a relief like BADR starts being adjusted, further changes aren't unusual.
However, last month's Budget 2025 did not make any further announcements to BADR, which, for now at least, indicates that the 18% rate will not be increasing any further.
Avoid panic and stay informed
Last year's BADR changes caused quite a bit of concern among contractors, and understandably, many wanted to move quickly to avoid the tax increase.
This article isn't intended to create panic or suggest immediate action, ahead of the next tax increase on April 6th. Rather, the focus should always be on understanding, clarity and avoidance, specifically:
- Understanding your position;
- Being clear on the timelines (including any necessary preparation), and
- Avoiding unnecessary delays.
Accountant's role versus insolvency practitioner's role
Remember, anything that crosses into specific tax advice when closing a company should be left to your accountant.
Our role is to guide contractors through the MVL process itself and make sure everything runs as smoothly as possible.
To that end, the earlier contractors start preparing, the more control they'll have over the outcome.
Ask us any BADR questions that don't require a crystal ball to answer!
And while it's natural for contractors to wonder whether the reduced CGT rate under BADR could rise again, any future increase (which could now only apply from 2027-28, even if it was announced tomorrow) will depend on the wider economic climate and government priorities at the time.
If you have other questions about the BADR changes and want to discuss your situation, we're here to help you understand your options before a potentially swingeing £4,000 tax increase takes effect.
