Walking away from your own business can be a difficult decision for any entrepreneur especially when the business is not in any kind of debt. However, there are situations that can arise when you feel like it may be for the best to close your business and move on.
Whether you are wanting to retire, business has slowed down or you just can’t see a future in the sector you are in, closing your business can be beneficial in some circumstances. When it comes to closing a business, a member’s voluntary liquidation (MVL) can be used to close a solvent company so why would you choose this option and what are the other avenues available?
An MVL allows you to close a solvent company, remove it from the register and release any capital in the company in a tax efficient manner. You will benefit from entrepreneur’s relief, which reduces the amount of capital gains tax you are required to pay from the standard rate to 10%.
When would I use an MVL?
There are a few reasons why you may choose an MVL to close your solvent company including:
- No longer wanting to run the business and no one wants to take it over for you
- Closing the family business or wanting to transfer funds tied up in the business to your personal estate
- A change in personal or business circumstances
- No one to take over the business once you retire
- Taking money from the business that you are a shareholder of in the most tax efficient manner
- A reorganisation of a group of companies after a merger or a need to increase the efficiency within the group of companies.
How does an MVL work?
After speaking to your accountant or a tax specialist, if you decide that an MVL is the correct option for closing your company, contact us. As insolvency practitioners, we can help you to close down your company, strike it off the register at Companies House and deal with the shareholder disbursements.
All cash and assets taken from the company are subject to Capital Gains Tax but by using an MVL, you will be eligible for entrepreneur’s relief which will lower the tax you pay to just 10%.
Once we have been appointed, you will need to fill out a Statutory Declaration of Solvency which ensures that your company is solvent and therefore can make use of this solvent company closure procedure.
After this has been completed, we will deal with any legal notices, sort out any meetings that need to take place and work towards the dissolving of the company. Once the company has been struck off the register at Companies House, we will issue payments to you and any other shareholders of the company as soon as they become available.
When would using an MVL be beneficial?
If you are wanting to close a solvent company which still has money tied up in it then an MVL would be beneficial for you. MVL’s also allow you to take advantage of entrepreneur’s relief which will lower the amount of tax you need to pay on cash or assets you receive from the business of which you are a shareholder.
An MVL can also allow you to distribute assets to shareholders ‘in specie’ (in its current form) or as cash which provides you with more freedom and can speed up the process if shareholders opt to deal with the assets themselves after receiving them.
What do I need to be aware of when opting for an MVL?
New regulation, which came into effect in April 2016, deals with the distribution of assets from a solvent liquidation such as an MVL. Under these new rules, individuals receiving assets or cash are likely to be subject to tax under certain circumstances including:
- A company already being a closed company
- The company was wound up with the sole intention to reduce tax paid by the individual
- The person in question being involved with a similar trade or business within two years of receiving a distribution of assets in an MVL.
These rules have been brought in to deter serial liquidators from taking advantage of entrepreneur’s relief.
Are there any other options available?
There are a couple of other options available when it comes to closing your company which may be more beneficial to your company in a number of other situations. These are:
- Dissolution – A dissolution is a voluntary procedure and can be the chosen option when a company reaches the end of its life. If you have not traded for at least 3 months and have no outstanding legal or insolvency procedures against your business then a dissolution could be the correct option for you. However, it should be noted that you cannot benefit from Entrepreneur’s Relief using this option.
- Creditor’s voluntary liquidation (CVL) – If your company is insolvent, then a CVL may be the best option for your company. A CVL is the last resort for some but it allows directors to close a company and deal with the company’s insolvent position quickly. There will be a virtual meeting of creditors to appoint your chosen liquidator before the process can go through. A CVL can, in some instances, be the best way to close down a company which is currently insolvent.
To find out more about MVL’s, dissolutions or CVL’s, get in touch with us on 0800 901 2475. Our experienced, knowledgeable advisers can discuss your situation with you to help you find the correct solution to help you close down your business.