Phil MeekinView Profile
Walking away from your own business can be a difficult decision for any entrepreneur, especially when the company is not in any kind of debt. However, situations can arise when you feel like it may be time to move on and close your business down.
Whether you want to retire, trade has slowed down, or you just can’t see a future in the sector you are in, closing your company might be the right thing to do. For solvent company’s, a Members Voluntary Liquidation (MVL) is the right process to be used, as it sees a solvent company liquidated.
An MVL allows you to close a solvent company, remove it from the register and release any capital in the company. Through using an MVL, company directors can benefit from entrepreneur’s relief, reducing the amount of capital gains tax you are required to pay from the standard rate of 10%.
When would I use an MVL?
There are a few reasons why you may choose an MVL to close your solvent company including:
- Directors no longer wanting to run the business, with no one in the wings to take over.
- Closing the family business or wanting to transfer funds tied up in the company to your personal estate.
- A change in personal or business circumstances.
- Taking money from the business you’re a shareholder of, in the most tax-efficient manner.
- A reorganisation of a group of companies after a merger, or a need to increase efficiency within the group.
How does the process work?
After first deciding it’s the right time to close the company down, you need to contact a licensed insolvency practitioner’s, like Wilson Field. As an MVL is still a formal liquidation process, it must be carried out by an insolvency practitioner.
Much like any other voluntary liquidation, all of the company’s assets are first realised, with any remaining liabilities covered. Any directors need to fill out a Statutory Deceleration of Insolvency, which ensures that the company is solvent.
Once the company is struck off at Companies House, payments will be issues to the shareholders as soon as they become available. By using an MVL, the cash going to the directors will be eligible for entrepreneur’s relief, at the lower rate of 10%, instead of Capital Gains Tax which is at a higher rate.
When would it be beneficial?
The big and obvious benefit from using an MVL is the entrepreneur’s tax relief. The process allows you to maximise the amount of money you take out of the company as it closes. As well as the financial benefits, you can also go home with the relief of knowing that your former company has been legally closed down, taking any potential stress away from you.
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.
Why should I pay for an MVL instead of using a dissolution?
Solvent company’s can go through the process of a dissolution, which ultimately ends up in the same result as an MVL. However, without going through the process of an MVL, directors wouldn’t benefit from the pros of an MVL.
- Shareholders may miss the opportunity to take advantage of Entrepreneurs Relief and thereby legitimately make significant tax savings.
- The liability of every director, managing officer and member of the company continues and may be enforced.
- The company may be restored to the register up to 6 years after it has been struck off, if there are still any outstanding liabilities.
- All assets and property of the company prior to dissolution become bona vacantia i.e. ownership is transferred to the Crown.
Although insolvency can lead to the demise of many businesses, there can be scenarios where a company has to close even without financial issues. Whether it’s due to a lack of succession, a change in circumstances, or the directors just feel it’s time to close the doors, a Members Voluntary Liquidation (MVL) can help you close a solvent company in a timely, organised manner.
An MVL can help release money tied up in the company, as well as take advantage of entrepreneur’s relief, and distribute assets to shareholders ‘in specie’.