What are the advantages and disadvantages of a Members Voluntary Liquidation (MVL)

A Members Voluntary Liquidation is the liquidation and closure of a solvent company. It is a procedure that must be carried out by a licensed insolvency practitioner and will see the company formally wound up and closed, whilst extracting the company’s maximum value, through its various tax benefits.

Advantages of an MVL

The process also includes many benefits to both directors, shareholders, and creditors.

• Tax advantages

  An MVL can avoid the imposition of income tax, which would otherwise arise if a company applied for dissolution, where the total assets exceed £25,000.

  • Capital gains
    The distributions to shareholders from a Members Voluntary Liquidation, enables capital gains tax at the rate of 20%.
  • Business Asset Disposal Relief (BADR)
    In many cases, shareholders benefiting from distributions out of the MVL process will be able claim a further discounted rate of Capital Gains Tax through BADR, which is currently set at 10%.

  Find out more about Business Asset Disposal Relief BADR

  Tax Advice:Wilson Field does not give tax advice. As individuals and companies can have very different tax circumstances, we always recommend that you take advice from your accountant or tax specialist about Business Asset Disposal Relief before making any decisions about closing your company using the MVL process.
• Formal liquidation procedure

  An MVL is a formal liquidation which must be carried out by a licensed insolvency practitioner (IP). An IP will ensure that all legal procedures are properly followed, ensuring peace of mind for directors and shareholders.

• Company is formally closed and wound-up

  Directors can have peace of mind that the company has gone through a formal liquidation procedure, with the company wound-up and closed.

• Creditors fully paid out

  As the company is solvent, an MVL should ensure that all creditors related to the company are paid out in full.

• Asset distribution

  An MVL ensures a structured process for the distribution of assets meaning a smooth transitions of assets to shareholders, which will help avoid disputes and disagreements.

• Quick cash release

  Subject to shareholders signing their indemnity, at Wilson Field, we don’t have to wait for HMRC to grant us clearance to release the funds from the MVL process.

• Fast distribution

  We will aim to distribute funds to you within seven days of receipt of your cash from the company’s bank.

Disadvantages of an MVL

A Members Voluntary Liquidation is generally considered a positive procedure, allowing a company to be formally closed in the most tax efficient manner. However, it is important to understand the implications, including but not limited to:

• Dissolution can be more straightforward

  As an alternative to an MVL, a company can apply to be struck off from the register at Companies house. However, this is usually for companies that have little or no assets and have stopped trading.

  • A dissolution can be cheaper than an MVL, but it does not provide the same tax benefits.
  • The company can be dissolved and formally wound-up quicker.
• Targeted Anti-Avoidance Rule (TAAR)

  TAAR is a government scheme, designed to prevent individuals from exploiting the tax benefits included in a MVL, in a way that goes against the process’ intent. Shareholders and directors cannot close a company through an MVL whilst enjoying the tax benefits and then proceed to set up a new company, operating the same or similar business. This practice is often referred to as ‘Phoenixism’. There are set conditions that apply which allow TAAR to be enforced:

  • A shareholder receives a distribution in respect of shares in an MVL.
  • Within a period of 2 years from the date of distribution, the shareholders continue to be involved in a similar trade or industry.
  • The circumstance surrounding the MVL have the main purpose, or one of the main purposes, of obtaining a tax advantage.

  Find out more about TAAR

How we can help

Our experienced initial advisors can discuss your company and its situation, be it solvent or insolvent and assess the options available.

1. Speak with our initial advisers via phone or online chat. If we can help, we will arrange a free consultation with one of our consultants to discuss your situation in more depth.
2. During the consultation, we will advise if an insolvency procedure is the most appropriate route forward, or what alternative options are available.
3. After your consultation, if there is an appropriate route forward, we will issue the relevant documentation for you to formally engage us.

How much does an MVL cost?

Our costing for an MVL has a pricing structure based on a four-tiered system designed to suit the individual requirements of each company. The cost is split into two different sections; the liquidators’ fees, which involves all the work and duties carried out by our insolvency practitioner, and the expenses, which are a mandatory part of the MVL process.

• £1,995 + VAT & expenses
• £3,995 + VAT & expenses
• £4,495 + VAT & expenses
• Bespoke MVL + VAT & expenses

In summary

An MVL is a process that must be carried out by a licensed insolvency practitioner and will see a limited company formally wound up. The procedure will allow maximum value to be extracted and distributed from the company.

The process can have many positive outcomes, including but not limited to:

• Tax Advantages
  • Reduced capital gains tax
  • Business Asset Disposal Relief
• Formal liquidation procedure
• Company is formally closed and wound-up
• Creditors fully paid out
• Asset distribution
• Quick cash release
• Fast Distribution

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