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IR35 Contractor MVL – Tax-efficient Members Voluntary Liquidation

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HMRC is due to start auditing self-employed contractors who operate from personal limited companies. Consequently, contractors could end up paying more tax on their earnings. If you’re a contractor operating for a single client out of your own limited company, you can explore a tax-efficient liquidation via a Members Voluntary Liquidation (MVL). Doing so allows for a quick release of the company’s funds while you decide what to do next.

What is IR35, and what does it mean for contractors?

IR35 has been around since the year 2000 and came into effect for the public sector in 2017.

The process was due to roll out to the private sector in April 2020, but this was pushed back to 2021 due to COVID-19.

The process was designed to tackle the problem of sole traders operating in a limited company structure, or ‘personal limited companies’ while working for a single client. Operating in this way means contractors might end up paying less tax than if they were employed or operating as sole traders.

IR35 makes sure contracted workers operating through these ‘personal limited companies’ pay the appropriate levels of tax and National Insurance.

What is a Members Voluntary Liquidation or MVL?

A Members Voluntary Liquidation, or MVL, is a tax-efficient liquidation option. They’re designed for solvent companies that have reached the end of their operational lives. MVLs can be a more tax-efficient way of distributing the company’s assets to shareholders than through a dissolution.

If the company has more than £25,000 of cash to release, they may qualify for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief). Once the business’ assets are sold, and any liquidator’s and creditor fees are paid, the remaining amount is distributed to the shareholders.

More on Members Voluntary Liquidation (MVL)
Tax-efficient MVL

A tax-efficient way to close your company

If you’re a contractor operating out of a ‘personal limited company’, you may want to transition into something more tax-efficient before IR35 comes into force on April 6th, 2021. Afterwards, your current circumstances may not be the most tax-efficient.

An MVL can help to close your ‘personal limited company’ in a fast, tax-efficient way. By undergoing an MVL, your company could avoid the imposition of income tax, which would come with a dissolution, and clearance from HMRC before the cash release. Funds can even be distributed into your account within seven days of their release from the company.

Cost of an MVL

We don’t usually require an upfront payment for a Members Voluntary Liquidation, and our standard cost for the process is £1,695 + VAT and disbursements. Depending on the company’s assets at the time of liquidation, the process may incur additional costs.

More on the costs of an MVL

In summary

In 2021, HMRC will introduce IR35 to the private sector to make sure contractors operating out of limited companies pay the appropriate amount of tax. If you operate from a solvent ‘personal limited company’ and would like to close it before IR35 takes effect on the private sector, you can do so via a Members Voluntary Liquidation (MVL). MVLs are a tax-efficient way to close a company without receiving income tax or having to go through clearance from HMRC, and you may even qualify for Business Asset Disposal Relief if your company has more than £25,000.

How we can help

If your ‘personal limited company’ is solvent, and you wish to liquidate it before IR35 is implemented, contact us today. We can provide free, regulated, and impartial advice tailored to your company’s circumstances. So, whether you’re just weighing up your options, or would like to proceed with a liquidation, speak to us.

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Authored by Lisa Hogg

Lisa Hogg

Director & Licensed Insolvency Practitioner

Beverley Horton Christopher Callaghan Stephen Hall

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