Are you looking for a fast, low-cost, tax-efficient way to close your company? If so, then a members voluntary liquidation (MVL) may be the right solution.
What is a Members Voluntary Liquidation (MVL)?
Members voluntary liquidation can often be referred to as a members liquidation or just shortened to MVL. It is, in essence the liquidation of a company that is solvent. A company is solvent by definition if it has assets sufficient enough to settle all liabilities in full plus statutory interest within a given period of less than 12 months.
Although the process relates to solvent companies, it must be managed by a licensed insolvency practitioner.
The director’s decision to instigate an MVL is generally because the company has no further purpose and is a tax efficient way of distributing its assets and profits to the shareholders. Companies with more than £25,000 of cash to release may qualify for Entrepreneurs’ Relief if criteria are met. The assets are sold, and the proceeds used to pay creditors in full and the liquidator’s fees. Any remaining monies would be distributed to shareholders.
Why use a Members Voluntary Liquidation (MVL)?
There are a number of reasons why shareholders may want to place a solvent company into liquidation:
- Retirement of the directors, for example the closure of a family business or the desire to transfer funds into a personal estate.
- A change in circumstances e.g. a desire to move out of the country or no longer wanting the responsibility of running a business.
- The directors or shareholders want to close the company and take money out in the most tax efficient manner.
- The reorganisation of a group of companies after a merger for example or if there is a need to increase efficiency. More than one MVL may be required, but your insolvency practitioner can advise on this.
- Changes in a directors circumstances, they may no longer want the responsibility of running a business and may even want to move out of the country.
- Finalising all tax affairs for single or group of companies. The reorganisation of a company’s merger may help increase efficiency. There may need to be more than one MVL required.
If your company is solvent, an MVL can be used to distribute cash, liquid or physical assets between the shareholders via the MVL and the director’s obligations are removed. To qualify for Entrepreneurs’ Relief a company must first be able to settle all of its liabilities. The usual limit on distributions that can be treated as a capital receipt rather than a dividend when using ESC C16 Legislation currently stands at £25,000.
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 Entrepreneurs’ Relief and before making any decisions about closing your company using the MVL process.
What are the benefits?
- Tax Efficient – Following the Enactment of Extra Statutory Concessions Order 2012 (ESC Order) an MVL can be used where more than £25,000 is to be distributed to shareholders. This avoids the imposition of income tax, which would otherwise arise on dissolution.
- Low Cost – Starting as low as £1,695 plus VAT & disbursements. Before you engage our services we will provide you with a fixed fee quote including a comprehensive breakdown of the disbursements which do differ depending on your circumstances.
- Quick Cash Release – Subject to shareholders indemnity we don’t have to wait for HMRC clearance
- Fast – We will aim to distribute funds to you within 7 days of receipt of your cash from the company’s bank.
What are the disadvantages?
An MVL does come with a greater upfront fee to pay than a simple dissolution. However, simply dissolving the company does not have the tax benefits afforded by going down the MVL route. In this situation, the benefits outweigh the costs.
To qualify for this low cost, the following 5 criteria must be met:
- The only assets the Company has is cash at bank and/or Directors/inter-company loans.
- All charges registered against the Company have been satisfied at Companies House.
- All accounts and returns will be prepared up to the date of Liquidation for submission to HMRC, including the submission of final VAT, PAYE and any subcontractor returns. You will be obliged to provide copies to the Liquidators of all of the final accounts, returns and evidence of final payments made.
- All liabilities of the Company have been settled prior to the Liquidation including all tax liabilities.
- Any distributions to the Shareholders will only be made in accordance with the Company’s articles.
If the above criteria are met, then you will qualify for our low cost option of £1,695 plus VAT and disbursements.
During the MVL process there are three disbursements that will be incurred by us, these being the liquidators bond (for your protection), statutory advertising and company search fees. The liquidators bond and statutory advertising disbursements are mandatory, payable to third parties and all licensed practitioners must incur them to carry out the process. Economies of scale have enabled us to negotiate very competitive rates with these third parties.
In most cases this can be a relatively simple procedure, where the company is brought to an end, creditors’ claims are settled and any surplus cash or assets are distributed to shareholders. There are, however different ways in which the cash and assets can be distributed to shareholders and a company’s individual circumstances will determine which method of distribution will be the most appropriate and tax efficient for its shareholders. Again, we advise discussing this matter with your tax adviser.
- Upon receipt of your enquiry we will issue an engagement pack.
- Discuss timescales & Declaration of Solvency
- Once returned we will contact you to discuss the completion of the Declaration of Solvency. This is a principal requirement for any company wanting to propose an MVL. The declaration states amongst other things that enquiries have been made into the company’s financial affairs, and the directors are of the opinion that the company will be able to repay its debts plus statutory interest within twelve months or less.
- Board Meeting
- Any director making a Declaration of Solvency without having reasonable grounds for the opinion that the company will be able to pay its debts in full, together with interest at the official rate, within 12 months is liable to imprisonment or a fine, or both. You will need to attend a local solicitor’s office to have this sworn (they may charge for this, typically £20). When sworn return this to us.This document must be made up to a date no more than 5 weeks before the company enters liquidation and must be made by the directors (or by a majority where there are more than 2), and they must hold a meeting to pass a resolution to officially begin the winding up process.
- Provision of information
- You will be required to provide copies of all accounts and returns that should be prepared up to the date of liquidation for submission to HMRC, including the submission of final VAT, PAYE and any subcontractor returns, together with evidence of final payments made prior to the appointment of the liquidators.
- We will prepare all of the statutory minutes, notices and resolutions. We will also check your company’s memorandum and articles to ensure compliance with notice periods and voting rights.
- Following appointment
- Once appointed we will file the Declaration of Solvency and resolutions confirming the appointment of the liquidators at Companies House. We will also advertise the appointment in the London Gazette and advertise for creditors to submit claims. Even though there will be no creditors it is best practice still to advertise.
- Write to your bank
- We will request the company’s cash at bank and make a distribution within 7 days of receipt of the cash in accordance with the company’s memorandum and articles.
- Distribute cash
- The time frame of this will depend wholly upon when we receive money from your bank. All banks are different in terms of how quickly they will release the funds to the liquidators. We will use our best endeavours to secure the release of the monies as soon as possible but please note that the bank’s own framework may mean that funds are not released as quickly as you would like. If your company is/has been VAT registered, we will reclaim the VAT on the costs incurred and make a second and final distribution towards the end of the liquidation.
- We will also require a written indemnity as part of the engagement letter to provide the liquidator with sufficient security should any claims arise. As long as all liabilities have been paid prior to appointment then the liquidator will have no cause to rely upon the indemnity.
How long will the process take?
From receipt of your signed engagement paperwork and all the required information, the company can be placed into liquidation within 7 days (subject also to receiving the required consent from the shareholders). Your cash can be distributed to you within 7 days of receipt of the cash. It should be noted that upon liquidation, the company remains in existence until the process is complete. The period of the liquidation should take no longer than 12 months, the only matters that the liquidators will have to deal with that we cannot provide a firm assurance for on timing is obtaining tax clearance from HMRC and reclaiming the VAT on the costs. However, the directors powers cease upon the appointment of the liquidators and they are relieved of any ongoing statutory responsibilities as the liquidators assume those. Responsibility for every aspect of the company’s affairs is passed to the liquidators.
Why should I pay for an MVL when I can strike the company off?
There are significant potential disadvantages to striking off:
- Shareholders may miss the opportunity to take advantage of Entrepreneurs Relief and thereby legitimately make significant tax savings. You should speak to you tax adviser to see if you qualify. In many cases these savings can far outweigh the cost of an MVL
- 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.
- All assets and property of the company prior to dissolution become bona vacantia i.e. ownership is transferred to the Crown.
Other matters to consider
We will deal with the complete liquidation process. We do not provide any tax advice to the company and shareholders; you should seek this from an accountant. It is up to the shareholders to declare the relevant income/gains on your tax return. We can, however, recommend accountants to you should you require advice.
We offer a fast and efficient service with nationwide coverage from a network of regional offices. If you think an MVL may be right for your business, get in touch today for free confidential advice with no obligation.
What is next?
Your first step must be to contact one of our consultants. They will guide you through the process and can arrange a face to face meeting at a convenient location to discuss matters further. The process is relatively straightforward and with our very competitive fixed fee quotes we can ensure a return to Shareholders is maximised.
After recovering your investment from your company in a tax efficient manner, it makes sense to protect your hard-earned nest egg. Whatever your plans include – new ventures, retirement, etc., it’s important to take professional advice before making any decisions.
Although we do not offer financial planning and investment management advice, if you wish we can introduce you to an independent wealth management company which can provide a complete range of financial services for individuals and businesses. We only deal with experienced advisers who are authorised and regulated by the Financial Conduct Authority.
Initial meetings with a wealth management company are free of cost.
Financial advisory services include:
- Pensions and retirement planning
- Savings, investments and portfolio management
- Inheritance tax planning
- Life insurance and family protection
The independent tailored financial advice aims to help turn your plans into reality and the sooner you start your financial planning the greater your chance of realising your goals; short, medium and long term.
For companies which are solvent and have more than £25,000 in cash and assets to distribute, an MVL may be more tax-efficient than a dissolution when it comes to closing down your company . As long as your company is able to pay all of its liabilities, this could be the best procedure for your business.
How we can help
Contact one of our experienced advisors, who will talk you through the options and initiate engagement. The process is relatively straightforward and with our very competitive fixed fee quotes we can ensure a return to shareholders is maximised.