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solvent liquidation with a MVL.

An update on solvent liquidation with tax benefits

Authored by Phil Meekin

Phil Meekin

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Approximate read time: 2 minutes

When shareholders receive a dividend (whilst the company is trading) it will be classed as income and taxed accordingly.  If a company has come to the end of its useful life and is solvent, it is better for the shareholders to close the company and receive the funds as a capital distribution. Wilson Field can offer a solvent liquidation with a MVL.

If the funds are less than £25,000 then concessions can be obtained from HMRC. The concessions are for the company to pay these funds as a capital distribution and then strike the company off.

As from 1st March 2012 if a company undergoes an informal winding up procedure, HMRC will only allow distributions up to a maximum of £25,000 to be treat as capital and any distributions exceeding £25,000 will be categorised as dividend income.

If funds to distribute are in excess of this, the most appropriate way of doing this is by a Members Voluntary Liquidation (MVL) as the £25,000 limit will not apply and distributions will be treat as a capital receipt.

Shareholders receiving this distribution (up to £10million in their lifetime) will be entitled to entrepreneurs tax at 10%.  Shareholders can enjoy these significant taxation savings.

An MVL is the most straightforward of all liquidations, involving the members passing resolutions to appoint a liquidator, the liquidator realising the assets and discharging any liabilities and finally distributing the funds to the shareholders.  The liquidators may also make more than one distribution to shareholders if it is beneficial to shareholders to receive these in certain tax years.

The costs of an MVL will vary company by company.  In most cases, the savings in tax will more than compensate the costs of an MVL

Useful Links

The Enactment of Extra-Statutory Concessions Order 2012
Enactment of Extra-Statutory Concession C16
Information for shareholders who may qualify for Entrepreneurs Tax Relief

Insolvency practitioners are available to help you in business. Borrowing or using your personal resources whilst admirable may not always be in anybody’s interest. So before you become another statistic, consider how an insolvency practitioner can help you.

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