The benefits of Members Voluntary Liquidation
The Members Voluntary Liquidation (MVL) procedure allows business owners to draw funds as a capital distribution, which is more favourable than income tax charged on retained profits over £25,000, on which tax is charged at:
- 7.5% for basic rate taxpayers
- 32.5% for higher rate taxpayers
- 38.1% for additional rate taxpayers
You may be able to pay less tax when you sell (or dispose of) all, or part of, your business via an MVL because all distributions to shareholders are treated as a capital gain.
Business Asset Disposal Relief (previously Entrepreneur’s Relief) means you will pay tax at 10% on gains in relation to qualifying assets and can be very beneficial for company directors and business owners if they meet the qualifying conditions, although you may wish to speak to an accountant for advice tailored to your personal situation.
You must have a minimum shareholding of 5% when the sale or disposal is made. There is no limit to the number of businesses you can sell throughout your working life and still qualify for this scheme, but there is a lifetime limit set at £1 million of capital gains.
MVL Procedure v Striking-off
Distributions made as part of an informal closure (striking off the register at Companies House without going through a formal liquidation) are not subject to income tax where the amount distributed does not exceed £25,000.
However, this is only relevant where the company has paid all liabilities and the distribution is being made in anticipation of the company being struck off. If the surplus exceeds £25,000 any distribution will be treated as income and is therefore less tax efficient.
What’s changing with Business Asset Disposal Relief?
The Chancellor, Rishi Sunak, announced changes to the Entrepreneurs’ Relief scheme during his first Budget speech in March 2020. In response to mounting calls to amend or abolish this relief completely, the Chancellor said, “I will do what the Federation of Small Businesses called “a sensible reform” and reduce the lifetime limit from £10m to £1m.”
It was estimated that 80% of small business owners would be unaffected by these changes but the Chancellor is now thought to be putting the final touches to reforms, which are likely to be announced in the Spring Budget on 3 March 2021.
Existing capital gains rates could be aligned much more closely with the income tax system, or this tax relief could be abolished altogether. Either reform would be costly for business owners and the new rules could be in place by 6 April 2021, or possibly even sooner.
MVL – The Costs
The costs cover preparatory work, and work done following the appointment of a Liquidator and are calculated based on the complexity of each case. Costs must also cover expenses such as swear fees, and statutory advertising costs and a quotation can be provided upon request.
Contact us for help
At Keystone Recovery we can also provide advice and assistance with group restructuring, to save time and costs of dormant entities within group structures.
If you require any further information please do not hesitate to contact us for a no obligation assessment.