When you read about the liquidation of a company in the press, it’s most likely due to insolvency. An MVL is different.
While a Members’ Voluntary Liquidation (MVL) still involves the closure of a company using liquidation, it’s a specific form that’s reserved for solvent companies.
A company is solvent if it has no problem paying its debts in full and on time. If this sounds like your business, you most likely have some profits in your company too. If you’re looking to close your solvent business, an MVL could be the fastest and most profitable way to take home those profits. This is why…
There are tax benefits.
An MVL is a tax efficient way of closing down a solvent company if you have over £25,000 of reserves. Rather than being taxed as income, reserves are taxed as capital distributions via the MVL process.
You may also be able to take advantage of Business Asset Disposal Relief (previously called Entrepreneur’s Relief) and reduce your Capital Gains Tax. This means you could potentially distribute up to £1,000,000 and pay just 10% in tax.
Please note: we always recommend you take independent tax advice from a qualified professional prior to doing an MVL.
It saves money and time
If your company is dormant and you have no plans to use it in the future, an MVL saves you money on accountancy fees – or takes away the hassle of doing your own annual confirmation statement and set of accounts, as the company will be struck off at the end of the process. An MVL will also mean you can take home any retained profits still in your company.
You can avoid IR35 complications
IR35 focuses on the classification of contractors and employees. If you earn most or all of your money by working for one company, or through just one contract, you could be classed as an employee of that company in tax matters. Many contractors are avoiding this by becoming employees of their client. You can use an MVL to close your company and extract the profits quickly and efficiently before you begin employment.
Things are done ‘by the book’
An alternative way to close your company is by striking it off. This can be done without the formality of an MVL. (But remember: if you have reserves of more than £25,000 you’ll miss out on the benefit of Capital Gains Tax treatment on the distributions paid to shareholders.)
However, without a formal liquidation, some matters – like tax bills – can be forgotten about. HMRC, or any other creditor, can prevent a company from closing via a strike off if they’re still owed money and could pursue you through the courts for trying to avoid any debts.
You don’t have to shoulder the responsibility
Finally – and for some most importantly – an MVL must be completed by a licensed insolvency practitioner. You will not be able to go through the process without one. The added benefit of having an expert on your side is that they’re just that…experts. This makes the process smooth and generally hassle-free.