Since 1st March 2012 changes to the Extra Statutory Concession C16 mean that any distribution to shareholders upon closure of a company over £25,000 must be treated as income, and therefore taxed accordingly.
This change would appear to have increased the popularity of Members’ Voluntary Liquidations (MVLs) considerably. According to the official statistics from The Insolvency Service, over the last few (financial) years the number of MVLs has been:
Since the change came into effect on 1st March 2012, the number increased to:
What do MVLs do?
By using a Members Voluntary Liquidation (MVL) the funds can be distributed as capital, thereby reducing the tax burden. This can result in considerable tax advantages for the director(s) of the company.
A typical scenario would be where a consultant decides to return to full-time employment or to retire, and wants to close down their company and take out their money in the most cost-effective way.
In determining if an MVL would be right for a particular situation, we would leave the tax calculations to the Accountant. Where it is deemed that an MVL is the best solution, an Insolvency Practitioner must be used.
At Clarke Bell, we work with many firms of Accountants, helping their clients with MVLs. Irrespective of the amount of cash that is held in the bank account, our fee (£995 +VAT + disbursements) and process are the same.
Some of the most common questions Accountants ask us are as follows…
Is there a ‘closure fee’ for the Accountant?
As an Accountant, you can charge your client for the whole closure process, including our fee and your fee for the work you do in closing their company. Then, you pay us for the MVL aspect.
Also, we are more than happy to deal directly with you rather than with your client / the director(s) of the company – as that tends to be easier for everyone.
What is a ‘simple’ MVL?
Essentially, this is where:
- the company’s only asset is cash at bank
- any liability owing to HMRC has been paid
If there is an overdrawn loan account, we still consider this to be a ‘simple’ MVL.
What are the ‘disbursements’?
Throughout the course of the MVL we have to take out 4 Statutory Adverts in the London Gazette to comply with legislation and best practise. The cost of these is (4 x £70.00 +VAT): £336.00
A compulsory bond needs to be taken out. This provides you with 100% security whilst funds are under the control of the Insolvency Practitioner. The bond fee is dependent on the cash-in-bank that is to be distributed, for example:
Asset Value (£)
25,001 – 50,000
50,001 – 100,000
100,001 – 250,000
250,001 – 500,000
What is a ‘Declaration of Solvency’ fee?
Upon the company being placed into MVL, the directors are required to attend a solicitor’s office to swear a Declaration of Solvency. This can be done by any local solicitor, normally for about £10.
Do Clarke Bell give tax advice?
No. We are not tax experts, so we do not give any tax advice.
However, we can refer you to a tax solicitor who is an expert on MVL-related tax issues. (And there is no danger of them trying to poach your client).
Examples of the savings
As well as the commercial reasons for doing an MVL, tax savings can be made for the directors involved.
Every case is different, but as a general guide if a company had £50,000 in reserves and the person was already a higher rate tax payer, the £50,000 taken as a distribution would lead to personal tax of £12,500.
If done as an MVL, the tax consequences would be £3,940 of Capital Gains Tax plus £1,694 liquidator fee. This leads to a tax saving of £6,866.
(Naturally, this would be reduced by whatever fee the Accountant would charge for the work you do in the closure process.)
Here is one Accountant said after they had referred one of their clients to us:
“Thank you again for all your help with this case, you have made it very straightforward.
When we get any further cases such as this we will definitely be in touch.”
For more details…
If you’d like to discuss anything mentioned in this article, just call Clarke Bell on: 0161 907 4044. You can also take a look at our accountants page for more information.
Or e-mail: [email protected]