When you want to close down your (solvent) company and extract the profits, a Members’ Voluntary Liquidation (MVL) is often the best option. An MVL could allow you to extract the profits whilst paying tax at a marginal rate of 10%. The whole process is extremely tax-efficient, so could end up saving you thousands of pounds – and it is fully approved by HMRC.
Why would you choose to close your company?
There are a variety of reasons why you might choose to close down your solvent company with an MVL, including:
- Being “inside IR35” as a contractor with a limited company
- Wanting to take a permanent role as an employee
- Deciding to retire
How does an MVL work?
Generally, when closing down your company, you will draw any remaining profit as a dividend, paying income tax on the dividend amount. When you seek out professional help from a licensed insolvency practitioner who can liquidate your company, your reserves can be distributed as capital. This means they are subject to capital gains tax (CGT) at either 18% or 28%.
Through an MVL, you can take advantage of one of the best benefits of the process, which is Entrepreneur’s Relief (ER). Providing you qualify, this can mean that you’ll pay CGT at a rate of just 10% on qualifying assets, which can translate into considerable tax savings.
Each shareholder of your company could also benefit from a tax-free allowance of £11,100 – the Annual Exempt Amount. If there are multiple shareholders, then this can be highly efficient.
Will an MVL work for you?
When deciding on whether or not an MVL can present you with huge financial benefits, you need to consider various factors – such as your profits, personal circumstances and the fee that the liquidator will charge.
An MVL is generally the best option when the company’s reserves are over £25,000.
It’s always best to seek professional advice to find out whether an MVL is the right option for you. Whatever your reason for winding up, Clarke Bell has the necessary expertise to help you close your company as quickly and cost-effectively as possible.
For more information about putting your company into a Members’ Voluntary Liquidation, contact us on 0161 907 4044 or [email protected]
