You may be considering closing down your limited company for any number of reasons, such as the impending IR35 private sector reforms or retirement.
If you’re thinking about going back to full-time employment, then you probably want to know what your options are, and if a Members’ Voluntary Liquidation (MVL) is best for you. Well here we weigh up the factors you need to think about…
First, is your limited company solvent or insolvent?
You’ll need to think about whether your limited company has liabilities that have built up and if it can pay all its debts. If the answer is no, then the company is insolvent.
If your company can pay all its debts and has more assets than liabilities, it means that it’s solvent. In this case, you’ll have a couple of options to close it down:
One option is to strike-off your limited company from Companies House. To do this you, as the director, need to complete a striking off form (DS01). Among other things, the form will require your Company Registration Number (CRN), along with the names and signatures of most of the company’s directors. A cheque for £10 need to be included with the form, from an account that doesn’t belong to the company you’re closing.
Once you’ve sent this and Companies House has received it, they will publish it in The Gazette, so that it’s on an official public record. This notifies third parties who may want to object to the closure of your limited company. Some creditors may reject your application if you still need to settle any debts that the company owe them. You must always inform creditors of your intention to strike-off the business.
Also, any one of your company’s shareholders and creditors, or a liquidator, can apply for your company to be revived after a strike-off. They can do this for up to 20 years after dissolution and then issue winding up proceedings against it. If you’re looking to continue in full-time employment this can cause issues down the line.
Members’ Voluntary Liquidation (MVL)
An MVL is an HMRC-approved process for closing down a solvent company. It can be an extremely beneficial way to close down your limited company if you’re looking to go into full-time employee role. An MVL is a tax-efficient way of unlocking cash from your business, it can ensure your remaining profits are fairly distributed to shareholders as capital, and not dividends.
Your company must be solvent for an MVL to be a valid option. However, even if there are outstanding debts, if you’re very confident these will be repaid in full within 12 months from the beginning of the process of winding up, you may still apply for an MVL. It is critical that you seek the proper professional advice before making a decision.
When you liquidate your limited company, any assets that are extracted will be treated as capital for tax purposes. If you choose to go down the company strike-off route, then assets after the first £25,000 will be treated as income.
If your company’s structure is quite complex, or if you are a higher rate taxpayer, this could see you losing out on funds. Similarly, if the value of your company’s assets, once creditors are paid, is likely to exceed £25,000 then an MVL is likely to be your best option.
How does an MVL work?
An MVL works in a similar way to a Creditors’ Voluntary Liquidation (CVL), in that it requires the appointment of a liquidator. Once any creditors have been paid, net liquid assets are distributed amongst your company members.
Although the administrative costs associated with MVL tend to be higher, it can still be the most effective option from a financial sense, especially when it comes to the tax savings. This is because by liquidating your limited company through an MVL, the assets extracted will be subject to Capital Gains Tax, as opposed to Income Tax. This will leave more money in your pocket.
Also, you could qualify for Entrepreneur’s Relief (ER), which means you’ll benefit from a 10% marginal rate on distributions. Again, this can result in considerable tax savings for you and the other shareholders of your limited company.
At Clarke Bell, we have been trading for more than 25 years and have helped thousands of company directors close down their company with an MVL.
Our fee is £995 +VAT + disbursements, and we aim to distribute the company assets after 35 days from the date of liquidation.
For more information, get in touch with our friendly and highly experienced team today.