Many directors will want to release capital from their solvent company at some point. This could be while the company is still trading because of a lack of profitability or to spend the capital on the business; or because they are looking to close down the company, perhaps to take up a PAYE-role or retire.
If you are thinking about closing down your company and releasing any capital within it, a very popular way of doing so is by using the Members’ Voluntary Liquidation (MVL) process.
In this article, Clarke Bell will discuss how you can use an MVL to release capital from your solvent company when you close it down.
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Releasing capital from a solvent company using an MVL
A very popular and effective method for releasing capital from a solvent company is by placing your company through the process of a Members’ Voluntary Liquidation (MVL).
An MVL is a formal procedure for liquidating a solvent company voluntarily. It is important to note that only an insolvency practitioner can do an MVL, and directors can appoint an insolvency practitioner of their choosing.
An MVL can offer you significant tax advantages as it subjects your profits to Capital Gains Tax (CGT), rather than Income Tax. Compared to Income Tax brackets, CGT has much lower tax rates resulting in significant savings. Moreover, an MVL allows you to apply for Business Asset Disposal Relief, formerly known as Entrepreneurs’ Relief. If you are eligible, this will further reduce your tax burden. This relief does have a lifetime limit of £1 million, however, and it can only be relied upon once, assuming you meet or exceed the cap.
Although the benefits provided by a Members’ Voluntary Liquidation are significant, keep in mind that the procedure can only be used for solvent companies. Once you move to liquidate your company using an MVL, you will have to sign a Declaration of Solvency. Essentially, this declaration states that, to the best of your knowledge, your company is solvent and capable of paying its debts and liabilities within 12 months.
Making a false declaration is a serious offence and will likely result in significant consequences for any director making such a declaration.
If your company is insolvent (i.e. it cannot pay all of its bills), then you cannot use the MVL process. Instead, you should consider liquidating your company with a Creditors’ Voluntary Liquidation (CVL).
Clarke Bell can help you
If you want to know more about closing your company with the liquidation process, we can help you.
Clarke Bell have more than 28 years of experience in helping companies find the best way to close, and we can do the same for you – whether your company is solvent or insolvent.
Contact us today for a free, no-obligation consultation.
