Members’ Voluntary Liquidation (MVL) is an option open to solvent companies which formally winds-up and closes the business.
There are many reasons to consider Members’ Voluntary Liquidation, not least because it is a highly tax-efficient way of closing a business.
If you are considering an MVL in 2021 and are looking for more information before you take the next steps, Clarke Bell has put together this handy guide on everything you need to know about Members’ Voluntary Liquidation and why it might be right for you in 2021.
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What is Members’ Voluntary Liquidation?
Let’s start by looking at what Members’ Voluntary Liquidation is and what the process involves.
An MVL is a formal legal process that winds-up a solvent company. This means only a company that is solvent and viable and has assets of £25,000 or more can undergo the process.
This is a completely voluntary process that is initiated by company directors and shareholders at a time that is right for them.
When applying for a Members’ Voluntary Liquidation, the company directors must declare that the company:
- Is solvent, meaning it can pay its bills and cover its daily costs
- Can pay all its creditors
- Can pay all its taxes
- Can meet any contractual obligations
There are many reasons why a director might choose an MVL, whether this is because they are looking to take a step back within the company and move to a PAYE role, they are moving abroad, they are retiring or they are looking to discontinue and liquidate a particular arm of their business, despite the fact the company is solvent and sustainable.
To undergo the MVL process, the company director will firstly need to call a meeting with company shareholders.
Next, a licensed Insolvency Practitioner (IP) must legally be appointed to oversee and carry out the process.
It is the role of the Insolvency Practitioner to release the company’s assets, settle any legal disputes, pay creditors any outstanding amounts and distribute the remaining funds amongst shareholders.
Playing a critical role in the MVL, it is important to find the best Insolvency Practitioner to work with. For more help with choosing an IP, check out our handy guide.
As well as an MVL, there are also other types of liquidation, including:
Creditors’ Voluntary Liquidation (CVL)
Another form of voluntary liquidation is Creditors’ Voluntary Liquidation.
Unlike in the case of an MVL, this is a route that only insolvent companies can take when it is no longer feasible for them to keep going.
Like an MVL, this is a completely voluntary process initiated by the company directors and shareholders.
This is usually entered into when a company no longer has a viable future and the director has decided to take control and act to avoid being forced into compulsory liquidation.
Unlike both CVL and MVL, compulsory liquidation is when a company is forced to close.
This is a process that is initiated by creditors who are owed money (£750 or more) and have had unsuccessful repayment demands for 21 days or over.
The creditors that are owed money will issue a winding-up petition to the court. If successful, the court will appoint a licensed Insolvency Practitioner to liquidate the company.
This is the most serious form of liquidation and can have harmful impacts on the director.
Why consider a Members’ Voluntary Liquidation?
One of the main benefits of closing a solvent company through Members’ Voluntary Liquidation and a reason many directors consider this route is that it is an HMRC approved, tax-efficient way of winding-up a business.
This is because when closing a company through a Members’ Voluntary Liquidation, any funds taken out are subject to Capital Gains Tax rather than Income Tax, which is set at just 10%.
This is significantly less than the level of income tax you would otherwise be charged which sits at 18% for the basic level and 28% for the higher level.
What’s more, there are further advantages for companies that qualify for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief before 6th April 2020.)
This means you can sell all or part of the company and pay just 10% in Capital Gains Tax on profits over the lifetime of your business up to a limit of £1 million which can save directors a significant sum on their tax bill.
This makes an MVL a quick, tax-efficient way of closing a business and freeing up funds which is why many consider this route.
To work out how much you can save through Business Asset Disposal Relief you can simply follow these steps:
- Calculate your total taxable gain. You can do this by adding together all your capital gains and taking away your losses
- Take away your tax-free capital gains allowance which is £12,000 for individuals
- Now you will be left with a figure which you can deduct 10% off which you will pay in tax
Let Clarke Bell help with the next steps
Whatever the reason you have for selling your solvent company, if you have decided Members’ Voluntary Liquidation is the best route for you, Clarke Bell are here to help.
Our team of professional tax advisers and accountants can help make sure you close your solvent business whilst taking full advantage of Business Asset Disposal Relief and remaining complaint to your legal tax obligations.
We have a range of categories for our Members’ Voluntary Liquidation service, meaning we can help close your solvent company whatever your situation is.
We have been trading for more than 26 years and have helped thousands of company owners with the liquidation process through our expert insolvency advice. If you’d like to join the 2,000 companies we have already put through the MVL process, why not get in touch today?