A Members Voluntary Liquidation (MVL) is a tax-efficient way of closing a limited company that does not owe money to creditors.
MVLs are a strategically useful way of closing a limited company and are often used when:
- A profitable company reaches the point where it has served its purpose.
- When shareholders are keen to extract the profits of their investment.
- If directors are approaching retirement or looking for a way out of the business for personal reasons.
It’s a tool the Future Strategy team can use to help you close a company while realising its assets. In other words, we can help you liquidate the company’s assets so the proceeds can be directed to shareholders.
We have a clear, easy to follow process for carrying out a MVL:
- We appoint an experienced Insolvency Practitioner to guide you through the entire process.
- We use the benefits of a MVL to make sure you get the best financial outcome with the most favourable tax implications.
- Our team communicates clearly and transparently with you throughout the entire process.
If you would like to maximise financial gain from the closure of a company in a stress-free process, contact the Future Strategy team today for a free consultation and quote.
Why choose a members voluntary liquidation?
An MVL is regarded as one of the most common methods for directors and shareholders to realise a company’s assets, including buildings, vehicles, cash etc.
The MVL process should be implemented when a solvent company (a company that meets its outgoings) needs to be wound up if it has come to the end of its useful life.
Reasons for working with Future Strategy on a MVL include:
- When the owners or parents of an old established family business have retired and their children or other family members do not wish to run it themselves.
- When a company’s shareholders wish to retire and have cash and/or property that they want to transfer to their personal estate.
- With the new provisions of entrepreneur’s relief, it is more tax-efficient to take money out of the company via an MVL rather than taking it all out as a special dividend. However, it’s always worth checking with your accountant first.
There are situations when an MVL is not appropriate – the most obvious being if the company is deemed to be insolvent (i.e. one that cannot afford to pay all its debts).
If this is found to be the case and you swear the declaration of solvency, you could be deemed to be committing a criminal offence.
If the company is insolvent and has no, or very few assets, then the appropriate procedure would be a company dissolution. Alternatively, if there are assets to liquidate, then the correct process would be a creditors’ voluntary liquidation.
Should I dissolve the company or use a MVL?
Voluntarily dissolving a company – known as ‘striking off’ – is a relatively simple process for closing limited companies which have no practical use. As long as no objection to the strike-off is received, the company will be struck off.
When striking off, up to £25,000 can be taken from a company. This is treated as capital rather than income. It’s very important to consider that once the company is dissolved, any assets remaining in the business will become bona vacantia – this means they will automatically transfer to the Crown.
To claim these assets back, you must pay to reverse the strike-off and have your company restored to the register. We would strongly advise you to extract all assets from your company before you start the strike-off process, once all liabilities have been paid in full.
MVLs are more expensive than striking off because of the need to appoint an Insolvency Practitioner. But if you need to distribute more than £25,000, a MVL is often a better choice, especially in cases of large sums of money.
It is vital you do not try to do this yourself. Closing down a profitable business requires expertise, and by working with Future Strategy we can help you successfully distribute assets and cash and close the company without stress. Attempting to strike off the company yourself is not advised.
A knowledgeable Insolvency Practitioner will be able to ensure your company is closed down in the most appropriate and cost-effective manner.
Our team will keep you informed throughout the process, working hard to gain the best result in the quickest, most effective time possible.
Are MVLs tax-efficient?
It is this tax-saving that makes MVLs so popular with our clients – especially where considerable sums of retained profits are involved.
All retained profits are treated as capital rather than income in a MVL. Any funds distributed to shareholders are subject to Capital Gains Tax (CGT) rather than income tax. In the majority of cases, this represents a better option than taking these funds as dividends.
You may also be entitled to take advantage of Business Asset Disposal Relief (known as Entrepreneurs’ Relief until April 2020). This tax relief scheme is designed to reduce the rate of tax for which you are liable.
How quickly can shareholders get paid in an MVL?
The MVL process can be completed in 6 months. However, a distribution is often made to shareholders before this time, depending on the level of company assets and funds involved.
This is completed with a signed indemnity, which allows for most of the funds to be paid to shareholders almost immediately while the company is going through the liquidation process.
How does the members voluntary liquidation process work?
The MVL process can alter, depending on a company’s assets. For example, does it just have money in the bank or does it also own buildings?
If a company is using an MVL, here’s an example of the process it would go through:
- The director of the limited company appoints a licensed Insolvency Practitioner (IP) who will carry out the process.
- The IP files appointment documents at Companies House.
- The IP publishes a statutory notice of his appointment in The Gazette (London, Edinburgh, Wales or Northern Ireland).
- A notice of solvency is submitted to Her Majesty’s Revenue and Customs (HMRC).
- The IP completes a post-liquidation VAT return and deregisters the company at Companies House.
- The IP writes to the bank to close the account and receive company funds.
- After one month, the IP will distribute any funds to shareholders.
- A final report is prepared to shareholders and a meeting is held.
- A final corporation tax return is submitted for the post-liquidation period.
As MVLs are designed for solvent companies only, you will be required to sign a sworn declaration of solvency – this means you agree that your company can settle its liabilities in full within 12 months. To do this, a thorough assessment of the company’s financial position will take place.
We will then notify HMRC and Companies House and your intention to close your company through an MVL will be advertised in the Gazette (London, Edinburgh, Wales or Northern Ireland), making it a matter of public record.
Finally, following clearance from HMRC that there are no outstanding liabilities, and payment of any additional outstanding liabilities, the company’s funds will be distributed amongst shareholders.
Could a MVL have a negative effect on me?
Although a company’s voluntary winding up petition must be advertised in The Gazette (London, Edinburgh, Wales or Northern Ireland) – in order to make it public record – an MVL is not considered an insolvency procedure and should therefore not negatively affect either your business reputation or your credit score in the same way as a Creditors Voluntary Liquidation (CVL).
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