What are the benefits of a Members Voluntary Liquidation?
The Members Voluntary Liquidation (MVL) procedure allows business owners to draw funds as a capital distribution, which is more favourable than income tax charged on retained profits over £25,000. You may be able to pay less tax when you sell (or dispose of) all, or part of, your business via an MVL because all distributions to shareholders are treated as a capital gain.
Business Asset Disposal Relief (previously Entrepreneur’s Relief) means you will pay tax at 10% on gains in relation to qualifying assets and can be very beneficial for company directors and business owners if they meet the qualifying conditions, although you may wish to speak to an accountant for advice tailored to your personal situation.
You must have a minimum shareholding of 5% when the sale or disposal is made. There is no limit to the number of businesses you can sell throughout your working life and still qualify for this scheme, but there is a lifetime limit set at £1 million of capital gains.
Benefits of MVL
The potential benefits of MVL are:
- Extracts the value of the business in the form of cash distributions
- Returns surplus assets in the form of a distribution in specie
- Low tax rates on shareholder distributions
- Improves transparency and simplify corporate structures
- Facilitates quick access to the majority of shareholder funds
MVL Procedure v Striking-off
Distributions made as part of an informal closure (striking off the register at Companies House without going through a formal liquidation) are not subject to income tax where the amount distributed does not exceed £25,000.
However, this is only relevant where the company has paid all liabilities and the distribution is being made in anticipation of the company being struck off. If the surplus exceeds £25,000 any distribution will be treated as income and is therefore less tax efficient.
What does it cost?
The costs cover preparatory work, and work done following the appointment of a Liquidator and are calculated based on the complexity of each company. Costs must also cover expenses such as swear fees, and statutory advertising costs and a quotation can be provided upon request.
Licensed Insolvency Practitioners
At Keywood Group we can provide advice and assistance with group restructuring, to save time and costs of dormant entities within group structures. We do not provide tax advice but will direct you as to what advice you may require.
We have offices in Birmingham and London so if you require any further information, please do not hesitate to contact us for a no obligation assessment.
