A Member’s Voluntary Liquidation (MVL) is a great way to unlock the investment in your business.
An MVL is tax efficient – where more than £25,000 is to be distributed to shareholders.
Cost effective – starting as low as £1,395 plus VAT & disbursements.
Quick cash release subject to shareholders indemnity we don’t have to wait for HMRC clearance!
We will aim to distribute funds to you within 7 days of receipt of your cleared funds.
No need for a face-to-face meeting. Everything can be done over email and phone.
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What is a members voluntary liquidation (MVL)?
A Member’s Voluntary Liquidation (MVL) is a great way to unlock the investment in your business or close a solvent company. If you are looking for a low cost and tax efficient way to do either of these then a MVL could be the solution for you.
A MVL is a procedure that a company director elects to enter in order to close a solvent company. But what is a solvent company? It is a company that can afford to pay all of its liabilities, from employee wages to taxes and utility bills within 12 months.
Before the MVL process can start, you as company director must declare to the solvency of the company. To wrongly declare that your company is solvent, when it is in debt or facing court proceedings from creditors, could be seen as committing a criminal offence.
When you could use the MVL process
An MVL is particularly beneficial when a solvent company has come to the end of its life and needs winding up for closure.
There are many examples of when an MVL could be beneficial, they include:
- Shareholders of the company want to close the business or retire but they still have property/cash in the company. If they would like to transfer these assets to their personal estate, an MVL is one way to do that.
- When you place your company into an MVL, you can benefit from the provision of Entrepreneurs Relief. This makes it more tax efficient for you to take money out of your company via MVL rather than taking it out as a special dividend. It is always worth checking with your accountant before doing this though.
- In the case of established family businesses, where the owners have/want to retire but their children or family don’t want to run the business, then an MVL would be a good way to put the company to bed.
- A group of companies may need rationalising and an MVL could be the answer to this. Be aware that this situation may require more than one MVL or you could transfer to trading companies within the group. Again, make sure you discuss this with the relevant advisors before committing to any decision.
The MVL process
So you have decided that your company has no future purpose but it is solvent with cash, assets and manageable liabilities. The most cost effective solution to wind up a solvent company would be an MVL, but how does it work?
- You should get in touch with a licensed insolvency practitioner (IP), such as ourselves. We can talk you through the process, what is involved and help you to prepare the paperwork required.
- Before you can be put into the MVL process, you must fill out a Statutory Declaration of Solvency (this will be explained further down the page).
- We will arrange everything else once this has been done. We will obtain creditor’s and legal notices, sort out any meetings that will need to occur and guide you through the process.
- While we are doing this, you can get on with your life or perhaps the next steps of your career.
- The company will be dissolved and all directors’ obligations will be removed from yourself.
- We will issue payments to you, and any other shareholders, as soon as they become available.
As well as the Declaration of Solvency (mentioned above), you need to complete the following to start an MVL.
- Ensure all your liabilities are paid and are up to date
- Collect any monies owing to the company
- De-register for VAT and as an employer
- File the latest set of accounts and make sure they are complete to the date the business ceased trading
- Sell any remaining assets in your business
A Declaration of Solvency
When you decide you want to enter your company into an MVL, you will have to complete a Statutory Declaration of Solvency to be sworn in front of a solicitor.
Directors also have to swear that the company can pay the statutory interest and liquidation costs involved with closing the company via MVL. These liquidation costs have to be paid within 12 months of the declaration of solvency from the director.
The benefits of MVLs
When you enter into an MVL process with your company, you can take advantage of Entrepreneurs Relief. This reduces the amount of Capital Gains Tax you will pay when you sell your business. Currently, you will only pay 10% tax on all gains (or profits) of the business and assets, due to Entrepreneurs Relief.
Also, if your company has cash, or property that can be turned into cash, then the use of an MVL will distribute these assets to shareholders as cash or ‘in specie’ (as an asset in its current form). All of this is subject to taxation from the person receiving the cash and/or asset.
New legislation to be aware of
In April 2016, the Government introduced new rules regarding the distribution of assets from a solvent liquidation to an individual. The individuals receiving these assets, or the cash, may now be subject to tax under the following circumstances:
- The company is already a close company
- If within 2 years of receiving a distribution of assets from an MVL, the person in question is involved with a similar trade or business activity.
- It appears that the company was wound up with the sole intention to reduce tax
These new rules have been introduced to deter serial liquidators from taking advantage of Entrepreneurs Relief. They do this by accumulating funds in companies and taking the money out as capital (via MVL) rather than income (via wages or dividends) to reduce the amount of tax to pay on it.
It is thought that these new measures will deter and lower the numbers of directors and shareholders of businesses participating in serial liquidating.
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