Members Voluntary Liquidation MVL Explained
An “MVL” (“Members Voluntary Liquidation”) is the Voluntary Winding Up of a Solvent limited company. The “MVL” brings the life of a company then to a formal end. However, usually arranged for business restructuring purposes or to facilitate a tax-efficient mechanism to return assets to the company’s shareholders then. Some specific reasons for a company placed into “MVL” listed below. An MVL process is part of the voluntary liquidation process family.
- Retirement of directors.
- Reorganising a group of companies.
- The company then no longer trades or has a purpose.
- Restructuring of company assets.
- Shareholders extract their investment.
For an “MVL” to happen. The directors, therefore, need to be satisfied, the company is solvent. A final set of accounts requires filing along with the confirmation statement as and when due.
A Declaration of Solvency usually is drafted and agreed before then entering into a Members’ Voluntary Liquidation (MVL),
The directors, then make a statutory declaration that the company to be Liquidated can repay its debts and any interest within a period, not surpassing 12 months. With the declaration, attach a statement of the company’s assets and liabilities, at the then intended Liquidation date.
The current pandemic and recent changes to court procedures.
Companies House has changed its requirements for the filing of a Declaration of Solvency.
The original then, no longer required to be filed. Companies House accept a PDF copy of the document emailed.
Companies House accepts a Declaration of Solvency sworn via video.
Members Voluntary Liquidation MVL Explained – When is an MVL Appropriate?
An MVL remains appropriate for a solvent company. The company director needs to ensure payment of all liabilities, twelve months from an appointment when then closing your company.
The Benefits of Liquidating a Limited Solvent Company
✔ Tax Efficient – Entrepreneurs Relief;
✔ Return surplus assets than in a tax-efficient manner to shareholders;
✔ Reduce risk to directors;
✔ Accounting and audit fees saved;
✔ Save management time in preparing statutory returns and compliance information;
✔ Improve transparency by simplifying complex and unwieldy structures thereby then enhancing investor perception;
✔ Complies with Anti Avoidance Rules for tax.
What HBG does for you?
✔ Prompt access to funds within one day;
✔ Provide you with a low-cost option to close your company and distribute funds;
✔ Licensed Insolvency Practitioners regulated by the Insolvency Practitioners Association;
✔ Nationwide coverage.
Usually, your business can then liquidate in a matter of weeks, therefore free to move forward!
Entrepreneurs’ Relief and Members Voluntary Liquidation?
Entrepreneurs’ Relief meaning?
Entrepreneurs’ Relief: The Relief of tax on a capital gain upon the disposal of or part of the company you once traded.
Entrepreneurs Relief applies to Sole Traders, Partnerships and Limited Companies.
Providing you qualify, therefore allows you to pay tax at a lower rate of tax at 10% covering any gains on suitable qualifying assets rather than the 20% Capital Gains Tax rate.
Further, you may as an individual claim £1m tax savings this way over your lifetime.
Entrepreneurs’ Relief and Members’ Voluntary Liquidations
Using a Members Voluntary Liquidation acts as the vehicle when closing down a solvent company. The cost starts at £895 plus VAT and is simple to progress.
What is a Members’ Voluntary Liquidation?
Members’ Voluntary Liquidation – Formal legal process to formally wind-up a solvent company.
The appointed liquidator once appointed then distributes to the companies shareholders, classed as capital, not income, liable for Capital Gains Tax.
MVL Distributions allow company shareholders to claim Entrepreneurs’ Relief. So once approved by HM Revenue & Customs, the company shareholders then only pay 10% tax.
Required for a min of two years of the date of disposal or sale:
- a sole trader;
- partner in a business;
- Owned business.
- For companies, individual needs 5% or more of the shares issued, required to have been a director for a min of two years.
Disposal of your companies assets must take place inside three years to qualify.
What happens if the company stops trading?
In the event the business ceases trading, you can still qualify as long as you sell your shares within a three period.
Ways gains qualify for Entrepreneurs’ Relief, how do you calculate the tax?
- Establish the gain of qualifying assets totally
- Deduct losses qualifying so to establish gain qualified for Entrepreneurs’ Relief
- personal tax-free allowance deduction;
- then you only pay over 10% tax.
What was the purpose of Entrepreneurs’ Relief?
In 2008, Entrepreneurs’ Relief commenced so to stimulate entrepreneurship and company start-ups in the United Kingdom.
Opinions on Entrepreneurs’ Relief
The tax relief remains criticised for rewarding already successful business owners and not focusing on helping companies when they are starting up.
Sir Edward Troup, the previous head of HM Revenue & Customs, requested the tax scrapped. He felt it would negatively affect entrepreneurs.
When would reforms take effect?
If Entrepreneurs’ Relief changes, no date has been announced as yet if at all for changes.
Rules entrepreneurs need the knowledge to be aware of when considering an MVL?
Targeted Anti-Avoidance Rule
The Targeted Anti-Avoidance Rule commenced 6 April 2016. So as to deter individuals from changing a company dividend into a capital payment, therefore, diminishing their tax liability.
It, therefore, applies to distributions directed to individuals when closing a limited company on or after 6 April 2016.
Any Distribution in a winding up made to an individual on or after 6 April 2016 remains treated as a dividend. So for it to work, all the conditions listed below must apply:
- Individuals receiving the distribution owned at least 5% of the company directly before the winding-up;
- The limited company remained a close company before the two years ending with the commencement of winding-up;
- Individuals receiving the distribution remains, so long as within two years from the date of distribution;
- Main design or objectives is to avoid or reduce Income Tax.
It is essential that shareholders are aware of these provisions as tax planning is an important part of the MVL process.
Entrepreneurs’ Relief remains a topic the UK tax authorities along with the Chancellor are currently reviewing.
Will though, the Government consult before changes to Entrepreneurs Relief?
- So what really should you do?
- Should you capitalise now while tax rates are low?
The date, though is vital for your action to make disposals and create a Capital Gain.
So minimising risk of anti-forestalling provisions, Is imperative. ( Dates now passed). Therefore, if you qualify in the current situation, then you need to review your available options under cover of professional advice.
If contemplating the use of a Members’ Voluntary Liquidation?
HBG Advisory experienced in producing Members’ Voluntary Liquidations for companies throughout the UK, and Overseas UK owned companies.
HBG Advisory provide our first meeting free of charge. Allowing you to review all options so a consider decision may be made.
We are prepared to put everything in writing and are fully insured with our advice and regulated.
Please contact us on 0800 612 5448 for a free no-obligation confidential chat or click virtual fo again a confidential virtual meeting.
Email contact: [email protected]
Why Can’t I then strike the Company Off?
A company is struck off, once an application made to “Companies House” for the companies removed from the register and dissolved. The company may only then do this if it not been active for the three months prior. As from 1st March 2012, if a company undergoes an informal winding-up procedure, HMRC allows distributions up to a maximum of £25,000 for treatment as capital. Should total distributions exceed £25,000, then treated as dividend income. However, should the company enter into an MVL, the £25,000 limit does not apply, and distributions may remain treated as a capital receipt and have the tax advantage of being subject to capital gains tax rather than income tax.
Do I Need then to go to Meetings?
The directors remain required to hold a board meeting to consider the “Liquidation” and approve the “Declaration of solvency”. They then pass a resolution to call an extraordinary general meeting of the members. At this meeting, recommendations voted to place the company into “Liquidation” and appoint a “Liquidator”.
MVL’s Do They then Require Advertising?
Advertised in the London Gazette. This though has no adverse effect on you or the company.
What Happens then to Employees?
All employees have to be then made redundant. All outstanding monies owed to former employees need to be paid either in advance of the Liquidation or within twelve months of the Liquidation, per the Statutory Declaration of Solvency.
Members Voluntary Liquidation MVL Explained – Liquidators Duties?
The Liquidator’s primary responsibility then requires the timely and efficient realisation of the company’s assets. Also the distribution of surplus funds to creditors and members in priority order. The liquidator deals with formalities advise stakeholders of any tax implications. The liquidator ensures corporation tax has been accounted for and paid, and the final corporation tax returns sent. Once able to confirm that the company owes no money. Then monies sent to stakeholders as a final distribution and the process of closing includes closing bank accounts belonging to the company and ensuring the removal from companies registrar actioned.
Can Assets then be Distributed Between the Members Without Being Realised?
known as “Distribution in Specie”. In Specie describes the distribution of business assets without, therefore, selling it. In Specie, Distributions, when cash is not then made available or allocating the physical asset, remains a more desirable alternative than allocating money.
Liquidators. Do They then Investigate the Directors?
As all Creditors receive payment and the company remains Solvent. The Liquidator, therefore, has no duty.
How Much for an MVL?
The Liquidator fees usually based on a time cost basis. However, the charges, then negotiable and can be fixed from the start, if agreed by both parties. PRICES START AT £1,500 plus vat and disbursement on your behalf.
What happens if the Company then Turns Out to be Insolvent in 12 Months?
If the company owes money after twelve months despite declaring solvency, then the company should go into a creditors voluntary liquidation CVL (Insolvent). A period of twelve months from the date goes by to allow all creditors to receive payment.
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