MVL: 2021 a year of an accelerated exit strategy?
The post-Brexit reality, coupled with new lockdown measures, will inevitably change the UK economic landscape.
The economic uncertainty may be an opportunity for those ready to embrace the challenge and who are prepared to take a long view. After all, the owners whose businesses survive will be better positioned to take a competitive advantage when the tide turns.
On the other hand, many directors who have braced through the pandemic waves are now trying to mitigate their personal exposure amid the fear of CGT and IR35 changes. They will be considering ways of unlocking the business value they have accumulated.
If you are looking to retire or simply exit from your business, then a Members Voluntary Liquidation (MVL) may be the best strategy to minimise tax.
Why choose MVL?
MVL is a process where creditors of the company are paid in full, and remaining profits are distributed to shareholders.
If the company’s profits are over £25,000, a members voluntary liquidation is a tax-efficient way for shareholders to take the equity they have built in their business. The main advantage of the procedure is that dividend distributions in an MVL are usually classified as Capital rather than Income. This means:
- Capital distributions are subject to capital gains tax that is charged at a lower rate than income tax.
- Shareholders may claim further capital reliefs, such as Business Asset Disposal Relief (or Entrepreneurs’ Relief) on extracted funds which could mean a more favourable capital gains tax rate of just 10%.
- Business Asset Disposal Relief has a £1 million lifetime limit.
- And it can be claimed when selling or closing all or part of a business.
Is this the best course for my company?
It will depend. If a solvent business has served its purpose and meets the eligibility criteria, the MVL process will be a suitable solution.
The main reasons why shareholders may wish to shut down a solvent company:
- The company has stopped trading, and the shareholders want to unlock the business value
- Directors or shareholders retired
- As part of a company restructure.
For solvent companies with lower profits, the cost of liquidation may be too high. In this case, company directors may want to consider dissolving the company instead.
If you seek specialist advice on the MVL process and how to liquidate your limited company ahead of the IR35 changes, we will be happy to help. Please contact us for a free impartial consultation on 0800 118 2948.
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