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Members Voluntary Liquidation MVL IR35 Company Closure

A Members Voluntary Liquidation (MVL) is a process where shareholders of a limited company can appoint a licensed insolvency practitioner as a liquidator to close a limited, solvent company permanently enabling then the distribution of funds from the company in a more tax efficient manner. 

As soon as the liquidator has realised all company assets, no outstanding liabilities remain. Then, the liquidator makes a capital distribution to company shareholders, either in specie or from funds held in the company.

A solvent company differs from an insolvent company, as there are sufficient assets to repay all creditors fully and distribute them  to the company’s shareholders. For further reading, please view what limited liability is.

While the company’s directors start a Members Voluntary Liquidation, 75% of shareholders must be given notice of the meeting of members and pass the winding-up resolution.

Obtain prompt, helpful advice on how MVLs benefit you by calling 0330 056 3120. Liquidate your limited solvent company tax efficiently with HBG Advisory.

View Fixed price MVL

Contractors and Members’ Voluntary Liquidation (MVL) 

If you work as a contractor, the crucial reason for getting a Members’ Voluntary Liquidation (MVL) is IR35.

IR35 refers to the rules around off-payroll working and deciding whether a contractor is employed or independent. Therefore, it has substantial tax implications.

The UK Government’s website outlines that: –

  • As of April 2021, individuals engaged through personal service companies have new rules. The company receiving an individual’s services will determine whether the off-payroll working rules apply.” However, they remain responsible for any such decision.

Before employers can classify contractors as employed staff to simplify their tax affairs, contractors who have set up a personal service company (PSC) to lower their tax bills are ‘winding up’ that company.

  • MVL gives an advantage, as it is a tax-efficient way to extract cash from the business.

Suppose you own at least 5% of the shares in a company for at least one year before your company goes into Members’ Voluntary Liquidation. You may therefore qualify for Business Asset Disposal Relief.

HMRC provides an Employment Status Test online, enabling you to determine whether you are a contractor or an employee under the new rules.

Business Asset Disposal Relief (formerly Entrepreneurs’ Relief 6th June 2020)

Business asset disposal relief has replaced entrepreneurs’ relief. You may claim this tax relief when closing a limited solvent company, thereby considerably reducing your capital gains tax liability.

Business Asset Disposal Relief means you’ll pay tax at 10% on all gains on qualifying assets.

Winding up a solvent company in the UK

What the Costs Associated With Members Voluntary Liquidation MVL?

Costs of an MVL typically subject to issues within the case:

  • Liquidators Fee – Prices start at £950 + VAT. The fee includes
    • Realising company assets, 
    • Reporting filing;
    • HMRC, 
    • Performing the distribution to shareholders and any associated paperwork.
  • MVL Disbursements – Normally:
    • Four separate notices in the Gazette (£60 + VAT each), and 
  • A bond, costing upwards of £80. The bond ensures that funds and assets held by the liquidator are insured and legally required. The cost may vary depending on the value of company assets.

At HBG Advisory, we provide Fixed Price MVL’s.

Why might directors consider Members Voluntary Liquidation?

Here are the reasons why a director might place a company into Members Voluntary Liquidation:

  • The company is contemplating to cease trade. An appropriate exit strategy for shareholders, as they can obtain a tax-efficient release of their capital under entrepreneurial relief. The capital distribution through an MVL may be more tax benefits than a distribution under income tax.
  • Retirement of company’s directors, shareholders, or an IR35 company, that has no further use.
  • To reorganise a solvent group of limited companies. 

MVL Section 110 scheme of arrangement or restructuring MVL

Usually, company directors opt to use MVLs exit options for limited solvent companies. However, directors can use them to restructure companies into elaborate group structures seeking to demerge or untangle complex structures. – Section 110 of the insolvency act 1986 permits such procedures.

A sale or arrangement following this section is legally binding on the transferor limited company members.

Who are Members Voluntary Liquidations available too?

MVLs are only available for solvent companies, and directors must make a sworn declaration that their limited company is:

  • Solvent:

And it has or can pay within twelve months of the date of liquidation:

  • Pay all taxes due to HMRC;
  • Settle all outstanding debts due to its creditors;
  • Satisfy all its contractual commitments.

Important:

Creditor claims not declared, though they require paying after the liquidation, are entitled to receive statutory interest on top of any money owed. Currently, 8% is charged starting on the date of the liquidation. 

The distinction between an MVL and a CVL?

The reasons for liquidation?

Solvent limited companies requiring closure wishing to take monies left in the company over £25,000 remain a tax-efficient method liquidating a company. Insolvent companies who want to close voluntarily when unable to pay the companies’ debt choose a CVL rather than be involuntarily wound up and then face compulsory liquidation.

The process of Members Voluntary Liquidation MVL IR35 Company Closure?

  • Call a meeting of directors.
  • Sign a Declaration of Solvency.
  • Call a Shareholders Meeting to agree on an MVL.
  • Advertised in the London Gazette;
  • Company then enters an MVL.
  • Sign a Deed of Indemnity to allow early distribution.
  • The liquidator holds the final meeting.
  • Capital distribution upon winding up.

Members Voluntary Liquidation Capital Distribution & Tax Benefits?

The member’s voluntary liquidation has several tax benefits. HMRC still treats shareholder distributions as capital distributions, subject to lower taxes.

When considering an MVL, tax relief varies with each circumstance when the distribution is made. HMRC clearance is required. However, taxation benefits exist for company shareholders.

HMRC may use Targeted Anti Avoidance Rules (TAAR) to tackle liquidation shareholder distributions if tax evasion is the primary aim.

What is Entrepreneurs Relief?

MVL distributions may qualify for Entrepreneurs Relief, a government scheme that allows a reduced Capital Gains Tax of 10% on all qualifying assets.

Entrepreneur’s relief was subject to qualifying criteria. Relief was claimed on £1 m only over your lifetime. However, Business Asset Disposal Relief replaced it in April 2021.

As this is complex, we suggest you contact us to explore the potential tax implications of a member’s voluntary liquidation.

How long does Members Voluntary Liquidation MVL last?

How long does an MVL take? 

Here at HBG Advisory, we pride ourselves on the speed of our MVLs. We require shareholders to sign a deed of indemnity to ensure the distribution of funds, usually within a week. 

However, should a creditor of the company not be paid for whatever reason? The liquidator can then claim the money from the shareholders to repay money to enable payment.

Members Voluntary Liquidation MVL Alternatives 

Striking off a company (dissolving a company) is a simple way to close a limited solvent company no longer required, and an alternative to an MVL.

The process is relatively simple, provided the company has no objections.

However, not all limited companies suit a strike off.

Suppose your limited company has £25,000 or more available to distribute to shareholders and members. Then, an MVL may be best suited to draw funds from your limited company cost-effectively.

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