Members Voluntary Liquidation
If you’re thinking of closing your Limited company, our trusted partner Opus Business Services may be able to help. Opus are a specialist advisory practice, helping businesses and individuals deal with the various challenges they may face during the business lifecycle. Opus offers a simple and efficient hands-on service which makes all relevant skills available to clients through a dedicated partner-led team.
If you have funds remaining in your business bank account there are a variety of ways to close it down. The most common way is just to take any remaining profit as a dividend. However, depending upon how much is profit is left you may be able to close it via an MVL which could be more tax efficient.
How to close down a Limited company via the MVL process
If you have over £25,000 profit left in your company and wish to close it down using capital distribution and Entrepreneurs’ Relief, new legislation means you will need to liquidate the company and enter into Members’ Voluntary Liquidation, to do this you will need to appoint an insolvency practitioner. If you appoint a suitable insolvency practitioner the process is relatively straightforward with your accountant and the insolvency practitioner doing all of the work.
Even for a company with only £25,000 to distribute, the much lower tax rate under Entrepreneurs’ Relief means shareholders on the higher rate income tax band will enjoy a net benefit of at least £2,500 after allowing for the costs of the liquidation, when compared against just taking all the profit as a dividend. For companies with more cash to distribute the benefits are correspondingly greater.
What is Members’ Voluntary Liquidation?
In a nutshell Members’ Voluntary Liquidation is when a company is to close down and is solvent (has no debt), the funds are distributed as capital via an Insolvency Practitioner to the shareholders which in turn means the shareholders will be liable to pay less tax on the funds.
Typically you would choose the Members’ Voluntary Liquidation process when you cease trading and, having collected in all the money owed to the company, and having paid all the company’s debts, bills and taxes, there remains at least £25,000 cash to be distributed to the shareholders.
What is the MVL process?
The process can vary case to case, depending on what assets your company has. For example is it just money in the bank? Below is a rough idea of the process you’d go through using an MVL.
As the director of the Limited company you will need to appoint a liquidator, who must be a licensed insolvency practitioner.
The liquidator will file appointment documents at Companies House.
The liquidator will publish in The London Gazette (or the Edinburgh Gazette) a statutory notice of his appointment.
A notice of insolvency will be submitted to HMRC.
The liquidator will complete post-liquidation VAT return and deregister.
The liquidator will write to the bank to close the account and receive company funds.
After 1 month the liquidator will distribute funds to the shareholders.
A final report will be prepared to the shareholders and a meeting is held.
A final corporation tax return will be submitted for the post-liquidation period.
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