A Guide To Members Voluntary Liquidation Tax Implications

Liquidation is a process that tends to be viewed negatively by business owners, often seen only as a last resort in times of crisis and insolvency. However, there are some circumstances where business owners may wish to liquidate a solvent company via members voluntary liquidation (MVL) and doing so can have valuable tax implications. 

Whether you are a business owner hoping to extract cash from your business before you retire or simply want to close your company in an efficient way, understanding the members voluntary liquidation tax implications will help you to make an informed choice when it comes to your next steps.

What Is Members Voluntary Liquidation?

Members voluntary liquidation, also known as solvent liquidation, is the process of winding up and dissolving a solvent company. Solvent companies are those which have greater assets than liabilities which means they tend to be ones that are operating efficiently and/or sustainably.

An MVL is usually chosen when business owners are retiring and want to shut down their business in a tax-efficient way and benefit from business assets, or in cases where an owner decides that the business has come to the end of its useful life and is no longer required.

The members voluntary liquidation process requires an insolvency practitioner to be appointed. Directors must sign a declaration of insolvency, at which point a resolution to wind up the company can be passed. Company assets are sold and distributed to creditors and shareholders and the company is removed from companies house in the final step.

What Are The Members Voluntary Liquidation Tax Implications?

The MVL process is often deemed as having positive tax implications, making it an attractive prospect in the correct circumstances. These implications relate to capital gains tax and business asset disposal relief:

Capital Gains Tax

When a business is closed, the profits that are extracted as deemed Capital Gains. Capital Gains tax rates are much lower than the income tax rates that would usually be charged to a business. This means that shareholders tend to save money on tax when extracting funds from a business via the MVL process.

Business Asset Disposal Relief

In some cases, companies undergoing solvent liquidation can make additional tax savings due to Business Asset Disposal Relief. Formerly known as Entrepreneurs Relief, this reduces Capital Gains Tax to 10%. Both sole traders and partnerships can be eligible for this tax relief, providing they have owned the business for at least 2 years and hold at least 5% of the share capital.

How To Begin The MVL Process

If you own a solvent company and are considering liquidation, make sure that you speak to an expert before making any firm decisions. Should you decide to proceed, you will have to appoint the services of a licensed insolvency practitioner who will then oversee the entire MVL process on your behalf.

The expert team at My Liquidation can help you understand the members voluntary liquidation tax implications further and discuss how they will affect you and your business. Simply get in touch with us today to find out more about the support and advice we can provide you with.

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