What Is an MVL?
A Members’ Voluntary Liquidation – or MVL – allows solvent companies to return their net assets back to shareholders in the most tax-efficient manner possible.
If you wish to retire or move on to another venture and need to close your company, an MVL is your strongest option.
In this guide, we’ll explore an MVL’s advantages and explain how the process works.
Contents
What Are the Advantages of an MVL?
An MVL functions as a tax-planning exercise, offering the most preferential tax rates available to company directors and shareholders:
- Returns are subject to Capital Gains Tax, not Income Tax
- Members can also qualify for Business Asset Disposal Relief
- Returns can be received in as little as 6 months
- Ensures company affairs are properly settled
- Requires little input from directors
What Is Capital Gains Tax?
All returns under an MVL are subject to Capital Gains Tax.
Unlike Income Tax, which applies to the whole amount received, Capital Gains Tax only applies to the profit made on the sale of an asset.
For example, if you sell an asset worth £30,000 for £35,000, only the £5000 profit could be taxed.
This results in huge savings for company members.
If you’re eligible for Business Asset Disposal Relief, you may get Capital Gains Tax rates lowered to achieve even more savings.
What Is Business Asset Disposal Relief?
Business Asset Disposal Relief – previously known as Entrepreneurs’ Relief – is a type of tax relief that can be applied to Capital Gains Tax.
It halves the rate of Capital Gains Tax.
To qualify, you must be a:
- Sole Trader
- Company Director
- Partner
- Trustee
- Employee
You could enjoy some big savings if you’ve worked for the company (and held at least a 5% stake) for the past 2 years.
What Is the Process of an MVL?
The process of an MVL is fairly straightforward; the directors must make a Declaration of Solvency, publicly resolve to liquidate the company, and appoint a liquidator.
The liquidator will then handle the rest, selling all assets at market value and settling the company’s affairs. All returns will then be returned to company members at a preferential tax rate.
You can explore the tabs below to learn more about the MVL process.
1. Consult with an Insolvency Practitioner
As is the case with all liquidation procedures, you will first need to get in touch with an insolvency practitioner, like those of our team.
We can advise you as to whether or not your business qualifies for an MVL, and we can also act as your appointed liquidator. Your appointed liquidator must be a licensed insolvency practitioner.
2. Directors' Declaration of Solvency
After ensuring your company is eligible, your company’s directors must meet to sign a Declaration of Solvency. This declaration states that your business can pay all its debts and interest within the next 12 months.
3. Resolution to Wind Up the Company
Once your company’s directors have formally made their Declaration of Solvency, they must formally resolve to wind up the company in a meeting with shareholders.
You will need 75% of your shareholders to vote in favour of the resolution in order for it to pass.
4. Advertisement Is Placed in The Gazette
5. Company Is Liquidated
Following these formalities, control of the company will be handed from the directors to the appointed liquidator. The liquidator will sell all of the company’s assets, pay any outstanding amounts owed to creditors, and then return all remaining funds back to the company’s members.
The timing and amount of returns on capital are usually agreed between the liquidator, the shareholders, and their own tax advisers, in order to take maximum benefit of the relevant allowances and reliefs available.
6. Company Is Struck Off Companies House
The final stage of the MVL is for the liquidator to have the company struck off the Companies House Register. An advert for the company‘s closure will then be placed in The Gazette. Once these steps are complete, the company will officially cease to exist.
Distributions In Specie
If you want to enjoy the tax benefits of an MVL, but don’t want to sell all of its assets, you can choose to distribute some of them “in specie”.
The term “in specie” translates to “in its actual form”. When assets are distributed in specie, they are delivered as they are instead of being liquidated for cash.
Both physical and financial assets can be distributed in specie. This gives directors the flexibility to hold onto equipment or financial investments that they may not want to sell.
Can I Close Down My Company Myself?
Although you can close your business yourself – via a voluntary strike-off – there are a few things you need to bear in mind.
Under a voluntary strike-off, all returns over £25,000 will be subject to full Income Tax rather than Capital Gains Tax. There’s also the risk that your assets will be assumed by the Crown, depriving you of the opportunity to make a sale.
An MVL is the more appropriate solution for companies with assets of £25,000 or more. It also ensures company affairs are handled correctly, giving directors peace of mind that all legal requirements are being properly met.
An MVL must be carried out by a licenced insolvency practitioner. While this does attract some professional fees, they pale in comparison to the savings made.
Speak to an Expert
If you want to close down your company, it’s important you speak to a liquidation expert, like those of our team.
We can advise you on the most cost-effective way to close your business, whether it’s an MVL or a voluntary strike-off, and address any concerns about how certain assets would be handled.
Contact us today to book a free consultation.
FAQs
Members’ Voluntary Liquidations require little involvement from the directors but typically require a fair amount of work to be carried out by the liquidator. From start to finish, an MVL can take anywhere from between 6 to 12 months, depending on the scale and complexity of the business.
A Creditors’ Voluntary Liquidation – or CVL – is an insolvency procedure which is only available to companies that are legally insolvent. The directors surrender control of the company to a liquidator, who realises the assets of the business in order to pay back creditors. Any remaining debts are written off.
Unlike CVLs, MVLs are only available to solvent companies with a substantial net worth. MVLs offer returns to the company’s shareholders, whereas CVLs do not. Although carried out by an Insolvency Practitioner, unlike CVLs, MVLs are not insolvency procedures.
When you enter into an MVL, you must make a Declaration of Solvency, declaring that you will be able to pay all of the company’s debts and liabilities. It’s an offence to make a false Declaration, which can result in charges of misfeasance.
However, if you make a Declaration of Solvency, and your circumstances change leaving you unable to pay all debts, you don’t need to worry. The MVL will simply be converted into a CVL.
