Especially if you’ve worked hard to build your business’s profits and assets over the years, closing down a business can be a complex and stressful process. One of the options that directors of solvent companies have available to them is a Members’ Voluntary Liquidation (MVL). But what is an MVL exactly? Can it really help you close your company in a tax-efficient way? Let’s take a look.
What Is An MVL?
A Members’ Voluntary Liquidation (MVL) is a formal insolvency process used to close a company that is solvent (which means that it is able to pay of all of its debts), and is no longer required to trade. Unlike other types of liquidation, an MVL isn’t a strategy for rescuing a struggling business; it’s about winding down a successful one in an orderly, compliant way.
What Is An MVL Able To Do For My Business?
An MVL allows the company to dissolve the company efficiently, which you may be looking to do if you’re moving into retirement, completing an aim or project that the business has been dedicated to, or choosing to move into a new venture. During the MVL process, you’ll be able to:
- Pay off all known debts of the company,
- Sell or transfer any remaining assets,
- Distribute the leftover value of the company to shareholders,
- And ultimately dissolve the company.
To start an MVL, the directors must make a statutory declaration of solvency, confirming the business can settle all of its liabilities within a period of 12 months. A licensed insolvency practitioner is then appointed to manage the process.
Is an MVL a Tax-Efficient Way to Close Your Business?
In the right circumstances, tax-efficiency is often the key benefit of an MVL. Funds distributed to shareholders through an MVL are treated as capital gains, not income. This distinction is crucial because capital gains tax is usually much lower than income tax rates applied to dividends or salaries.
Alternatives to an MVL
While MVLs are often the go-to for tax-efficient closure of solvent companies, there are alternative options that you have the ability to explore:
- Voluntary Strike-Off – A cheaper and simpler way to dissolve a company, but usually with less favourable tax treatment if there are significant profits.
- Creditors’ Voluntary Liquidation (CVL) – Designed for insolvent companies. If your business cannot meet its liabilities, you need to talk to a professional insolvency practitioner for advice about the benefits of a CVL.
For many business owners, an MVL represents one of the most tax-efficient ways to close a solvent company, especially where there are substantial retained profits to distribute. By converting distributions into capital gains, an MVL can significantly reduce the tax burden compared with treating the funds as income.
Talking to a qualified insolvency practitioner or tax professional can help you decide which route is most appropriate given your circumstances. You can get in touch with us at Ballard Business Recovery to explore how we can help you with carrying out an MVL for your own company. Our team of experienced specialists will be happy to help.
