A Members’ voluntary liquidation (MVL) is a formal process which winds up the affairs of a solvent company which can allow directors and shareholders to extract the value of the business in a tax-efficient and cost-effective manner.
Increasingly, directors are engaging our Insolvency Practitioners to assist in placing their limited companies into solvent liquidation. Some of the reasons are:
Concerns about a potential increase in capital gains tax
A review commissioned by Chancellor Rishi Sunak recommended that the government should consider aligning the capital gains tax (CGT) rate more closely with income tax rates. It also suggested the government think about taxing earnings retained in companies by owner-managers as income. The review also questioned the effectiveness of Business Asset Disposal Relief (formerly known as ‘entrepreneurs’ relief’) which is fixed at 10% up to a lifetime limit of £1m.
Downturn in revenues during lockdown
A negative impact of Covid on business operations has forced many owners to cease to trade in order to prevent further erosion of cash reserves which would be incurred by unavoidable fixed costs if they remained open. Many have also simply decided to bring forward retirement.
There has been an expected increase in business owners choosing to close their businesses because of IR35 reform for the private sector. The changes were originally due to come in from April 2020 but were pushed back to April 2021 because of the pandemic.
The rollout of the IR35 private sector reform will affect the decision-making process and appetite of contractors when working with private sector bodies. Some contractors may decide to liquidate their business and move to a more tax efficient way of operating.
If you are a business owner with any of these concerns, call us for a free, confidential consultation.