MVL - Benefits and Tax Advantages
A Members Voluntary Liquidation or "MVL" is a legal process whereby a solvent company is wound up and subsequently dissolved. The most common way to close a company down is to take any remaining profit as dividend, however, there is a risk that you will pay substantial sums in unnecessary tax. Why would you want to do that?
If your company is solvent with in excess of £25,000 capital, this can be distributed to the shareholders via an MVL. Frost Group would be appointed as Liquidator with the primary objective of realising and distributing the surplus assets of the company once all outstanding matters have been resolved and any remaining creditor claims settled.
- Low tax rates on shareholder distributions
- Saves accounting and audit fees
- Saves management time in preparing statutory returns and compliance information
- Reduces risk to directors
- Improves transparency by simplifying complex and unwieldy structures thereby enhancing investor perception
- Returns surplus assets in a tax efficient manner to shareholders
- Quick access to shareholder funds
- Peace of mind
- Extract the value of the business in the form of cash
If shareholder distributions are in excess of £25,000 a Members Voluntary Liquidation enables capital gains tax rather than income tax to apply.
- The distribution to shareholders is treated as a capital gain and not taxed as income / dividend
- Entrepreneurs Relief will reduce the tax rate down to 10% as opposed to 18% - provided the gains are less than £10 million
- Saving money on taxes especially if a high rate tax payer
Low tax rates are applied to shareholder distributions in a MVL !
For a tax payer who qualifies for entrepreneurs relief, the example below illustrates how much money you could expect to be returned to you, when using an MVL. Depending upon the level of advice provided by your accountant, you will either pay the Bronze fixed fee of £850 or the Silver or Gold fee.
Shareholder's funds of £200,000
- MVL fee £850.00 plus VAT
- Disbursement bond £396.00 plus VAT
- Disbursement advertising £272.80 plus VAT
- VAT reclaim on above £263.76
- Total funds distributed to member £198,681.20
- Tax to pay by member of £19,868
If you are a sole trader or partnership and your gains qualify for entrepreneurs relief you could pay 10% on capital gains received above and beyond the £11,100 tax free limit but if not you will be taxed at either a rate of 18% or 28%, depending on your level of income and if you are a basic or higher rate tax payer.
If entrepreneurs relief does not apply on all the funds, the rates are higher ! Everyone's circumstances are different, individuals should speak to their tax adviser about what their situation will be.