Closing down a solvent company can be a daunting task, especially when tax implications loom large. However, there’s a little-known solution that can save you thousands of pounds and provide a smooth exit strategy if your company is profitable and solvent: Members’ Voluntary Liquidation (MVL). In this article, we explore what an MVL is and how it can benefit you, with insights from Licensed Insolvency Practitioner Tom Fox.

Understanding Members’ Voluntary Liquidation (MVL)

A Members’ Voluntary Liquidation is a structured legal procedure designed to wind up a solvent company in a cost-effective manner. It’s a strategy often employed for tax-efficient exit planning when a profitable company has fulfilled its purpose. As Tom Fox explains, “MVLs are an effective way to close a company while minimising tax liabilities and ensuring a smooth transition.”

Company directors opt for MVLs for various reasons, such as extracting investment profits, preparing for retirement, exiting the business, or realising their interest in an owner-managed business. The key advantage of choosing an MVL is the favourable tax treatment it offers.

Tom Fox emphasises the tax benefits, saying, “By using an MVL, the funds to be distributed are often subject to lower rates of taxation, specifically Capital Gains Tax, rather than Income Tax. If you qualify for Entrepreneur’s Relief (ER), you can enjoy a 10% marginal rate on distributions, resulting in considerable personal tax savings.”

When is MVL Appropriate?

MVL becomes a viable option under several circumstances:

• IR35 Impact: With the introduction of IR35 legislation, many contractors operating through a limited company find themselves facing restrictions. An MVL can be an attractive solution for those no longer able to contract and operate a personal service company (PSC).

• Sufficient Assets: If your company possesses enough assets to repay all its creditors, an MVL can help you wind down the business efficiently and maximize returns to shareholders.

• Retirement Plans: For business owners approaching retirement, an MVL provides a structured exit strategy that not only simplifies the process but also optimises tax implications.

• Family Business Transition: When the owner of a family business wishes to step down, and there are no successors within the family willing to take over, an MVL can ensure a smooth transition while preserving family wealth.

• Change of Heart: If a business owner no longer wishes to run the business, an MVL offers an orderly way to close it down.

• Shareholder Interests: Shareholders in an owner-managed business may wish to realise their interests, and an MVL offers an efficient and tax-friendly way to do so.

Expert Guidance Every Step of the Way

Tom Fox, an experienced Insolvency Practitioner overseeing Umbrella.UK Insolvency, brings more than 17 years of expertise to the table. As a member of the Insolvency Practitioners Association (IPA) and the Association of Business Recovery Professionals (R3), he understands the intricacies of an MVL and can provide valuable guidance.

At Umbrella.UK Insolvency, we offer a nationwide, remote service, making it convenient for clients to access expert advice and support by phone, email, in-person or online who all benefit from director-led involvement throughout the MVL process.

In conclusion, an MVL is a powerful tool for business owners seeking to close down a solvent company in a tax-efficient and cost-effective manner. As Tom Fox aptly summarises,

“MVLs offer a unique opportunity to unlock tax-efficiency while ensuring a smooth exit strategy. It’s a valuable option for those looking to close a profitable chapter and move forward with financial security.”

Learn more about MVLs

Connect with us for a FREE initial consultation

If you’re considering an MVL, consult with a Licensed Insolvency Practitioner to explore how it can benefit your specific situation. Connect with Umbrella.UK Insolvency today to request a free initial consultation.