Considering a business exit? Here’s why MVL’s are on the rise

To close a solvent business, a formal process known as a Members Voluntary Liquidation (MVL) can be used. Here, our director of tax, Paul Woodward discusses MVL’s and the key considerations.

Why are owners choosing to act now?

Some business owners are choosing to bring forward the timing of their company disposals so that they can benefit from Business Asset Disposal Relief (BADR) formerly Entrepreneurs’ Relief. This is a relief that is available on disposals of business assets, reducing the rate of CGT on qualifying gains to 10% (compared to the current standard rate of CGT of 20%). The relief is subject to a £1 million lifetime limit on gains.

So as a very basic example, if you were to dispose of a business worth £1 million, using BADR you would be liable for CGT of £100,000, as oppose to £200,000 without BADR, or indeed more should the CGT rate be increased.

“I would ordinarily advise against taking decisions before an event such as anticipating a tax rise, as you are taking somewhat of a gamble on a future event happening, however that said, the current CGT relief available on business disposals is an attractive option to utilise and not (potentially) miss out on,” says Paul.

To use Business Asset Disposal Relief, the company must be disposed or liquidated, and to do this there are a number of routes to take, one of which is a Members Voluntary Liquidation.

What is a Members Voluntary Liquidation (MVL)?

An MVL is a formal process for winding up the affairs of a solvent company.

Unlike other forms of liquidation that deal with insolvent companies, an MVL is specifically designed for companies that are financially healthy and able to pay all their debts in full within a specified period. Therefore, this process is often used when business owners or shareholders decide to close a company for various strategic reasons, such as retirement, restructuring, or capitalising on tax benefits.

MVL is popular because it offers a tax-efficient way to liquidate solvent companies, allowing shareholders to benefit from lower capital gains tax rates.

The process involves a formal decision by shareholders, a declaration of solvency by directors, the appointment of a liquidator, and the distribution of assets to shareholders after settling debts.

How can we assist?

When it comes to disposing of a business there are many considerations to ensure that you secure the most favourable route based on your personal circumstances.

We can assist through:

• Tax planning and exit strategy: Advising on your exit strategy and if an MVL is not the most tax-efficient option, we can review alternative exit strategies that might better meet the company’s and shareholders’ objectives.
• Advising on reliefs and allowances: Helping to identify and claim any tax reliefs and allowances that the company or its shareholders are entitled to, such as rollover relief, holdover relief, or losses that can be offset against gains.
• Preparation of financial statements: Ensuring that all company assets are accurately valued and accounted for, which is critical for the declaration of solvency and the subsequent tax filings up to the date of liquidation.
• Compliance and Reporting: Ensuring that all tax filings and reports are submitted accurately and on time, including corporation tax returns, VAT returns, and any other relevant filings.
• Personal tax implications: Advising those receiving distributions from the MVL. This includes assessing the impact on their overall tax situation and suggesting strategies to mitigate any adverse effects and any necessary inheritance tax planning.
• Introduction to insolvency practitioners: We have good relationships with insolvency practitioners who we can introduce to assist with the formalities needed to liquidate the business.