Could an MVL be the best option for exiting your business?

Thank you to Opus Business Advisory Group for writing this guest post as part of their sponsorship for our event: 5 Routes to Financial Freedom. 

A Members’ Voluntary Liquidation (MVL) has become an increasing popular route for directors to use in order to bring their solvent company to a close using a formal and assured process.

As directors reflect on the financial and operational pressures their business has faced in the last three years, with little let up in sight, now could be the ideal time to wind down a business while profitable gains are to be made.

Directors will be keen to take advantage of Business Asset Disposal Relief (BADR) using an MVL, which allows directors to pay tax at 10% on all gains on qualifying assets when selling all or part of a business.

For those directors looking to capitalise on their profitable business to fund their retirement, an MVL could well be the best route forward.

What scenarios would suit an MVL?

There are a number of reasons why directors may opt for an MVL to exit their business, these include:

• Retirement and sale of company assets to extract value
• No clear succession for the business
• A management buyout proposal
• The company no longer having a purpose (perhaps resulting from changes to IR35)
• Shareholder dispute
• Restructuring of company assets
• Economic and operational related implications

What are the pre MVL considerations?

As an MVL is a formal process and, as such, directors should use a licenced Insolvency Practitioner, who will advise on and lead the entire process for you.

There are specific actions directors need to take before applying for MVL, which include:

• Ceasing company trading
• Selling off any remaining fixed assets/stock
• Preparing accounts, corporation tax and VAT returns up to the date of cessation of trade
• Collecting in any debts owed to the company
• Settling all company liabilities, including tax

We typically recommend that all final returns be sent to HMRC before the start of the process. This is because the liquidator will need clearance from HMRC before the final paperwork can be filed at Companies House.

While the process can be completed relatively quickly with the assistance of a licensed Insolvency Practitioner, it does require all matters to be attended to first and therefore proper planning is essential if an early withdrawal of cash is required.

What are the conditions and benefits of a Members’ Voluntary Liquidation?

• It enables an orderly wind-down of assets and affairs of a solvent company
• It can give rise to significant tax advantages
• It can provide greater protection for directors and shareholders
• The process can be completed quickly with proper planning and timing, subject to clearance from HMRC
• As a general guide, an MVL is a better alternative to a Striking Off at Companies House, if assets exceed £25k and the Directors are higher rate taxpayers
• It can only be conducted by a Licensed Insolvency Practitioner
• All debts must be capable of being paid in full, including HMRC

A MVL can be an effective and controlled way for directors to bring their company to a close. It can also provide greater protection for directors and shareholders than a dissolution application made without following a liquidation procedure. As such, provided a company meets the specific criteria involved, a MVL could prove the best route forward for directors, both for security and tax advantage.