If your company has escalating debts and creditors are chasing you for payment that your company cannot afford, there is little time to waste.
A Members Voluntary Liquidation (MVL) is where the shareholders of a solvent company go through a voluntary winding-up resolution and appoint a Liquidator to realise the assets of the business to enable a distribution of the proceeds to company members. An MVL is the formal liquidation option for solvent companies.
There are many benefits of a MVL including:
To enter into an MVL the shareholders must provide a sworn Declaration of Solvency, which states that the company's balance sheet and finances have been fully reviewed and they have confirmed that the company is solvent and able to reasonably repay all existing and prospective debts within a 12-month period.
When looking to dissolve a solvent company, we need to establish the amount of shareholder distributions that need to be made. If funds exceed £25,000 you will be subject to income tax on the shares instead of capital gains tax by not entering into a MVL, which would apply a lower capital gains rate.
The major benefit of the MVL are the reduced tax rates applied to the distribution back to shareholders.
On 1 March 2012, the ESC C16 legislation was enacted which meant that shareholder funds that exceeded £25,000 would receive tax benefits if they entered into a formal liquidation; A Members’ Voluntary Liquidation.
The main tax advantages of Members’ Voluntary Liquidation allow for funds to be classed as capital receipts and the funds potentially subjected to Entrepreneurs’ Relief which is a personal tax relief that will reduce the tax rate down to 10%.
Entrepreneurs’ Relief is: