Company directors considering closing a solvent limited company through a Member’s Voluntary Liquidation (MVL) must act with haste. The Chancellor of the Exchequer, Rachel Reeves, is expected to deliver sweeping tax rises in Labour’s first Autumn Budget on 30 October 2024 which will likely redefine an MVL’s key tax advantages.
Is an MVL the ultimate exit tool for solvent companies?
A Members’ Voluntary Liquidation is a formal company liquidation procedure for solvent limited companies or subsidiaries with substantial retained profits and/or assets. Solvent businesses with asset- or cash-rich businesses, one chapter away from the end of their lifetime, should consider fast-tracking their plan to maximise tax savings.
While a Members’ Voluntary Liquidation is the ultimate exit tool for solvent companies, the tax incentives that bolster the appeal of an MVL are expected to be downgraded following the Autumn Budget. Ahead of anticipated tax reforms, business owners must act immediately or risk missing out on substantial tax savings.
The benefits of a Members’ Voluntary Liquidation include:
Liquidation solution for solvent companies – A Members’ Voluntary Liquidation is for solvent companies; therefore, company assets must outweigh liabilities and company liabilities must be settled within 12 months of the liquidation date.
Controlled procedure – A Members’ Voluntary Liquidation is entered voluntarily, so you can retain control over the process, including the timeline.
Quick and efficient cash release – An MVL is designed to release cash efficiently, making it a fast liquidation procedure for directors seeking a quick exit.
Highly tax efficient process – The MVL route facilitates a tax-efficient exit as distributions are classed as capital, rather than income, and therefore subject to Capital Gains Tax (CGT), rather than Income Tax. You may also qualify for Business Asset Disposal Relief (BADR), formerly Entrepreneurs’ Relief, further reducing your tax liability.
Fully managed process – The MVL process is managed by a licensed insolvency practitioner, making it a stress-free experience.
Act now – BADR and Capital Gains Tax in the firing line
The Chancellor of the Exchequer, Rachel Reeves, is set to deliver the first Labour Budget on 30 October 2024, which will see a significant overhaul of the current business tax framework. In anticipation of the Autumn Budget, Reeves warned that serious cuts would be imposed to plug the “fiscal black hole”, keep within borrowing limits, and drive revenue to fund Labour’s spending plans.
Major tax reforms are expected as part of the Autumn Budget, such as:
Increase in Capital Gains Tax rates – We anticipate that the gap between Capital Gains Tax and Income Tax will be tightened. Capital Gains Tax rates, currently at 10% (basic rate) and 20% (higher rate) are expected to increase, along with reliefs, such as the Annual Exempt Amount (AEA), which could be further reduced from £3,000.
End of Business Asset Disposal Relief – Business Asset Disposal Relief (BADR) is a tax relief scheme that applies to asset disposals when closing a solvent business. BADR reduces Capital Gains Tax to 10%, for which the lifetime limit is £1 million. If BADR is scrapped, this eliminates a key tax advantage currently available under an MVL.
As the future of Business Asset Disposal Relief is under threat, the tax efficiency of an MVL hangs in the balance. If you are considering closing a solvent company through the MVL route, reach out for tailored advice from a licensed insolvency practitioner
Why might you require a Members’ Voluntary Liquidation?
Members’ Voluntary Liquidation services are essential for company directors, as the future of their business may change course at any point. An MVL may be pursued as the company no longer serves a purpose to the director due to various reasons, including:
- Approaching retirement
- Changes to personal health
- Embarking on a new venture
- Director relocating
- Realising investment value
- Disengaging from ownership role
- Challenging market conditions
- Part of a restructuring plan
In light of the anticipated changes to CGT and BADR, directors may seek a Members’ Voluntary Liquidation to cash in on their investment and minimise their tax liability, which could increase following the tax reforms likely to be in store at the Autumn Budget.
What does this mean for you?
A Members’ Voluntary Liquidation is a tax-efficient exit tool for business owners considering closing a profitable business with capital in the region of £25,000. It is important to speak to a licensed insolvency practitioner who will navigate the liquidation field as it is a specialist domain.
As the future of Business Asset Disposal Relief is uncertain, solvent companies at the end of their useful life and on track for liquidation must take heed of potential future tax reforms.
How can Begbies Traynor help you?
We are a market-leading, AIM-listed professional services consultancy, specialising in corporate insolvency and business restructuring. We have over 100 offices nationwide and over 100 insolvency practitioners and corporate insolvency specialists who can support a range of stakeholders, including business owners and our professional partners.
Our renowned corporate insolvency services are available to business owners across the UK. We have dedicated corporate insolvency experts who support clients throughout the company liquidation journey, including a Members’ Voluntary Liquidation.
To discuss how we can help you close a solvent business, or for more information on our corporate insolvency and business restructuring services, contact me on dean.lomas@btguk.com.
