To be frank, it came as no surprise that the treasury recently changed the rules surrounding Capital Gains Tax. In fact, we were really surprised it didn’t happen sooner because it seemed an obvious way to raise funds and, in fairness, it had remained untouched for some time. When the change did come it was still quite a light touch but even so, anyone considering closing their solvent company through a member's voluntary liquidation has a decision to make and it needs to be made quickly.
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No surprise but it still stings – Now is a good time to think about Members Voluntary LiquidationPosted: Feb 6, 2023

What happened with Capital Gains Tax and MVLs?

To be clear from the outset if you are thinking of closing your solvent business it is best to call us. Capital gains tax can be a bit convoluted in relation to MVLs, so it’s always difficult in an article like this one to cover every eventuality. It’s actually not a complex system as such, but it does require careful handling in relation to your personal circumstances.

Essentially, when you dissolve a company voluntarily and this releases an income for the shareholders it may mean that you need to pay tax on it. This is pretty much always treated as capital gains, which is good because it is, for want of a better way to think about it, quite a friendly tax. It’s relatively low compared to other taxes and, for smaller amounts, sometimes doesn’t even apply. How it works is via an earning threshold (currently £12,300) after which you pay tax based on the total gains you have from the liquidation.

What is happening is that the current threshold is changing. At the moment you pay tax on qualifying income over £12,300. As of April this year that threshold is changing significantly to the much lower figure of £6000. In short, that means more people will pay capital gains, and those who would have paid anyway at the old threshold will now pay more.

 

What you need to consider

Most of the people we see about a members voluntary liquidation are looking to close an existing business and retire. In fact, we have just helped a client to move on in life and also really help their family with a nice financial boost. It’s a real pleasure to be involved in something like that because it’s releasing the hard work and dedication someone put into a family business as a tangible benefit. This is exactly why most people go through the MVL process.

Just to recap, to go through a member’s voluntary liquidation, you must:

Once this is in place and you appoint us to deal with your MVL we will then, realise your assets, settle with your creditors and release the remaining funds to you.

There is a more comprehensive download guide on our website here

What you need to consider in the bigger picture are 2 questions.

  1. Is your business solvent?
  2. Are you ready to close it as a solvent business?

If you answer yes to the above then you need to explore your options. Usually, we find that people who are considering MVLs have been saying ‘yes’ for some time and are just waiting for the right time to go ahead.

However, the change to that threshold may well now be a factor. If you wait you will almost certainly be required to pay tax at the lower threshold rate which will usually mean you will get less from your assets as cash. Essentially you will be paying tax on £6000 more income if you go through an MVL after April. While it may not be a surprise that the threshold changed, that £6000 threshold will still sting you financially if it impacts your Member's Voluntary Liquidation. It is also quite likely that Capital Gains Tax will soon change again and doubtful it will change in your favour.

At the same time, this is a life changing decision and not something you want to rush into without being fully aware of all the facts. The looming change to the tax burden on closing your business may not be the only factor and you should be weighing the benefits of a speedy start to the process against your personal and business circumstances. In most cases though, if you are ready to go ahead with an MVL, you are probably better to do so quickly.

The most important thing is that you are in command of the facts. The process for a Members Voluntary Liquidation can take some time to complete so if you are thinking about it, call us now, and let’s look at your options.

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