With a budget being announced for October, right now may well be a good time to take a serious look at your options if you are considering an MVL.
An MVL is a process by which a solvent company is voluntarily wound up by its shareholders. Unlike insolvency, a member's Voluntary Liquidation means the company can pay its debts in full and is choosing to close down. There are a few reasons why this happens but the most common is when the directors of a family business want to retire and there is nobody to buy or take over the company. Another common reason is that the directors feel the business has achieved its objectives and is no longer needed.
The process of an MVL is designed to ensure a fair and orderly distribution of the company's assets. There is a set procedure to be followed and the MVL will go through several stages from when the directors meet to agree to the MVL process, until the final distribution of any assets. You will need to appoint an Insolvency Practitioner (IP) so, it is best to talk to us as soon as possible so we can look at your individual circumstances to help you understand the process and assess your options.
At the end of an MVL, the company will close and any capital will be shared amongst the shareholders. In many cases, directors looking to retire will be using this as a nest egg for the future. This means that you will want to make sure you end up with as much money as possible. MVLs are often a sensible, relatively tax-efficient, way of releasing capital for directors who have worked hard to build a successful business, and now want to enjoy the benefits of those efforts.
A full description of MVLs is available in the dedicated section on our website.
There is a red flag that seems to have been waving for quite some time, but it could have just started to wave quite vigorously. The reason for the concern is that when you release the capital using an MVL the return to shareholders is subject to capital gains tax.
In the recent change in government, there were several promises made about tax in the run-up to the election. However, as history has shown us, the real world of the Chancellor’s office can be different to the hustings. Current Chancellor, Rachel Reeves, has repeatedly pointed out that the Labour government would need to make "difficult decisions”.
In the flurry of policy discussions before the election, the current government didn’t seem to clearly say that CGT wouldn’t change. There was discussion of making hard choices though and these could involve tax reforms aimed at higher earners, including potential changes to CGT rules. Then, this morning Reeves announced billions of pounds of what she referred to as a ‘black hole’ in the governmental coffers. That money will need to come from somewhere, and capital gains tax is one potential target. If so, the October budget could bring some bad news for those looking to MVLs as a retirement pot or for funding their next venture.
Capital Gains Tax is a tax on the profit realised when an asset is sold or disposed of for more than its purchase price. In the context of an MVL then, CGT could apply to the amount shareholders take from the final distribution of the company's assets. Currently, the CGT rates in the UK are lower than income tax rates, making MVLs an attractive option for tax-efficient asset distribution.
Also, if you qualify then you may also have access to Business Asset Disposal relief, which could further reduce your tax charge. There has been speculation about the government considering increases in CGT rates to align them more closely with income tax rates. If such changes were implemented, the benefits of undertaking an MVL could be reduced, leading to higher tax liabilities for shareholders. If that happens Higher CGT rates would mean that shareholders receive less from the liquidation distributions, as a larger portion of their gains would be paid in tax.
In short, if capital gains tax changes, the final payout from your MVL could be less than you hoped. If you are using the MVL to bolster your retirement plans that could be a bitter pill to swallow and once raised, CGT is unlikely to be reduced.
Well, honestly, nobody has a crystal ball for this kind of thing. Personally, I have been expecting a change in CGT rates for some time even under the previous government so I will shocked if no action is taken this time. What I think we can certainly be confident in though is that CGT is not going to change in favour of the retiring directors if the coffers are currently looking empty, at some point they will need to fill them through tax revenue.
CGT is an obvious target for a rise at some point in the near future, and an MVL takes time to process fully. Add those two things together and you can see why we are suggesting considering your position sooner rather than later.
The practical upshot of all this is that, while we cannot 100% tell what the future will hold in regards to CGT, now is probably a good time to contact us and explore your options if you are considering a member's Voluntary Liquidation.
The Autumn budget wasn't exactly a friendly one for SMEs. Whether it will lead to more insolvencies and financial ... more
There was a relatively large rise in the number of Joint and Several Liability (JSL) Notices in the last year. ... more
According to recent data from the Insolvency Service, the construction sector remains one of the industry areas ... more
According to Charity Debt Justice, around 6.7 million people in the UK are considered to be in financial ... more
In the run-up to the election, the current government made some very clear promises that could have quite an effect ... more
There is always bound to be a question about when it is the right time to push the button on a member's Voluntary ... more
When you are responsible for a business that is facing insolvency, or potentially facing personal financial issues ... more
Here we go again. The election is ramping up and the media are dissecting every statement and promise in search of ... more
What happened between John Barnes Media Limited and HMRC? According to the Insolvency Service news, John Barnes ... more
One of the actions taken during an insolvency is for the company assets to be sold to help pay debts. This is ... more
The politics of a budget are not really in our area of interest, to be honest. The motivations behind decisions ... more
There have been a couple of dramatic looking statistics about company closures and recessive economies recently. ... more
HMRC have issued an update to how Members Voluntary Liquidations (MVLs) are processed. The change is quite a shift ... more
According to the Office of National Statistics (ONS), retail sales fell 3.2% in December 2023. With a harsh outlook ... more
Christmas is around the corner, and the last bell is about to ring for 2023, so it’s a good time to sit back ... more
We are all aware that a business can become insolvent - but what about the over 168,000 charities currently ... more
This year the Autumn statement was a bit of a mixed bag for business and individuals. National insurance giveaways ... more
Do personal finances impact business finances? When you run a business, one of the first things any of your ... more
The jump in insolvencies in September follows a similar increase in August. However, there was a drop in July. So ... more
Bankruptcy and insolvency are not the same thing, but they are closely related. Maybe that is why they are ... more
Economic sunshine and showers. We have gotten used to having a more Mediterranean style summer in the last few ... more
It often still comes as a surprise to directors when they learn that they can claim redundancy. If you meet the ... more
Does being local matter? After all, insolvency is about logic and process, isn’t it? To answer that ... more
Warning: Insolvency Service ... more
The recent budget may well have not been much of a shake up for the economy but it did contain some things to need ... more
Can I be disqualified as a director over a Bounce Back Loan? Let’s deal with the big questions first. In ... more
What happened with Capital Gains Tax and MVLs? To be clear from the outset if you are thinking of closing your ... more
A year of financial white water 2022 started with a lot of hope, didn’t it? By the end of January Covid ... more
What’s going on in Hospitality? You cannot help but feel for pubs, restaurants, and other venues. It must ... more
It isn’t unusual that a director of a company will have an outstanding director’s loan account. If that ... more
What makes a good Insolvency Practitioner? There are some fundamental skills and experience that should really ... more
What does ‘intent to appoint administrators’ mean? If you have been keeping up with the news ... more
Green, amber, and red lights of insolvency If we were to make a list of things that directors usually tell us ... more
How bad are things for business? You can’t help but notice that the economic news is pretty grim at the ... more
Personal guarantees can be a problem when a business becomes insolvent, and directors are often concerned about ... more
What happened to the insolvency crisis? Back in what now feels like aeons ago during 2021, there were rumblings ... more
The cost of business crisis. Without knowing your expenditure, it is almost impossible to make a sound judgement ... more
The importance of honesty. There is nothing the press likes more than a celebrity scandal and former Wimbledon ... more
You have probably seen various stories in the press about Directors of businesses being caught out because they ... more
Why do people consider a Members Voluntary Liquidation? Unlike insolvency, which is driven purely by financial ... more
When the insolvency legislation was temporarily changed during the pandemic, I suspect there was a widespread sigh ... more
I heard a wonderful phrase to describe the current situation the other day. Someone said they would be glad when ... more
If you run a business and don’t currently have cashflow planning at the top of your agenda, you probably ... more
Yes, for those of you that watched ‘Game of Thrones’ you will appreciate that this is the threat of bad ... more
As you will appreciate, during the pandemic HMRC has been very busy dealing with the various support schemes, ... more
Companies in financial distress as a result of the pandemic have been protected from creditor action since last ... more
When a Company fails it is quite common that directors are excused of Wrongful or Insolvent trading. Wrongful ... more
This is the fourth time I have written about the Government extensions of the insolvency provisions brought in ... more
I the first of these BBL articles we looked at your options if you are struggling to pay your Bounce Back Loan ... more
Bounce Back Loans are becoming a big problem area and we may only be scratching the surface of the impact they may ... more