Members’ Voluntary Liquidation (MVL)

What is a Members’ Voluntary Liquidation (MVL)?

A Members’ Voluntary Liquidation (MVL) is a powerful tool for directors of solvent companies who want to close their company in a tax-efficient way. If your company has retained profits of £25,000 or more, an MVL offers a structured, legally compliant method to unlock those profits as capital distributions.

By choosing an MVL, you can significantly reduce the tax liability on these funds compared to taking dividends or other income-based options. This makes an MVL the ideal solution for solvent companies that have served their purpose and are ready to wind down operations.

How do I know if my business is eligible for an MVL?

This process is designed specifically for solvent companies. To qualify for an MVL, your company must meet these key requirements:

• Retained profits of £25,000 or more: If your retained profits are lower, other options like a company strike-off might be more suitable.
• Solvent financial status: Your company must be able to pay all debts, including any contingent liabilities, within 12 months of the MVL starting.
• Confidence in solvency: Directors must provide a statutory declaration of solvency, confirming the company’s ability to meet its obligations.
• If your business meets these criteria, an MVL is likely the best option for unlocking tax savings and closing your company efficiently. Talk to us about the next steps and get started today.

Why do retained profits need to exceed £25,000 for an MVL?

Once profits exceed £25,000, the tax savings available through an MVL outweigh the costs, which makes it the most profitable option. For businesses with retained profits below this amount, a simpler and less expensive company strike-off might provide a better alternative.

What are the tax benefits of an MVL?

An MVL offers two powerful tax advantages:

Capital Gains Tax

Profits distributed through an MVL are treated as capital, not income, which means they’re taxed at the lower CGT rate rather than the higher income tax rate.

Business Asset Disposal Relief (BADR)

Formerly known as Entrepreneurs’ Relief, BADR can reduce CGT on qualifying distributions. This rate is usually much lower than standard income tax rates, which can be up to 45%.

These benefits make an MVL one of the most tax-efficient ways to close a solvent business.

What’s the difference between an MVL and a strike-off?

While an MVL is ideal for companies with a significant amount of retained profits, a company strike-off may be more suitable for those with smaller retained profits. The key differences include:

• Cost: Company strike-offs are less expensive but don’t provide the same tax advantages as an MVL.
• Tax treatment: MVLs treat distributions as capital (subject to CGT), while strike-offs often result in income tax liabilities.
• Complexity: An MVL legally requires a licensed insolvency practitioner. Company strike-offs benefit from their involvement because it reduces the risk of forgotten liabilities or paperwork, which could cause issues later on.

How long does an MVL take?

The typical MVL process can take as little as six months but this depends on the complexity of the company’s finances. This doesn’t mean you have to wait to reap the rewards of your hard work: we’re often able to pay out your profits before the MVL process is completed.

What’s involved in the MVL process?

The MVL process involves multiple compliance and legal steps, which we’ll take care of on your behalf. The whole timeline can be broken down into five key stages.

• Consult a licensed insolvency practitioner: As well as being a legal requirement of an MVL, involving an insolvency expert early on means you’ll get an accurate evaluation of your company’s eligibility for a Members’ Voluntary Liquidation.
• Prepare a Declaration of Solvency: All directors must confirm the company’s solvency and ability to pay all debts within 12 months. This declaration is a critical legal document and must be accurate.
• Pass a resolution to agree to wind up the company: Shareholders must approve the liquidation through a formal resolution. This resolution must be filed with Companies House.
• Appoint a liquidator: Your licensed insolvency practitioner acts as the liquidator, managing the sale of assets, payment of creditors, and distribution of remaining funds to shareholders.
• Distribute funds and close the company: After your creditors are fully paid, the liquidator distributes any remaining funds to shareholders as capital. Once the process is complete, we’ll file a final report with Companies House, and the company is officially dissolved.

Ready to get started? Talk to one of our MVL experts today.

What happens if my declaration of solvency is incorrect?

Providing an incorrect declaration of solvency can lead to legal and financial repercussions, including personal liability for directors. Avoid these risks by conducting a thorough review of your company’s finances with the help of a licensed insolvency practitioner from the start.

Do you need an insolvency practitioner for an MVL?

Yes, working with a licensed insolvency practitioner is a legal requirement for an MVL. They ensure compliance with all regulations, manage communication with stakeholders, and help you achieve the best financial outcome.

How do I get started with an MVL?

Starting the MVL process is simple:

1. Contact our team: We’ll assess your eligibility and guide you through the process.
2. Evaluate your financial position: We’ll help you confirm solvency and retained profits.
3. Plan your timeline: With the April 2025 tax changes approaching, acting quickly is key.

Don’t wait until it’s too late. Secure your financial future today. Contact us now to discuss your MVL options and maximise your retained profits before the tax changes take effect.

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