Time to think about a swift MVL?
Budget tax raid
As this year’s Budget approaches, speculation is rife that the Chancellor will raid the Capital Gains Tax pot to help pay back the huge borrowings taken on to fund Coronavirus spending. Not only are the tax rates for capital gains substantially lower than on income, but there is a £1m lifetime allowance for business asset disposal relief (BADR) which could well be withdrawn along with its generous 10% tax rate.
Exiting your business
Is retirement beckoning or have two years of pandemic chaos and disruption got you yearning for an easier life or to switch to a less stressful business model? It would be a tragedy if the rewards from your hard work were to be reduced by increased tax liabilities on the proceeds of selling or closing your business.
Using the Members Voluntary Liquidation (MVL) route
Value extracted from a company in an MVL and placed in the hands of its shareholders will be taxed as a capital gain rather than as income, provided certain conditions are met. The process can be remarkably quick.
Due to the ability under company law to hold shareholders’ meetings at short notice and the ability to now vote on resolutions by correspondence rather than having to attend meetings in person, companies can be put into MVL within a couple of days, if not sooner.
Preparation
To prepare your business to take advantage of such a quick turnaround, the company’s statutory constitution should be reviewed as a matter of urgency with any obstacles to taking the MVL route being addressed. Information on the financial position of the business must be current and accurate because swearing a ‘statement of solvency’ is a fundamental step in the process and depends on reliable and up-to-date numbers.
Good quality financial information also provides helps to assess what the eventual total distribution to shareholders is likely to be, allowing for the maximum amount to be distributed to the shareholders prior to budget day or the end of the current tax year, removing the risk of loss of the tax benefits through delay caused by uncertainty.
The MVL process
The details of the putting a company into MVL are relatively straight forward and can be explained by our team of MVL Specialists or in this article by Gareth Wilcox on ‘Closing a Company’.
Reputational issues
An MVL is not an insolvency procedure; it is the safest and widely accepted way to close a company at the end of its life. There is no stigma attached to it. Many thousands of companies go through the process every year.
Budget Day 23rd March
With less than two weeks to go to Budget Day on 23rd March (one possible impact day for capital gains tax changes) and only a little longer until the end of the tax year on 5th April (another possible deadline), prompt action is essential. The window of opportunity to minimise tax is closing, but not quite yet.