An MVL is a formal process which winds up the affairs of a solvent company which can allow directors and shareholders to extract the value of the business in a tax-efficient and cost-effective manner.
An increasing number of directors are engaging our Insolvency Practitioners to assist in placing their limited companies into solvent liquidation. Here we consider some of the reasons why:
Fears of an increase in capital gains tax (CGT)
A review commissioned by Chancellor Rishi Sunak recommended that the government should consider aligning the CGT rate more closely with income tax rates. It also suggested the government think about taxing earnings retained in companies by owner-managers as income. The review also questioned the effectiveness of Business Asset Disposal Relief (formerly known as ‘entrepreneurs’ relief’) which is fixed at 10% up to a lifetime limit of £1m.
A downturn in revenues during lockdown
The obvious negative impact of Covid on business operations has forced many owners to cease to trade in order to prevent further erosion of cash reserves which would be incurred by unavoidable fixed costs if they remain open. Many have also simply decided to bring forward retirement.
IR35 changes
There has been an expected increase in business owners choosing to close their businesses because of IR35 reform for the private sector. The changes were originally due to come in from Apr 2020 but were pushed back to Apr 2021 because of the pandemic.
The rollout of the IR35 private sector reform will affect the decision-making process and appetite of contractors when working with private sector bodies. If caught inside IR35, contractors will be required to pay income tax and NIC which reduces take-home pay.
As a result, many contractors may decide to liquidate the business and move to a more tax efficient way of operating.
We would encourage business owners to act quickly if they want to benefit from the tax reliefs currently available under the MVL process, as the budget (3 March) is fast approaching and it’s likely that the Treasury will look to claw back funds in a number of ways following its astronomical costs to support businesses and employees since the start of the pandemic.
If you are considering closing a solvent company call or email: ben.cowgill@cowgills.co.uk for a free, confidential consultation.
Disclaimer
The information was correct at time of publishing but may now be out of date.
