An MVL is a formal, cost effective process for bringing the life of a company to an end and distributing the remaining assets to shareholders, in the most tax efficient way. This can be done for reasons of retirement, an intractable shareholder dispute, or simply because the company is no longer needed. The company must be solvent – i.e. it can afford to pay all of its creditors and still have funds left for the shareholders.
The main advantage of an MVL, is that it can be a tax efficient way of extracting the remaining funds from the company. This is because distributions made out of an MVL are treated as capital receipts, rather than income and are therefore subject to capital gains tax, rather than income tax. This is likely to be beneficial if Entrepreneurs' Relief is available (there are criteria to meet).
Please note that the Targeted Anti-Avoidance Rule introduced in 2016, prevents companies from being wound up using an MVL, taking advantage of the tax incentives, for the shareholders to start up again via a new company, doing the same/similar trade. Therefore, an MVL is not suitable if shareholders want to carry on running a similar activity within two years of the distribution.
Shareholders should seek advice from their accountant in calculating the likely tax benefit of an MVL but typically, it will be a benefit where the funds available for distribution total £25,000 or more. Even though the company is solvent, an MVL can only be completed by using a Licensed Insolvency Practitioner.
If you believe that your company may benefit from this route, we offer free initial advice and a fixed fee which gives certainty over the level of expected distribution.