Closing a solvent limited company – what’s set to change?
Written by Dean Lomas from Begbies Traynor Group
When the time comes to close a solvent limited company, you’ll want to extract retained profits tax efficiently and close the company in a streamlined and hassle-free fashion.
Many factors may feed into this decision, such as other commercial interests, changing market conditions, regulatory reforms, or because the business has reached a natural end.
A Members’ Voluntary Liquidation, often abbreviated to MVL, is a popular exit route for businesses with substantial funds to extract. An MVL is initiated by a licensed insolvency practitioner and involves distributing funds to shareholders orderly and bringing the company to a systematic close.
The MVL path is well-trodden as it provides a highly tax-efficient exit due to the associated tax treatment, albeit this is set to change, as part of tax changes announced in the Autumn Budget.
How is Members’ Voluntary Liquidation tax changing?
Following the Autumn Budget on 30 October 2024, the lower rate of Capital Gains Tax increased from 10 per cent to 18 per cent and the higher rate from 20 per cent to 24 per cent. Business Asset Disposal Relief which sets the rate of Capital Gains Tax to 10 per cent (if eligible), is set to rise to 14 per cent in 2025 and again to 18 per cent in 2026.
While this means the tax bill will be greater to close a solvent limited company after April 2025, an MVL will continue to be the most tax-efficient way to close a solvent limited company for most.
What do the tax changes in 2025 mean for solvent liquidations?
Limited company directors considering closing a solvent limited company are advised to act sooner, rather than later, to maximise the tax savings.
While a Members’ Voluntary Liquidation is a fairly swift process, it’s often more beneficial to initiate the process earlier as this affords the flexibility of time to extract funds in the most tax-efficient manner.
A Members’ Voluntary Liquidation can provide a straightforward exit route to business owners who have much value to extract from their businesses.
Is a Members’ Voluntary Liquidation right for you?
A Members’ Voluntary Liquidation is a formal liquidation process initiated by a licensed insolvency practitioner to close a solvent limited company.
As a rule of thumb, the business must have over £25,000 retained profit for an MVL to be cost-efficient. If you’re below this threshold, seek professional advice from a licensed insolvency practitioner. Company strike off may be a suitable alternative which is a low-cost, self-initiated company closure process.
We look at the Members’ Voluntary Liquidation process and the role of the licensed insolvency practitioner in an MVL.
What happens during an MVL?
A general timeline for a Members’ Voluntary Liquidation is as follows:
- Declare solvency – Sign a declaration of solvency to declare that your company is solvent.
- Appoint licensed insolvency practitioner – Sign a letter of engagement to appoint an insolvency practitioner to liquidate your company.
- Hold a shareholder meeting – Hold a general meeting of shareholders to propose the Members’ Voluntary Liquidation. To successfully pursue an MVL, 75% of shareholders must vote in favour.
- Company liquidation begins – The liquidator will prepare the required documents and inform the relevant parties, including HMRC and Companies House. Your intention to close the company via an MVL will be advertised in the Gazette.
- Profits distributed – Any company liabilities will be cleared and retained profits distributed amongst shareholders.
- Company closed – Your company will be dissolved and removed from the Companies House register after three months.
A Members’ Voluntary Liquidation is a relatively straightforward process, however, this will range in complexity based on the value of funds involved and the business set-up.
If you wish to seek advice on how to exit your business best or hope to start a Members’ Voluntary Liquidation before the April 2025 tax changes, get in touch with Dean Lomas, business development manager at Begbies Traynor Group Birmingham, for a free, no-obligation consultation.