Cashing in on a solvent business – how MVLs are changing

Company directors considering closing a solvent limited company through a Member’s Voluntary Liquidation (MVL) must act with haste. The Chancellor of the Exchequer, Rachel Reeves, is expected to deliver sweeping tax rises in Labour’s first Autumn Budget on 30 October 2024 which will likely redefine an MVL’s key tax advantages.

Is an MVL the ultimate exit tool for solvent companies?

A Members’ Voluntary Liquidation is a formal company liquidation procedure for solvent limited companies or subsidiaries with substantial retained profits and/or assets. Solvent clients with asset- or cash-rich businesses, one chapter away from the end of their lifetime, should consider fast-tracking their plan to maximise tax savings.

While a Members’ Voluntary Liquidation is the ultimate exit tool for solvent companies, the tax incentives that bolster the appeal of an MVL are expected to be downgraded following the Autumn Budget. Ahead of anticipated tax reforms, accountants must instruct their prospective MVL clients to act immediately or risk missing out on substantial tax savings.

The benefits of a Members’ Voluntary Liquidation include:

Liquidation solution for solvent companies – A Members’ Voluntary Liquidation is for solvent companies; therefore, company assets must outweigh liabilities and company liabilities must be settled within 12 months of the liquidation date.

Controlled procedure – A Members’ Voluntary Liquidation is entered voluntarily, so your clients can retain control over the process, including the timeline.

Quick and efficient cash release – An MVL is designed to release cash efficiently, making it a fast liquidation procedure for directors seeking a quick exit.

Highly tax efficient process – The MVL route facilitates a tax-efficient exit as distributions are classed as capital, rather than income, and therefore subject to Capital Gains Tax (CGT), rather than Income Tax. Your clients may also qualify for Business Asset Disposal Relief (BADR), formerly Entrepreneurs’ Relief, further reducing their tax liability.

Fully managed process – The MVL process is managed by a licensed insolvency practitioner, making it a stress-free experience for both you and your clients.
 

Act now – BADR and Capital Gains Tax in the firing line

The Chancellor of the Exchequer, Rachel Reeves, is set to deliver the first Labour Budget on 30 October 2024, which will see a significant overhaul of the current business tax framework. In anticipation of the Autumn Budget, Reeves warned that serious cuts would be imposed to plug the “fiscal black hole”, keep within borrowing limits, and drive revenue to fund Labour’s spending plans.

Major tax reforms are expected as part of the Autumn Budget, such as:

Increase in Capital Gains Tax rates – We anticipate that the gap between Capital Gains Tax and Income Tax will be tightened. Capital Gains Tax rates, currently at 10% (basic rate) and 20% (higher rate) are expected to increase, along with reliefs, such as the Annual Exempt Amount (AEA), which could be further reduced from £3,000.

End of Business Asset Disposal Relief – Business Asset Disposal Relief (BADR) is a tax relief scheme that applies to asset disposals when closing a solvent business. BADR reduces Capital Gains Tax to 10%, for which the lifetime limit is £1 million. If BADR is scrapped, this eliminates a key tax advantage currently available under an MVL.

As the future of Business Asset Disposal Relief is under threat, the tax efficiency of an MVL hangs in the balance. If your client is considering closing a solvent company through the MVL route, reach out for tailored advice from your BTG Begbies Traynor contact.

Why might clients require a Members’ Voluntary Liquidation?

Members’ Voluntary Liquidation services are essential for company directors, as the future of their business may change course at any point. An MVL may be pursued as the company no longer serves a purpose to the director due to various reasons, including:

In light of the anticipated changes to CGT and BADR, clients may seek a Members’ Voluntary Liquidation to cash in on their investment and minimise their tax liability, which could increase following the tax reforms likely to be in store at the Autumn Budget.

Advice for accountants – what does this mean for your clients?

A Members’ Voluntary Liquidation is a tax-efficient exit tool for clients considering closing a profitable business with capital in the region of £25,000. While accountants are the guiding hand for all financial health-related queries, a licensed insolvency practitioner navigates the liquidation field as it is a specialist domain.

As the future of Business Asset Disposal Relief is uncertain, solvent companies at the end of their useful life and on track for liquidation must take heed of potential future tax reforms. Accountants are urged to advise their clients to act now, or possibly risk a greater tax liability in the months to come.

How can BTG Begbies Traynor help your clients?

We are a market-leading, AIM-listed professional services consultancy, specialising in corporate insolvency and business restructuring. We have over 100 offices nationwide and over 100 insolvency practitioners and corporate insolvency specialists who can support a range of stakeholders, including business owners and our professional partners.

Our renowned corporate insolvency services are available to business owners across the UK through our network of accountants, from independent accountancy firms to the most recognisable brands in the industry. We have dedicated corporate insolvency experts who support clients throughout the company liquidation journey, including a Members’ Voluntary Liquidation.

To discuss how we can help your clients close a solvent business, or for more information on our corporate insolvency and business restructuring services, contact your BTG Begbies Traynor contact.