Members’ Voluntary Liquidation (MVL) – a warning!

At this time of year, we typically see a Pre-Budget upsurge in requests to carry out Members’ Voluntary Liquidations (MVL) to enable shareholders to benefit under the current capital gains tax regime and avoid the potential threat of withdrawal of Business Asset Disposal Relief.

For those that are ‘cashing out’ when their company is no longer required, the potential tax saving is attractive, but it also comes with a word of warning.

mvl tax relief

Big Brother is still watching

As a result of the tax benefit, HMRC are keen to ensure that not only is the system not abused, but the process is carried out correctly.

Over the years we have successfully distributed £100s of millions to shareholders, who have been rewarded for their investment and benefited from the available tax break.

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To ensure the process is carried out correctly and as efficiently as possible, at Portland Leonard Curtis we have identified some key steps that can be overlooked but need to be taken into account at an early stage when an MVL is being considered.

  • Consider the quorum for the director and shareholder meetings and whether the company’s articles of association set out a specific process to be followed when placing the company into liquidation or distributing funds in a liquidation scenario.
  • Consider settling all known liabilities prior to the company being placed into liquidation.  This extends beyond the normal trade creditors and HMRC liabilities. Directors should also consider whether there are any contingent liabilities, such as guarantees or warranties being provided, with any recent any sale agreements.  If there are any contingent liabilities, outstanding guarantees, or warranties, this could impact the liquidation and delay the distribution of funds to shareholders.
  • Particularly important for property companies, if NHBC or similar guarantees have been provided on new build homes, many people will assume that the company is no longer responsible for any defects and has no liability in this respect.  This is often not the case.  We frequently see that there is a period of time that the company remains liable for defects, even with these guarantees in place.
  • Within the building industry, the length of time between a project being completed and any final snagging and retentions being resolved can be several months.  Resolving these matters early could be the key for the efficient and timely closure of a company.
  • If there are assets or investments to be distributed in specie to the shareholders, it is important to obtain the relevant valuations and consider how these assets may be split if there are multiple shareholders.  Having an accurate valuation for the assets provides certainty around the value attributed to the distribution and planning for this situation in advance would help to avoid unnecessary delays later.
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Planning is key

An MVL is typically not an expensive process and the key to a successful Capital Distribution through a Members’ Voluntary Liquidation is to achieve certainty. It is therefore important to ensure from the outset that the process is properly planned and once completed, unable to be challenged.  Having a well thought out process and plan will help to avoid unnecessary complications or delays.

The last thing any shareholder wants is to have a distribution challenged, or be subject to a HMRC enquiry, which may result in tax consequences for the individual.

For further information, please call Portland Leonard Curtis on 01489 550440 or email us on post@portbfs.co.uk

The content of this article was correct at time of publication.

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