As the deadline for Capital Gains Tax (CGT) increases comes in a month’s time, we’ve been highlighting the advantages of Members’ Voluntary Liquidations (MVLs) for a little while. 

But we still keep hearing some myths and misconceptions about them. 

So we’ve set out to bust the bull about the biggest three falsehoods we’ve heard in the past month and give you the facts straight. 

Myth 1: MVLs are expensive

One of the most persistent myths is that MVLs are prohibitively expensive. 

While there are costs involved because it’s a legal insolvency process requiring professional administration, they often cost less than other types of liquidation. 

The total cost can range between £1,600 and £3,500, depending on the company’s circumstances plus disbursements for advertising and bonding.

The costs associated with an MVL include:-

  • A fixed fee for the MVL process
  • Statutory advertising costs for public notices in The Gazette
  • A general or enabling bond, acting as an insurance policy for the company’s assets while under the control of the liquidator
  • Signature witnessing fees for the legally required declaration of solvency

Myth 2: MVLs are time-consuming

Another common misconception is that MVLs are lengthy and complex. 

While they are a legal insolvency process that has required steps, the MVL process is quite efficient. 

A straightforward Members’ Voluntary Liquidation can be concluded in seven days or less if every party is amenable. However sometimes cases are more complicated and require more work so they could take at the utmost up to six months.

An MVL is only for solvent companies and that definition means being able to repay all outstanding company debts within 12 months – which would mean an extension of the timeframe. 

One of the ways that could see an MVL shortened is the directors and their accountants completing some preliminary steps before appointing an insolvency practitioner so they would be ready to hit the ground running. 

These include:

  • Confirming the company has already ceased or stopped trading
  • De-registering for VAT and PAYE
  • Preparing and submitting final accounts and tax returns
  • Ensuring all assets have been sold or written off
  • Paying all tax liabilities and any other debts

Myth 3: MVLs are only for large companies

The third most prevalent misconception we’re hearing about MVLs is that they are only for bigger companies with significant assets. 

That’s just not true. 

Any solvent company with over £25,000 of assets to distribute to its shareholders is eligible. This means it’s an incredibly attractive option for freelancers and contractors looking to extract funds in the most tax efficient way possible.

This is because funds allocated to shareholders according to their shareholding ratio are treated as capital distributions which are taxed at a lower rate than dividends are (CGT v Income Tax). 

Some may even qualify for additional tax reductions under Business Asset Disposal Relief (BADR) but this is increasing from April so directors looking to take advantage will need to act quickly for maximum value. 

Now we’ve hopefully laid some misinformation ghosts to rest, directors/shareholders and their accountants can consider the MVL process with a clearer understanding.

They can weigh up the requirements and benefits more accurately and decide whether it (or another equally effective) insolvency process is the right one for them. 

Get in touch with us today for a free chat and we’ll happily let you know what options you have and how you can possibly even have the business closed and your assets realised before Easter!