In this article, Margaret Linn discusses the three most common reasons for asking us how quickly we can do an MVL?
A Members’ Voluntary Liquidation is a tax efficient way to bring a company to an end and for the shareholders to receive the value. Following formal appointment of a liquidator, the company assets are distributed to the shareholders and the affairs of the company wound up.
How quickly can an MVL appointment be made?
From initial instruction, assuming the company has ceased trading and the accounts and tax returns are up to date to cessation of trade we can get the appointment paperwork prepared and be appointed in a matter of days.
The Company must have its final accounts prepared and final PAYE, VAT, and CT returns must be lodged. Ideally, to avoid paying interest that accrues on debts from the date of liquidation, all HMRC liability, indeed all creditors, should be paid prior to the appointment. If the company has finalised everything that matters, then meetings can be called as soon as practicable.
If the company is still trading, it’s more cost-effective to tidy up as many of the trading matters as possible prior to moving to appoint. We often provide advice in relation to the practical steps to be taken care of, such as dealing with debtors or employees.
Will appointment of liquidator avoid the necessity of the company moving into the imminent new accounting year with the accounting implications?
Once a liquidator is appointed no more Companies House filings need to be made by the directors (although the Liquidator must submit various returns and forms). There is no need to prepare and submit statutory accounts for the final periods. However, accounts must still be prepared to support the preparation and submission of the tax returns.
When will I get my money and how much will I get?
We usually distribute the bulk of assets following appointment and will retain a proportion of funds, typically 10 – 20%, until HMRC confirm they have no outstanding returns to be lodged or debt due.
If the company assets include cash at the bank, then as soon as the bank transfers the funds to our client account, they can be distributed. To avoid delays in the transfer of cash, business owners can liaise with their bank, prior to liquidation, to ensure a quick transfer.
If the company has fixed assets, they can be distributed in species to the shareholders immediately.
If the fixed assets are to be sold, then the date of realisation is dependent on the market and time it takes to achieve the sale. If we have to sell assets There are also cost implications because our fee will reflect the additional work. Most companies prefer to realise all the assets they wish to be liquidated prior to the liquidator being appointed.
Will I be able to benefit from current capital gains tax (“CGT”) /Business Asset Disposal Relief (“BADR”) rules before they change?
Distributions by the liquidator to the shareholders from an MVL are treated as capital in an individual’s personal tax return. The relevant date for shareholders’ personal tax is the date of distribution. We usually get a flurry of appointments in the lead up to the end of the tax year as shareholders want to benefit from using the current year personal CGT allowance (currently £12,300).
We don’t provide personal tax advice and shareholders should seek personal tax advice prior to any decisions on distribution dates and amounts.
We don’t have a crystal ball so it’s difficult to predict future changes in tax legislation. It’s uncommon for personal tax changes to become into effect midway through a tax year, but we usually experience an increase in appointments prior to budgets as shareholders seek to avoid a later distribution that may be subject to changes in CGT and BADR.
How long does an MVL take?
As you will see above there are lots of variables. It depends on the company first finalising all trading, accounts, and tax matters or the time it might take to realise assets and how long HMRC take to give tax clearance before a final distribution can be made and the case closed. It also depends on the exit strategy agreed with the members to maximise their individual tax efficiencies.
2 years ago, I would have estimated a typical MVL would take 6 months from beginning to end, however, there are currently delays obtaining HMRC clearance. Due to difficulties implementing new software which coincided with staff being deployed to deal with COVID 19 related matters, HMRC currently have a considerable backlog. Recent experience indicates it is taking between 12 and 18 months to obtain clearance. HMRC’s response time is improving, which suggests most cases should now be resolved within a year, but this is outwith our control.