Members' voluntary liquidation (MVL)

What is a members' voluntary liquidation?

A members' voluntary liquidation (MVL) is the formal way to close a solvent limited company, in which the directors swear a declaration of solvency, the shareholders appoint a licensed insolvency practitioner as liquidator, and the liquidator settles any remaining liabilities and distributes the assets to the shareholders. It is a solvent procedure, used to wind up a company that can pay its debts in full.

An MVL is the orderly, tax-efficient way to close a company that has done its job, whether the owners are retiring, the business has been sold, or a contractor is stepping away from a limited company. It is one of the ways of closing a company, and the right one when the company is solvent rather than in debt. Where a company cannot pay its creditors, the correct route is instead a creditors' voluntary liquidation.

When is a members' voluntary liquidation the right way to close a company?

A members' voluntary liquidation is the right choice when a company is solvent, has finished trading, and holds retained profits or assets the shareholders want to take out efficiently, and as a rule of thumb it becomes worthwhile once the reserves to distribute are more than around £25,000. Below that figure, striking the company off is often the simpler option.

The situations where directors and shareholders most often use an MVL are these.

• Retirement or sale. The owners are retiring or have sold the trade and want to close the company and release the reserves.
• Contracting through a limited company. A contractor affected by the off-payroll working rules is winding down a personal service company. See our guide to IR35 for contractors.
• Reserves above the rule of thumb. The company holds retained profits of more than around £25,000, where capital treatment can produce a meaningful tax saving over a dividend.
• Group reorganisation. A solvent company is being removed as part of tidying up a group structure.

What is the difference between an MVL and striking a company off?

The difference between an MVL and striking a company off is cost, tax treatment and certainty: an MVL uses a liquidator to distribute reserves as a capital payment, while a voluntary strike-off using form DS01 is cheaper and simpler but only suits a company with very low reserves. For larger reserves the tax saving from an MVL usually outweighs its extra cost.

Which is better depends on your reserves and personal tax position. The figures here are indicative and the tax treatment should be confirmed with your accountant.

How is a members' voluntary liquidation taxed?

In a members' voluntary liquidation the funds a liquidator distributes to shareholders are treated as a capital payment and taxed under Capital Gains Tax rather than as dividend income, which for larger reserves is usually more efficient than paying the money out as a dividend. The exact rates change from year to year, so treat every figure here as indicative and confirm it with your accountant.

Two tax points matter most, and both should be checked for the current tax year before you rely on them.

• Capital versus income. Retained profits distributed in an MVL are a capital distribution subject to Capital Gains Tax, not income taxed at dividend rates, which is the main reason an MVL can save tax on larger reserves.
• Business Asset Disposal Relief. Qualifying distributions may attract Business Asset Disposal Relief, formerly Entrepreneurs' Relief, which applies a reduced rate of Capital Gains Tax up to a lifetime limit. The relief's rate and limit have changed in recent years, so confirm the current position with your accountant.
• The anti-avoidance rule. A Targeted Anti-Avoidance Rule can reclassify a capital distribution as income if you start a similar business within two years of the liquidation, so it is worth taking advice before you close.

How much does a members' voluntary liquidation cost?

A members' voluntary liquidation typically costs from around £2,000 to £5,000 plus VAT and disbursements for a straightforward solvent company with cash and few assets, with the exact figure depending on the assets to distribute and the tax clearances needed. These are indicative ranges to confirm at a free consultation, not fixed prices, because every company is different.

On top of the liquidator's fee there are usually small disbursements, most commonly the cost of a liquidator's bond, which is a statutory insurance sized to the value of the assets, and the fee for advertising the liquidation in The Gazette. We set out the full cost in writing before you commit, and for a solvent company the fee comes out of the company reserves before they are distributed.

Figures are indicative and confirmed in writing before you commit. Ask us for a fixed quote for your company.

How does the members' voluntary liquidation process work?

A members' voluntary liquidation follows a set statutory path, and it begins with the directors formally confirming the company can pay its debts. The liquidator then takes over, settles anything outstanding and distributes the reserves to the shareholders before the company is struck off.

The main stages are as follows.

• Declaration of solvency. The majority of directors swear a declaration of solvency, a statutory statement that the company can pay its debts in full, with interest, within twelve months.
• Shareholders' resolution. The shareholders pass a special resolution to wind the company up and appoint the licensed insolvency practitioner as liquidator.
• Liabilities settled. The liquidator settles any remaining creditors and deals with the final tax affairs of the company, obtaining clearance from HMRC.
• Distribution to shareholders. The liquidator distributes the assets to the shareholders, often making an early interim distribution of the available cash within weeks.
• Closure. Once the work is complete the liquidator files a final account and the company is struck off the register at Companies House.

How long does a members' voluntary liquidation take?

A members' voluntary liquidation usually distributes the bulk of the available cash to shareholders within a few weeks of the liquidator being appointed, while the case as a whole commonly takes around nine to twelve months to close fully. The wait to finish is driven mainly by obtaining tax clearance from HMRC, not by the distribution itself.

For most solvent companies the shareholders receive the largest part of their money early, and the remaining time is simply the liquidator confirming there are no outstanding tax liabilities before the final distribution and strike-off.

Why choose NTF for a members' voluntary liquidation?

NTF Corporate Solutions is a boutique insolvency practice whose members' voluntary liquidations are handled by named practitioners, James Kaye and Nick Morgan, who are licensed by the Institute of Chartered Accountants in England and Wales. You deal with an experienced practitioner directly, and we work alongside your accountant so the tax position is right before you close.

As part of the NTF group, we have helped company owners since 2009, we explain everything in plain English, and the first conversation is free, confidential and without obligation. If your company is solvent and its work is done, we will handle the MVL cleanly and get your reserves distributed promptly.