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Members Voluntary Liquidation
Whilst winding down a limited company is far from the minds of contractors who are just starting out, with luck every contractor will reach the point of retirement or may even at some point re-enter the world of the permanent employment. There have been various mechanisms over the years that have allowed contractors to close their companies as tax-efficiently as possible.
Historically contractors looking to close their company would make a request to HMRC under ESC C16 to treat any final distribution as capital rather than income. However since 1st March 2012, ESC C16 was written into tax law with a distribution limit of £25,000. This means that if the distributions are less than £25,000 then 'capital treatment' automatically applies, however if they are in excess of £25,000 they are treated as income in the shareholders' hands.
Even following the new rules, assets distributed under a Members Voluntary Liquidation (MVL) are still taxed on the shareholders' as capital, which is why this has now become the most popular method for contractors to close their company.
So, what is an MVL? An MVL is where shareholders choose to wind down their company, and can only be used if the company is solvent. Not only do the shareholders benefit from the distributions that exceed £25,000 being treated as capital, the funds may also be subjected to Entrepreneurs' Relief, a personal tax relief that reduces the tax rate down to 10%.
Are you thinking of closing your limited company? Not sure if MVL is the right route for you and need some further information from an expert?
You can find trusted Members Voluntary Liquidation specialists and their contact details here on our MVL Service directory.
Get in touch with them today to discuss how you can close your company as tax-efficiently as possible.