As we know, a Members’ Voluntary Liquidation (MVL) can be a useful procedure for directors who wish to exit their business and make use of Entrepreneurs Relief, subject to certain conditions being met. The tax savings can often run into tens of thousands of pounds, against a relatively low cost for the actual winding-up procedure.
An MVL is used as a typical exit strategy where a business is sold or the directors are looking to retire. However, we also see it used for disincorporation purposes to gain a tax advantage. It has been long established that directors cannot benefit from Entrepreneurs Relief and start up a phoenix company the next day essentially doing the same trade. However, it is possible for the directors to continue as sole traders or within a partnership. This is likely to change!
Draft legislation has been published which will apply to Transactions in Securities rules to capital reductions and liquidations from 06 April 2016. From this date, a shareholder will not be able to engage in a similar trade or activity for at least two years after a capital distribution. If s/he does, the legislation will consider the distribution, following winding up, as income rather than capital.
The legislation has been introduced to avoid tax avoidance where the purpose of the liquidation is to obtain a tax advantage.
Directors will still be able to use Disincorporation Relief where assets are less than £100,000, but where assets are in excess of this, it is now even more important to start planning early.
If you or any of your clients are considering an MVL, there is a clear incentive to commence proceedings as soon as possible. In some circumstances, Thomas Westcott Business Recovery are able to assist directors and shareholders enter into an MVL within a matter of days with an initial capital distribution shortly afterwards.
If you would like any further information on the MVL process and our competitive prices, please contact one of our Business Recovery & Insolvency team on 01392 288555 or by e-mail: firstname.lastname@example.org
Jon Mitchell is a Licenced Insolvency Practitioner at Thomas Westcott Business Recovery LLP and highly experienced in business rescue, restructuring and insolvency solutions.
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