A solvent company can enter a Members' Voluntary Liquidation (MVL) by resolving to do and appointing a liquidator. The liquidator's role is to realise the assets of the company for distribution to the shareholders. The company will then be struck off.
This may be a cost effective way for shareholders to extract assets from a business, once the purpose of the company has been completed.
One reason to consider an MVL is that on closure of the company the retained profits that are distributed to the shareholders, are classed as a capital payment, rather than income tax. This means the payments are subject to capital gains tax, rather than income tax. This could lead to a substantial tax saving.
Additionally, in certain circumstances, business owners may benefit from Business Asset Disposal Relief (previously known as Entrepreneur's Relief) which means that you pay 10% tax on all gains on qualifying assets. This may be of particularly useful with those with reserves in limited companies who have been affected by the changes in IR35 rules.
There are complexities and requirements to fully benefit from the potential benefits of an MVL and it is vital that you seek the advice of a licensed Insolvency Practitioner.
If you wish to discuss this further please contact us to speak to one of our highly experienced staff.