An MVL is a director’s advantage – find out why

Directors and business owners already dedicate immense time and effort to building a successful business, building in the most efficient structures they can so that every function runs with a minimum of friction and fuss. 

So when the time comes to move onto the next chapter of their professional or personal lives – retirement, pursuing a new venture or freeing up dormant capital – it makes sense that the procedure to do this is also as structured and efficient as possible. 

This is precisely where a Members’ Voluntary Liquidation (MVL) comes into its own. 

Contrary to the popular impression of “liquidation”, an MVL is the opposite of a business in distress; it’s a formal legal process specifically designed for successful, solvent companies that wish to close. 

Firstly, an MVL is a strategic choice initiated by the company’s directors and shareholders to wind up the affairs of a profitable business. 

The most important point to stress is that MVLs are only available to companies that can pay all their debts in full, with interest if necessary, within a 12-month period. 

This fundamental solvency guarantee offers peace of mind to creditors and is just one of the advantages afforded to directors that make the MVL a compelling option. 

Some of the others include:-

  • Tax Efficiency: One of the most significant benefits of an MVL is its tax efficiency. When a director closes their company through an MVL, distributions to shareholders are treated as capital distributions rather than income. 

This means they’re subject to Capital Gains Tax (CGT) rates, which although scheduled to rise in the next financial year, are still lower than the comparable income tax rates, potentially significantly reducing the amount of tax payable. Furthermore, shareholders may be able to utilise their annual personal CGT allowance, making a portion of the gains tax-free. 

  • Access to Business Asset Disposal Relief (BADR): Under an MVL, companies can access BADR (formerly known as Entrepreneurs’ Relief). This relief provides access to a reduced rate of CGT for those who qualify. Recent changes to BADR have increased CGT rates from 10% to 14% from April 1st 2025 and are scheduled to rise again to 18% from April 1st 2026.

These changes have prompted many business owners to accelerate their plans to close their companies and realise their assets, as fast-tracking an MVL can help you benefit from the lower rate of CGT sooner. While the increase of 4% may seem modest, it can lead to a substantially higher tax bill for directors who delay. 

  • Certainty and Fairness: The MVL process is structured and formal at every stage, providing a clear and clean method to close your business and accurately distribute assets. 

This is done by an independent licensed insolvency practitioner who you appoint as the liquidator and who acts in the best interest of all members, ensuring that assets are distributed fairly and accurately according to shareholdings. Once the liquidator is appointed, your powers as a director cease and they manage the entire process. 

  • Freedom: Once all details are in order, the MVL process can often be concluded relatively quickly, potentially within a working week or even less for the director’s active involvement. While directors have certain preliminary tasks to complete, once these are done and the insolvency practitioner is appointed, your input and involvement becomes minimal. 

The total timeline, including formal company dissolution, typically concludes within 12 months, or even within ten days for simpler cases. 

Is your company suitable for an MVL?

Usually if something sounds too good to be true then it is, but it also works the other way too. For a business to qualify for an MVL then it has to meet a set of specific conditions:

It has to have:-

  • Stopped trading (or is about to).
  • Carried out trading activities such as retail or hospitality as opposed to non-trading activities such as investment.
  • Directors have to have owned their shares in the company for at least 12 months. 
  • The company has over £25,000 of assets to distribute to its shareholders.

If you can answer “yes” to all of these questions then an MVL is a viable and attractive option. If you have answered “no” to any then while an MVL might not be available or suitable, several other insolvency procedures could be explored.

A step-by-step guide to directors 

If you’re eligible for an MVL and want to proceed then following these key steps will make the process go even smoother:-

  • Laying the groundwork (Pre-contact preparations): This initial stage is crucial for tidying up a company’s affairs. 

You’ll need to confirm the company has ceased trading, de-register for VAT, PAYE and submit final tax returns for VAT, PAYE and Corporation Tax with the help of your accountants. All non-cash assets such as director’s loans, fixed assets and stock must be dealt with and all outstanding debts owed to the company collected. Ensure all tax and other liabilities are paid in full, any company pension schemes are closed and ongoing litigation has ended. Finally consolidate all funds into instant access bank accounts. Completing these tasks upfront is vital as delays can add time and increase fees.

  • Initial contact and assessment: Upon contacting an insolvency practitioner, they will conduct identity checks and verify your company’s readiness for closure including the final cash balance for distribution.
  • Finalising company affairs: This provides a flexible window to address any remaining issues from the groundwork stage.
  • Withdrawal of funds and fee payment: The agreed fees and disbursements are settled from company funds. Remaining funds are then withdrawn and distributed according to shareholdings before closing the company bank accounts. These funds are initially treated as a loan to shareholders until formal distribution notices are processed.
  • Declaration of solvency: The insolvency practitioner will provide a formal declaration of detailing the company’s final solvent position. This document must be sworn by shareholders before a solicitor and it’s a criminal offence to make a false declaration.
  • Shareholders’ and Directors’ meetings: A meeting is convened to formally place the company into liquidation. The timing depends on shareholder engagement with 90% engagement allowing for a prompt meeting, otherwise 14 to 21 days’ notice is required. 
  • Post-liquidation and distribution: Once in liquidation, any remaining assets are realised and distributed, first to any remaining creditors and then to the members/shareholders. Your accountant will remind you to declare these distributions on your personal tax return for the year.

Understanding the costs

MVLs are generally considered to be less expensive than other types of liquidation. Specific quotes vary based on individual circumstances, but the full process will most likely cost between £1,600 and £3,500 plus VAT and disbursements. This includes fixed fees, statutory advertising and other necessary expenses but completing the preliminary tasks above quickly and diligently can help to keep these costs down.

An MVL provides a clear, efficient and tax-effective process for directors like you to close a solvent company and confidently realise the value built up over the years. 

If you’re ready to explore this strategic option and move confidently towards your next chapter – get in touch to talk through all your available options.