What is Members' Voluntary Liquidation?

Members voluntary liquidation (MVL) is a process for solvent companies to wind up and distribute assets. An increase of ‘1-person contractor’ companies has given rise to a recent proliferation of MVLs, as contractors look to release cash in the most tax efficient way possible.  If a company is not trading or will soon cease trading and has over £25,000 in assets to distribute to its shareholders, using an MVL to shut the company has tax advantages for the shareholders.

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What are MVLs?

In the same way that an owner of a business selling his shares might be entitled to pay reduced dividends via ‘entrepreneurs relief’, so a shareholder using an MVL at the end of the business can do the same.

MVLs were brought into legislation in 1986 as a legal means for a company to be brought to an end and make a final distribution of assets to its shareholders.

It is a formal process that requires a licensed insolvency practitioner to act on your behalf.

How much tax do I pay under MVL?

Members voluntary liquidation allows shareholders to treat the final distributions as capital distribution as opposed to profits.  If you are a higher rate taxpayer, then usually you would expect profit to be taxed at 40-45%.  However, with an MVL, if you are entitled to entrepreneurs relief, the same element will be taxed at 10%.

There are costs and other factors that need taking into account before seeing what savings might be made.

Is my company suitable for MVL?

  • Has it stopped trading, or is it about to?
  • Did it carry out a trading activity (as opposed to non-trading such as investment)?
  • Have you owned your shares for more than 12 months?
  • Do you have over £25,000 worth of assets to distribute to shareholders?

If the answer is yes to these, then your business is likely to be suitable for an MVL.

If you would like to talk this through with one of our expert advisors, get in touch.