IR35 refers to the rules around off-payroll working and deciding whether a contractor is employed or independent.
As a result of the pending IR35 reforms which come into force in April 2021 we at Lucas Ross – Business Rescue, Recovery & Insolvency are receiving an increased volume of calls concerning how a Members Voluntary Liquidation (MVL) may support matters. This change is expected to directly impact limited company contractors, as if caught inside IR35, it may be more cost effective to liquidate the company and operate through an alternative structure.
As the Government’s website explains: ‘From April 2021, the rules for engaging individuals through personal service companies are changing. The responsibility for determining whether the off-payroll working rules apply will move to the organisation receiving an individual’s services.”
The below article illuminates Frequently Asked Questions concerning an MVL (Members Voluntary Liquidation).
What is an MVL?
An MVL is a liquidation process available to solvent companies only. It is a voluntary liquidation that may be pursued for several reasons. These include the retirement of directors, closure of a company after a merger, or simply closing the doors on a company that no longer serves a purpose. If you are looking to liquidate your company for one of these reasons, and have more than £25,000 to distribute between shareholders, then MVL may be the best option.
How much does a MVL cost?
Company liquidation costs can vary; however, it is important to ensure that a licensed insolvency practitioner is appointed to administer the MVL. Fees relating to the MVL process consists of disbursements which are necessary costs relating to essential notices which will be issued during the liquidation process.
Why should I use an MVL when I can strike off my company?
While striking off may be the best option for some companies, if you have a bank balance of over £25,000 at the point of liquidation, it is unlikely to be the most suitable in your situation. The benefits of an MVL are clear for companies in this position, providing ease of access to funds, and tax benefits.
What are the main benefits of liquidating in an MVL?
There are certain benefits to MVL that makes it a positive choice for solvent companies wishing to liquidate. This mainly focuses on how it is a tax efficient way of extracting cash from the business. The Extra Statutory Concessions order (2012) means funds of over £25,000 can be distributed to shareholders without income tax being imposed. This differs from dissolution, which would require such funds to be taxed upon distribution. You might also qualify for Business Asset Disposal Relief if you own at least 5% of the shares for at least one year before your MVL. Other benefits include saving time spent preparing statutory compliance information; transferring assets to new companies without a cash transaction and improving transparency by simplifying your business’ structure.
What is Business Asset Disposal Relief (or Entrepreneurs’ Relief (ER))- and do I qualify?
When selling, giving away, or otherwise closing your business, you may be entitled to take advantage of Business Asset Disposal Relief (until April 2020 known as Entrepreneurs Relief), a tax relief scheme designed to reduce the rate of tax you are liable for. If you qualify for ER, you will pay a flat CGT rate of 10% on qualifying gains up to a lifetime limit of £1 million.
Why do I have to pay disbursements in an MVL?
When a company begins liquidation proceedings, it is required that this be advertised in the London gazette to allow any uncontacted creditors to put forward their claims. Disbursements are a mandatory part of MVL, and comprise advertisements at several stages of the liquidation.
What are the disbursements in an MVL?
The disbursements comprise several adverts at different stages of the liquidation in the London/Edinburgh Gazette, and the specific bond which protects your funds. Both the advertising and the bond are statutory requirements of any solvent liquidation.
How long before I get my money in an MVL?
Subject to receiving the necessary consent from shareholders, as well as signed engagement paperwork, typically a first distribution of 75% of the funds is paid about 1 month after you start the process. The biggest delay tends to be the time it takes for your bank to transfer funds to us, which is beyond our control. Following that, we need to wait for HMRC clearance. The timescale for this depends on HMRC, but at time of writing we are seeing average timeframes of 3-6 months.
How can I be sure that my money is safe with Lucas Ross?
Lucas Ross – Business Rescue, Recovery & Insolvency are licensed and regulated insolvency specialists with experience in handling procedures for companies of all sizes. All our operations as a company are monitored by The Insolvency Service.
I have used a MVL before – can I use this process again?
If your company is eligible for MVL, there is no reason why you should not be able to use the process again. MVL is not, however, to be used as a process to improve annual tax efficiency. For advice on your company’s tax situation, it is important to seek the advice of a professional advisor.
What happens to my company’s employees in a MVL?
When your company liquidates, employees will be made redundant. As your company is solvent, it may have the funds available to cover redundancy payments. In any situation where this is not the case, employees are eligible to claim from the Redundancy Payments Service.
What are the main duties of an Insolvency Practitioner in an MVL?
The main ones are:
· Helping the directors prepare the Declaration of Solvency and calling the meeting with shareholders.
· Realising the company’s asset.
· Distributing surplus funds to shareholders and members.
· Paying outstanding creditors.
· Providing regular updates on the progress of the MVL.
· Settling any legal disputes out of the company’s cash.
How do I start the MVL process?
If you are considering closing your solvent company using an MVL, we at Lucas Ross – Business Rescue, Recovery & Insolvency are perfectly positioned to assist in placing your company into liquidation. Contact us at help@lucasross.co.uk or speak to us today on 0330 128 9489 to arrange a free no-obligation consultation.
