31st May 2019
Leonard Curtis Business Solutions Group ‐ providers of the Lifecycle network ‐ has already managed more solvent, Members Voluntary Liquidations (MVLs), during the first quarter of this year than it did in the whole of 2016.
Many of the straightforward cases wound up have been quickly and efficiently processed by Lifecycle member accountants through its My‐MVL software package. After simply inputting clients’ details, an automated procedure is commenced to place the company into MVL, which reduces the cost compared to a traditional “manual” MVL.
Over the last four years, the professional services firm has seen a steady increase in the number of MVLs processed through its bespoke, white‐label platform, which peaked at 42 in 2018.
Those accountants who use it extend their client capabilities by offering what is a specialist, professional and managed service. In return, their clients have benefitted from the seamless online documentation journey undertaken simply, transparently and remotely ‐ removing the need for face‐to‐face meetings.
One Lifecycle member who uses the My‐MVL platform to simplify the solvent liquidation process for his clients is Pete Edwards, Partner at Warr & Co Chartered Accountants in Stockport. Watch what he has to say about the platform here and how his company has benefitted from the Lifecycle network.
The broader MVL picture
Leonard Curtis’ numbers reflect the overall national total, which rose dramatically over the last 12 months, despite HMRC tightening up on tax benefits available to shareholders following restrictions introduced in the Finance Bill 2016.
Need to recap on revisions to the rules?
The Finance Bill 2016 stated that, when winding up a business, distributions to shareholders are classed as income ‐ as opposed to capital, that’s usually taxed at a lower rate ‐ when:
- An individual who is a shareholder in a close company receives a distribution in respect ofshares in a winding‐up from the company
- It’s within a period of two years of the distribution and the shareholder continues to beinvolved in a similar trade or activity
- One of the main purposes of the winding‐up is to obtain a tax advantage
So, are MVLs still something to consider?
Yes, absolutely, and statistics ‐ both those of Leonard Curtis and nationally ‐ prove this.
Despite MVLs no longer being as attractive for some, they remain a tax‐efficient way of extracting money from a business when it reaches the end of its life.
In the SME arena within which Leonard Curtis and Lifecycle operates, this is usually because the owners are retiring or because the business has been sold by the limited company. It can also be effective for those businesses set up for a specific project that has completed, when the profits and accumulated reserves must be extracted from the company by its shareholders.
Whatever the scenario, distributions are generally treated as capital and therefore taxed at a lower rate than income tax. What’s more, Entrepreneur’s Relief may also be available to further reduce Capital Gains Tax.
When is an MVL not a good idea?
MVLs do not provide the most favourable solutions to certain situations.
Leonard Curtis has previously been approached by companies anticipating action from HMRC in respect of a previous tax planning scheme. While all cases differ, its general view is that an MVL is not appropriate due to the Declaration of Solvency that directors have to swear. To falsely do so ‐ pledging that the company is able to meet all creditor claims plus interest within the timescales set ‐ could have serious consequences for the directors personally.
Another area in which to exercise MVL caution is where there are group pension schemes. Leonard Curtis once saw a case where the apparently solvent company was, in fact, liable for one such £multi‐million plan.
Adding value and expertise
Whilst many MVLs can be quite straightforward, there can be a number of complicating factors and it’s important to take specialist advice before beginning the process to ensure that the best possible solution is secured for a client.
Lifecycle works with its accountant members to mitigate them and plan ahead by taking simple steps such as calculating and paying any tax for periods that have already closed, even if they’re not yet due. Or estimating the liabilities for the closing periods and making payments on account prior to the MVL commencing.
This is important because any liabilities remaining once the MVL commences will attract statutory interest at a rate of 8% per annum until they are paid. It also expedites the MVL process.
Why is My‐MVL such a popular platform for accountants?
For MVLs of simple businesses, typically just cash shells ‐ where creditors have been paid and tax matters finalised ‐ Lifecycle’s easy to use My‐MVL package provides accountants with a more streamlined and controlled process.
As well as dealing with cash, My‐MVL can also manage intercompany debtors and tax refunds.
All this is done for a fixed fee of £2,000 + VAT. The accountant can also add their own fee for administering the case.