March is traditionally the month of the year when the number of members’ voluntary liquidations (MVLs) is at its highest. The procedure results in returns to shareholders being made, either as surplus cash or as other assets owned by the company. These are treated as capital distributions, subject to the capital gains tax rates rather than dividend or income tax rates. By liquidating at this time of year it allows the shareholders, if UK individuals, to take advantage of two tax years’ worth of annual capital gains tax exemptions, without having to wait long periods between distributions.
March 2016 saw record numbers of MVLs, as directors rushed to put companies into MVL and ensure the shareholders received their capital distributions prior to an apparent tightening of laws for the financial year 2016/17 surrounding the treatment of distributions from a company in MVL to shareholders where the persons involved could be considered to be ‘phoenixing’ or ‘moneyboxing’ for the purpose of avoiding tax.
Our blog from last year, HMRC Consultation on Company Distributions went into more detail on what was trying to be achieved. The effect, and effectiveness, of these new rules remains to be seen, and indeed won’t be known for sure until after shareholders who received capital distributions from companies in MVL during 2016/17 file their self-assessment tax returns, due by 31 January 2018.
Regardless of the above, an MVL is still a useful procedure for a company at the end of its useful life, or where the directors/shareholders wish to change career, take jobs as employees of another company, or retire. If you are contemplating any of the above, or if you have clients doing so, consider the option of an MVL now.
An MVL requires the services of a Licensed Insolvency Practitioner. The directors will propose that shareholders pass a resolution to wind up the company voluntarily and appoint a liquidator, and will swear before a solicitor a declaration of solvency confirming their belief that the company can pay all of its debts in full within 12 months. The shareholders pass the resolutions to wind up the company and appoint the liquidator suggested by the directors, usually at a general meeting. Where the directors and shareholders are the same or connected people or entities, the process of placing the company into MVL can be done within one hour. The liquidator then works to identify, agree and pay all creditors (including HM Revenue & Customs), and distribute the surplus cash and assets to the shareholders, usually at their convenience.
At WSM Marks Bloom we have three Licensed Insolvency Practitioners ready to discuss the MVL procedure with directors and shareholders. Give us a call at WSM’s Kingston Office on 020 8939 8240 or email firstname.lastname@example.org, and an expert will be ready to assist you.