Considerations for business exit through MVL

In this period of increasing living costs and taxes, when closing down a business it is important to understand tax implications when extracting funds from your company.

The standard way to extract funds is by way of dividend. Dividend tax rates are as high as 39.35 per cent.

One would ordinarily take the funds out by way of dividend and then at some point, strike the company off, whereby it is then dissolved at Companies House.

An alternative way to dissolve the company is by entering a solvent liquidation, also known as a members’ voluntary liquidation (MVL).

By doing so, you can take advantage of extracting your funds at capital tax rates, which are lower than dividend tax rates.

If you utilise a tax relief called Business Asset Disposal Relief (BADR, formerly known as Entrepreneurs’ Relief), then you can extract up to £1,000,000 at a tax rate of 10 per cent, so you pay £100,000 in tax.

If you took this out by way of divide the tax would be £377,000. So you are instantly saving £277,000 in tax by extracting the funds by way of MVL.

Another advantage of MVLs is that they are dealt with by a liquidator who specialises in making sure that the company is dissolved in the correct manner.

Therefore, if you are considering selling your company’s business and assets, retiring, or you simply want to start afresh in a new sector, an MVL is a tax-efficient way of achieving this.