A contractor might decide to close their company using the Members’ Voluntary Liquidation (MVL) process if he or she is looking at:
- taking on an employee-role
- no longer wishes to trade
The main reason businesses choose an MVL is because the Directors no longer wish to trade. If the business is financially sound an MVL is the most tax-effective way to extract the assets from the company.
To find out how this applies to your business, call one of our team today on 01823 216 156 or read on for an explanation of some of the significant changes that have been announced and how they may impact your business.
What is IR35
The IR35 legislation effects anyone who is self-employed. It is tax legislation that is designed to reduce tax avoidance by workers supplying their services to clients via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used. Essentially if you have the same benefits, responsibilities and control as a permanent employee, then you would more than likely be classed as inside IR35 (caught by IR35).
When the IR35 changes came into the public sector, there was considerable upheaval in the contractor industry. Many contractors found that the IR35 was applicable to them and they had two options – either become an employee or no longer work within the public sector. Either way, many contractors chose to close down their Limited Company with a Members’ Voluntary Liquidation (MVL).
In April 2020 the IR35 rules will be coming in to the private sector and consequently, there will be contractors in the private sector who will be looking to close their limited company in the most efficient and tax-effective way.
Why would you choose and MVL
A business owner may choose a Members’ Voluntary Liquidation (MVL) to close down their business if there are more than £25,000 worth of assets, this could be invoices owed, stock or company vehicles or even an overdrawn Directors Loan Account that can often amount to a vast sum.
By choosing an MVL the Director would only pay Capital Gains Tax rather than income Tax on the funds distributed and so it is a more tax efficient way to close down a solvent business. There can also be further savings for businesses that qualify for Entrepreneurs Relief (ER).
If there a no assets or the business has debts that it cannot pay, then a Creditors’ Voluntary Liquidation (CVL) may be a more suitable option, something we would be happy to talk you through.
Will you be affected by the IR35 changes?
Some directors have already decided that they can’t be bothered with the hassle of the new IR35 rules, so are already closing down their limited companies with an MVL.
Many others are not sure how the rules will affect them. If that is the case for you, we would recommend that you speak to your Accountant. They will be able to advise you on your particular situation.
We believe that each business should be treated as an individual and you may not be sure whether or not the IR35 changes will impact you. We would always recommend seeking professional advice so that you know your options and we offer a free consultation for businesses in this situation.
Get your free MVL advice here
If you are considering putting your company into a Members’ Voluntary Liquidation (MVL), contact us now.
The Insolvency Company are based in Taunton and can act nationwide.
our standard fee is just £1995 +VAT +disbursements.
For more information, contact us now on 01823 216 156 or click here to get in touch