A specialist contractor of approximately 20 years trading was seeking to retire. The Company vehicle was solvent, owned solely by the director and retained assets including a book debt ledger with minimal bad debts, residual office furniture and equipment and cash reserves. The contractor and his appointed advisor were concerned about the potential legal and tax implications of simply seeking to strike off the Company at Companies House and transferring the assets to the Director.
Parker Andrews quickly identified that a MVL was the appropriate solution as it was the most tax-efficient procedure. An MVL would also provide the director with the security that distributions were being made in accordance with the law and no risk of any clawback would exist.
Steps were taken to ensure the book debt ledger was collected as fully as possible prior to the appointment of a Liquidator. The remaining monies due could be collected by a Liquidator post appointment, but it was considered quicker and cleaner for the director to be distributed the rights to the ledger collections immediately upon appointment via a “distribution in specie”. All other interests in the Company’s assets were distributed in the same manner immediately upon appointment.
The only remaining asset in the MVL was therefore only the cash at bank. The bank was contacted immediately upon appointment and the funds received within the first week after the appointment. The large majority of the funds were distributed upon receipt, leaving only a minimal balance in hand to remit the agreed fixed fee and ancillary costs of the liquidation. The balance was transferred once the statutory requirements of the liquidation were complied with. Tax clearance from HMRC was sought shortly thereafter and the MVL closed within a few months of the initial appointment.
Distribution via an MVL allowed the contractor to make use of “entrepreneurs relief” on the capital gain realised from the closure of the business, resulting in a much lower tax liability upon receipt of the funds. Entrepreneurs Relief enables the beneficiary to make use a tax rate of 10% for such disposals, in comparison to the normal rate of 28%. In addition, usage of two tax periods was also possible, resulting in the availability of two tax-free allowances on the gain. On a total distribution of £250,000, the director incurred a liability of £22,000. The full rate on the entire distribution without an MVL would have incurred a tax liability of £70,000, resulting in a tax saving to the director of £48,000.
Please note: Parker Andrews work closely with your chosen advisors to deliver the best result for all parties. We do not however provide tax advice and this case study is for information purposes only. Please contact your tax advisor with any specific questions regarding your entitlements.