18 July 2019: Nobody sets up in business with the goal of putting their company into liquidation. A significant proportion of our clients have hit a bump in the road and need some corrective action to stay in business. However, at the other end of the spectrum are the successful entrepreneurs. Those whose business has been sold, or carefully wound down, and the company exists with little or no debt and a large amount of cash at bank for its shareholders. Those fortunate entrepreneurs who find themselves in this position, plenty of cash at bank (accumulated profits/reserves) and little debt, want a tax efficient way to withdraw the money.
One way of achieving that is by seeking entrepreneurs’ relief on monies extracted. Entrepreneurs’ relief, if available, is levied by HMRC at 10% on funds you receive from a liquidator. In order to achieve this, not only do you have to fit certain qualifying criteria, but you also have to instruct an insolvency practitioner to assist you in placing the company into Members’ Voluntary Liquidation (“MVL”).
This is in order to receive the funds as a capital receipt i.e. a return of capital on shares rather than a payment of income such as a dividend). Fear not, if you do not qualify for entrepreneur’s relief then you will receive the distributions subject to capital gains tax rates which are much lower rates than income tax. There are certain restrictions, for example you can’t set up another company doing the same thing straight away otherwise the relief won’t be available or will be clawed back if already provided.
If you are seeking answers to any of these questions then please do not hesitate to speak to any of the BRI management team today:-
- How much does an MVL cost?
- How quickly can I get my money back from the liquidators?
- What are the implications of a MVL on my other companies?
Whilst we aren’t tax advisors we do know how to put a company into liquidation and time it according to your circumstances.