Budget ahead.  Is it time to act now?

How long does it take to place a company into Members Voluntary Liquidation (MVL)?

With the Chancellor of the Exchequer, Mr Rishi Sunak, set to give his spring budget on 23 March 2022, no doubt business owners, their trusted advisers, and insolvency practitioners will be bracing for another wave of capital gains tax speculation.

It doesn’t matter if you talk to the person who ‘definitely’ knows, the person who has no more than a hunch, or the person who just simply hasn’t got a clue.

Rest assured, its odds on that the person you’re talking to knows no more than you on whether the rates of capital gains tax will be higher or lower come the close of business on spring budget day.

Looking to exit?

Business owners looking to retire or exit from their business can currently benefit from the Members’ Voluntary Liquidation (MVL) procedure. 

Value extracted from a company in an MVL and placed in the hands of its shareholders will attract a capital rate of tax rather than an income rate, provided certain conditions are met.

Historically, the difference in capital and income tax rates has always been sufficient to warrant exploring an MVL on exit. However, a rise in the capital gains tax rate could see this benefit reduce or removed all together, possibly indefinitely.

To add more to the thinking cap, once the value being extracted is deemed capital, not income, business asset disposal relief (BADR) may also be available to the owners, which attracts a tax rate as low as 10%, subject to a £1million lifetime allowance.

The uncertainty of whether BADR may be withdrawn, the rates of tax going up, or that nothing will change at all, has become a common conundrum in the run up to Budget day.

A major question then, when considering options and strategy, is how long it will take to get a company into an MVL, with value distributed to its shareholders.

The answer is, quicker than you might think. 

Due to the ability under company law to hold members’ meetings at short notice, and the ability to now vote on resolutions by correspondence, companies can be placed into an MVL within a couple of days, if not sooner.

To prepare your business to take advantage of such a quick turnaround, the company’s articles should be reviewed with any barriers to these routes being addressed.

Information concerning the financials of the business must be current and accurate. 

Swearing a statement of solvency is a fundamental step in the process and relies on up-to-date numbers. 

Good quality financial information also provides accurate intel on what the value to shareholders is likely to be, allowing for the maximum amount to be distributed to the shareholders prior to budget day, removing the risk of loss.

Cash

Control of cash is also crucial. 

The appointed Liquidator will request the company’s bankers remit funds to the Liquidation so that they may then be paid to the shareholders. 

A good relationship manager and the use of client accounts allows for a seamless flow of funds from the company to its owners.

Trusted advisers is the final box to tick. 

If you have any current thoughts on exiting your business, no matter how early or vague, seek advice. 

You might be able to put your company into MVL and extract its value in a matter of days, but those advising you will be advising you on your life’s work and your career earnings; building trust can often take a little longer!

If a solvent restructuring or liquidation is on the agenda, please feel free to discuss this with a member of our Restructuring Team.