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MVL’s To Become More Attractive Than a Simple Dissolution?


The cost of dissolving a solvent company, other than by way of a Members’ Voluntary Liquidation (“MVL”) where there is more than £25,000 to be returned to the company’s shareholders will increase on 1st March 2012.

Consequently, where it is proposed that a solvent company be dissolved and apply to be voluntarily struck off under Sections 1003 and 1011 of the Companies Act 2006, if the company is likely to return more than £25,000 to its shareholders, it could now be of greater benefit to those shareholders for the company to firstly be placed into an MVL.

The reason for the increase in costs is due to a change in the way that distributions to shareholders in a solvent dissolution are taxed.

Currently distributions to shareholders in the course of a solvent dissolution are taxed as capital receipts and not income.  This is the same way that distributions to shareholders are taxed in any liquidation, including an MVL.

HMRC’s Extra-Statutory Concession C16 (“ESC16”) allows the distributions to be taxed in this way. 

However, ESC16 is being placed onto a permanent statutory footing to provide more certainty for shareholders of the tax implications.  In doing this, the amount of funds that can be distributed to a shareholder in dissolution and taxed as capital receipts rather than income has been limited to the sum of £25,000.  Any distributions thereafter in a solvent dissolution would result in the recipient shareholder being taxed on those distributions as though they were income. 

By placing the company into MVL rather than a simple strike off application and dissolution will allow shareholders to take advantage of the benefits of ESC16 and could therefore result in a saving of over 30% in the tax rate applied to such distributions, depending on each shareholder’s personal circumstances.

Consequently, companies that would have previously used the strike off and dissolution procedure to return capital to its shareholders may now decide that it is more cost or tax effective to place the company into a formal MVL before being dissolved.

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