Members Voluntary Liquidations (“MVL’s”) – Time to Bring Forward Planning for Capital Distribution?
The Potential Impact of the Draft Finance Bill 2016 could mean the days of shareholders enjoying a return of capital at tax levels as low as 10% could well be numbered!
Changes proposed, which may come into effect as early as April 2016, would see much tighter restrictions on the ability of shareholders in close companies to use the Members Voluntary Liquidation process to extract funds in a tax efficient manner.
What Scenarios are under scrutiny?
As part of the anti-avoidance regulations, HMRC is looking to clamp down on the use of MVL’s in a number of scenarios. Some of these scenarios under consideration at the moment appear to include:
- Using an MVL to distribute funds from an existing, successful company with an accumulation of reserves, then starting a new company which continues with the same or a very similar trade.
- Accumulating reserves in a company in anticipation of an eventual distribution via a Members Voluntary Liquidation where those reserves could have been paid out to shareholders in earlier periods as salary or dividends.
- The use of Special Purpose Vehicles (“SPV’s”) for property developments, projects or contracts, where the profit is amassed and extracted through an MVL at the conclusion where those projects could otherwise have been undertaken by one main business. The prime example here is building contractors who use SPV’s for individual developments but use a central resource of labour, plant etc.
The consultation period is still running so the final outcome is far from certain. However, where you feel it would be appropriate for those clients who would still benefit from the current tax efficient means of extracting reserves, there is a small window of opportunity. The changes may well impact on capital distributions irrespective of the date an MVL commences, so the focus for us is on commencing MVLs AND distributing reserves before 5th April 2016 when the window may well close.
Our Members Voluntary Liquidation Service
The key to our approach is the swift distribution of funds to shareholders – usually within 48 hours of the formal commencement of the liquidation. Most clients will no doubt focus on how much cash they will receive out of the process and more importantly, how fast they will get it!
We work with you to agree on the maximum payout to shareholders and in most cases where there are cash balances available immediately in the client company, the first return to shareholders is made within 48 hours of the formal commencement of the liquidation. Your client, therefore, has peace of mind that the funds are not held for months and weeks whilst waiting for other aspects of the liquidation to take place.
Please feel free to contact us or call us on o121 200 2962 if you have any clients who may well be affected and who may benefit from bringing forward any plans to place their companies into MVL.
