Time is running out?

On 1 March 2012 the enactment of the Extra Statutory Concessions Order came into force restricting the use of Extra Statutory Concession C16 in companies with less than £25,000 to be distributed to shareholders as capital. As a consequence, in order for shareholders to receive capital in excess of the £25,000 cap, we have seen a steady increase in the volume of Members’ Voluntary Liquidations (MVL) instructions.

MVL is the liquidation of a solvent company which paradoxically still requires an Insolvency Practitioner to act as liquidator. In an MVL, all distributions made by the liquidator are treated as capital enabling shareholders to take advantage of lower taxation rate and entrepreneurs’ relief, provided the relevant criteria are met.

The MVLs we have undertaken have ranged from relatively small amounts of reserves to companies with several million pounds to distribute. In simple cases (by which we mean a company with one or two directors and shareholders, cash at bank and no liabilities) our fees for completing an MVL can be around £2,000, however we are prepared to quote for an MVL depending on the circumstances of each company. As we are now fast approaching the end of the tax year, it may be that shareholders can take advantage of distributions either side of the tax year end in order to maximise their tax advantage.

Where a company has a small number of directors and shareholders, the MVL process from first instruction to the liquidator distributing funds to shareholders can be reduced to only a few days. Accordingly, if you are able to benefit from capital distributions before and after the tax year end, the message is clear. Act now!