News - Published 16th February 2016

Thinking about a Members Voluntary Liquidation (MVL)?

Act now for a significant saving! If you are considering liquidating your company, you may want to do so before April 2016, as the tax saving could be considerable.

HMRC have announced plans to make changes to the tax on company distributions to shareholders from 6 April 2016.

In certain circumstances they propose to treat distributions on a winding up (MVL) of a limited company as income distributions, as opposed to capital distributions, which is likely to have a negative impact on shareholders from a tax perspective.

This may affect you if the following conditions apply:

  1. You are an individual, who is a shareholder in a company with five or fewer shareholders and receive a distribution in a winding up; and
  2. Within two years of the distribution, you (or a person connected with you) is at some point involved in a similar trade or activity; and
  3. It is reasonable to assume that one of the main purposes (or part of the arrangements of the main purpose) of the MVL is to avoid or reduce income tax.

Take action

If this applies to you, the changes could mean that you are taxed up to 38%, rather than taxed as a capital gain – 10% if entrepreneurs’ relief applies.

All necessary action will need to be taken by 5 April 2016 and it may be wise to complete a distribution by 16 March 2016 (date of the 2016 budget).

For specialist advice contact our MVL expert Jessica Le +44(0)207 465 1905, alternatively Corporate Tax Partner Stephen Hemmings +44(0)207 465 1968.

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