Across our team we are seeing that Members Voluntary Liquidations (MVLs) continue to be a tax efficient mechanism for shareholders to wind up redundant companies. This is despite a change in the capital gains tax rate applying to shareholders who qualify for Business Asset Disposal Relief (BADR) increasing from 10% to 14% on 6 April.

Subject to any further changes in an Autumn Budget, we expect a further increase to 18% in April 2026 and no doubt that will affect behaviours in advance.

MVLs also continue to offer an effective risk management tool, avoiding personal risk on the part of directors where a company is struck off directly without firstly being in liquidation.  Typically, this risk only manifests itself when previously unidentified claims are made against the company.

December 2023 saw a significant change in the administration of MVLs by insolvency practitioners. Before then, the accepted practice was to wait for HMRC to provide clearance to close a liquidation. After COVID however, we saw significant delays in receiving these clearances meaning some clients’ MVLs would stay open for extended periods. After feedback from the profession, this was recognised by HMRC and they dispensed with clearances in December 2023 and provided guidance for insolvency practitioners to follow.

This has greatly improved the efficiency of the process but demands that the insolvency practitioner (Liquidator) satisfies themselves that there are no outstanding tax returns or liabilities for different categories of tax.

In an MVL, the Liquidator is reliant on the director and their accountant providing up to date information, however it is not uncommon for HMRC to identify outstanding returns or liabilities after a liquidation has commenced. 

After now seeing this in operation for over a year, we have recognised the importance of tidying up tax affairs as much as possible in advance.

It is therefore very important that company directors planning an MVL ensure their tax affairs are in order and closed off in advance of commencing an MVL. Typically, this would include:

• Closing the payroll and capturing what, if anything, needs to be disclosed in a P11d before the following July.
• Ensuring VAT returns are completed as far as possible but retaining information to populate a return after liquidation if it is not possible to lodge a full period return prior to liquidation.
• Submitting a final corporation tax return up to the date of any cessation accounts (the liquidator will lodge a ‘stub’ period return for any gap period up to the date of the MVL). Critically, any liabilities should be settled in advance of the liquidation where they can be quantified. Where corporation tax is being paid early, the amount of early payment interest should be quantified so it can be pursued by the liquidator.

This is clearly not an exhaustive list and more complex companies will have more to consider.  For the typical personal service company however, this should cover most of the bases. Further, where section 455 tax has been paid prior to MVL, shareholders should be made aware that this cannot be reclaimed by a liquidator until at least 21 months after the date the MVL commences (9 months after the end of the accounting period in which the related director’s loan was repaid which would usually be the first 12 month liquidation account period).

Our team will work with a director and their accountant to answer any queries about returns and final accounts and we tend to find that front loading that work makes the subsequent liquidation process a lot smoother.

If you have any further questions,  please don’t hesitate to get in touch with your usual Johnston Carmichael contact, a member of our Restructuring team, or fill in the short form below.