At some point, many business owners decide to close their company. Whether you’re retiring, moving on to a new venture, or simply no longer need the business, it’s important to close it properly. If your company is solvent — meaning it can pay all its debts — then a Members’ Voluntary Liquidation (MVL) is often the best way to do this.
An MVL is a tax-efficient way to wind up a solvent company, allowing shareholders to withdraw funds at a lower tax rate compared to taking dividends. This guide explains what an MVL is, how it works, and why it might be the right choice for your business.
What Is a Members’ Voluntary Liquidation?
A Members’ Voluntary Liquidation is a formal process used to close a solvent company in a tax-efficient way. Instead of taking remaining company funds as dividends — which could be taxed at up to 39.35% — shareholders can benefit from Capital Gains Tax rates, which are usually much lower.
If you qualify for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), you may pay a further reduced tax rate on the funds you withdraw.
Why Choose an MVL Instead of Striking Off?
Some business owners consider dissolving their company through a company strike-off instead of an MVL. While this can be a low-cost option, it’s suitable for companies with no significant retained profits.
If your company has more than approximately £25,000 in retained profits, an MVL is usually the better option. Dissolution does not offer the same tax advantages as an MVL, meaning you may pay a higher tax rate on any funds you withdraw.
How Does the MVL Process Work?
The MVL process involves several key steps to ensure debts are settled, assets are distributed, and the company is officially dissolved.
Step 1: Confirm Solvency and Swear a Declaration
Before starting an MVL, directors must confirm that the company is solvent and can repay all debts within 12 months. The business must also be free from legal disputes and must not have changed its name in the past three months.
To proceed, shareholders must sign a Declaration of Solvency in the presence of a solicitor. This legal statement affirms the company’s ability to meet all financial obligations. Any false declaration can lead to serious legal consequences for directors.
Step 2: Appoint a Licensed Insolvency Practitioner
Once solvency is confirmed, a licensed insolvency practitioner is appointed to manage the liquidation. The practitioner takes control of the company’s affairs, ensuring the process follows all legal and financial regulations.
Step 3: Settle Outstanding Debts and Notify Creditors
If liabilities remain, they must be repaid at a statutory interest rate, making it beneficial to clear debts before initiating the MVL.
To ensure all creditors have a chance to claim what they are owed, the liquidator publishes a formal notice in The Gazette, allowing any creditors 21 days to come forward.
Step 4: Liquidate and Distribute Assets
Once debts are cleared, the company’s assets are identified and realised. The proceeds are then distributed among shareholders. In some cases, assets can be transferred ‘in specie’, meaning they are given to shareholders in their current form rather than converted to cash. This can be useful for directors who plan to continue using certain assets in a new business. Common assets in MVLs include cash reserves and Overdrawn Directors Loan Accounts (ODLAs).
Step 5: Final Closure and Removal from the Register
With all assets distributed, the liquidator seeks approval from HMRC to formally close the company. The company is then removed from the Companies House register, marking its official dissolution.
By following this process, directors and shareholders can close a solvent company efficiently while maximising financial benefits and ensuring full legal compliance.
When Is an MVL the Right Choice?
A Members’ Voluntary Liquidation is ideal if:
- Your company is solvent and can pay all debts.
- You have approximately £25,000+ in retained profits to withdraw.
- You want to minimise tax liability on company funds.
- You are retiring, moving on, or no longer need the business.
If your company is struggling with debts, an MVL is not the right option. Instead, a Creditors’ Voluntary Liquidation (CVL) may be needed to close the business while dealing with outstanding creditors.
A Structured Approach to Closing Your Business
Shutting down a company is a major step. The process you choose can impact your finances and legal responsibilities. If your company is solvent, a Members’ Voluntary Liquidation (MVL) offers a structured, tax-efficient way to close it. Working with a licensed insolvency practitioner ensures everything is handled correctly while helping you make the most of available tax benefits.
If you’re unsure about the best path forward, speaking with an MVL specialist can provide clarity. Professional advice can help you navigate the process smoothly and ensure you make the right decision for your business. An insolvency practitioner will, normally, offer you free and confidential advice.
