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Members’ Voluntary Liquidation (MVL) for contractors

If you’re a contractor, the most urgent reason for you to seek a Members’ Voluntary Liquidation (MVL) is IR35.

IR35 refers to the rules around off-payroll working and deciding whether a contractor is employed or independent. This has huge tax implications.

As the Government’s own website explains: ‘From April 2021, the rules for engaging individuals through personal service companies are changing. The responsibility for determining whether the off-payroll working rules apply will move to the organisation receiving an individual’s services.”

Before employers classify contractors as employed staff to simplify their own tax affairs, contractors who have a personal service company (PSC) to help minimise their tax bills, are ‘winding up’ that company.

The advantages of doing this through an MVL are:

It’s a tax efficient way of extracting cash from the business.

You might qualify for Business Asset Disposal Relief, if you own at least 5% of the shares for at least one year before your MVL.

You can take HMRC’s Employment Status Test to find out whether you really are a contractor or would count as an employee under the new rules.

Read our five-step quick guide for further details on completing your MVL.

MVL for business owners

‘Winding up’ your company can happen for so many reasons. You might be retiring. Or sometimes companies simply outlive their purpose. You might have created them for a specific project that’s now finished, or to operate in a sector where it’s no longer viable.

A Members’ Voluntary Liquidation (MVL) has significant advantages for directors faced with any of these situations. They include:

MVL for business owners

saving time spent preparing statutory compliance information.

transferring assets to new companies without a cash transaction.

improving transparency by simplifying your business’ structure.

returning surplus assets to the shareholders tax efficiently.

settling inter-company debts.

saving on accounting and audit fees.

reducing risk to directors.

A quick guide to MVL for contractors and business owners

Once you’ve made the decision to close to your company, there are just five steps you need to take to complete your MVL.

A quick guide to Members’ Voluntary Liquidation

  1. Appoint a licensed insolvency practitioner (IP) like us to act as a liquidator, who will take charge of winding up the company. Once appointed, we’ll guide you through the next steps.

  2. Draft a Declaration of Solvency that includes:

    the name and address of the company and the company’s directors

    a statement of the company’s assets and liabilities

    how long it will take the company to pay its debts (which must be less than 12 months after liquidation).

    The declaration must be signed in the presence of a solicitor or notary.

  3. Call a general meeting with shareholders no more than five weeks after the Declaration of Solvency is signed, to pass a resolution for voluntary winding up.

  4. Advertise the resolution in The Gazette within 14 days.

  5. Send your signed declaration to Companies House within 15 days of passing the resolution. The business will eventually be removed from the Companies House register.

What’s a licensed insolvency
practitioner and do you need one?

The answer is yes. An MVL can’t proceed without one. Your insolvency practitioner (IP) will play a lead role in making the MVL a success, as they effectively take control and co-ordinate the MVL process.

In every MVL the liquidator must hold a bond, which protects the creditors (if there are any) and the company closing down from any misappropriation of funds by the liquidator.

Your IP will have many duties, but the main ones are:

helping the directors prepare the Declaration of Solvency and calling the meeting with shareholders.

realising the company’s asset.

distributing surplus funds to shareholders and members.

paying outstanding creditors.

providing you with regular reports on the progress of the MVL.

settling any legal disputes out of the company’s cash.

In every MVL the liquidator must hold a bond, which protects the creditors (if there are any) and the company closing down from any misappropriation of funds by the liquidator.

How we can help

It’s vitally important to remember that each and every process has its own unique set of circumstances. We’re a specialist company with over 40 years of experience in handling this process. The service we offer is efficient, competitively priced and offer a service that focused around you.

For advice and help with your Members’ Voluntary Liquidation call 0800 054 6563 to speak to one of our licensed insolvency practitioners or email us at [email protected]

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