Members’ Voluntary Liquidation (MVL)

If you have retained profits of £25,000 or more, a Members’ Voluntary Liquidation is a powerful tool for closing your company in a tax-efficient and legally compliant way. 

By following the MVL process, you can unlock the value in your company while minimising tax liabilities. Whether you’re retiring, moving on to new ventures or closing a dormant business, an MVL can help you achieve your goals with minimal stress.

We’ll explore everything you need to know about Members’ Voluntary Liquidation below. If you’re unsure whether an MVL is right for your company, speak to our licensed insolvency practitioners for free, confidential advice on the process.

What is Members’ Voluntary Liquidation (MVL)?

A Members’ Voluntary Liquidation is a process for closing a solvent company. It allows directors to voluntarily wind up the business, pay off its debts and distribute any remaining assets to shareholders. To start an MVL, the company must be financially healthy and able to pay off all its liabilities within 12 months.

The process is managed by a licensed insolvency practitioner, who oversees every step, ensuring compliance with legal requirements, and fair treatment of creditors and shareholders. At the end of the process, your company is officially dissolved.

Unlike other types of liquidation, such as a Creditors’ Voluntary Liquidation (CVL), an MVL is not about resolving financial distress. Instead, it’s about giving directors and shareholders a structured, efficient way to close a solvent company.

What are the tax reliefs you can claim under a Members’ Voluntary Liquidation?

One of the biggest reasons to choose an MVL is the tax efficiency it offers. If you’re a shareholder, the funds distributed to you are treated as capital rather than income, which can result in significant savings.

Here are the key tax advantages:

Capital Gains Tax:
When you receive funds through an MVL, they’re subject to Capital Gains Tax rather than income tax. Since Capital Gains Tax rates are typically lower, especially for higher earners, it can lead to substantial savings.

Business Asset Disposal Relief (BADR):
Formerly known as Entrepreneurs’ Relief, BADR allows you to pay a reduced Capital Gains Tax rate of 10% on qualifying gains. This relief is particularly beneficial for directors and shareholders of small businesses.

But to claim the best Business Asset Disposal Relief rates, you need to act now. For disposals made on or after 6 April 2025, gains eligible for Business Asset Disposal Relief will be taxed at 14% and, from 6 April 2026, gains eligible for Business Asset Disposal Relief will be taxed at 18%. 

Efficient distribution of retained profits:
If your company has significant retained profits, distributing them as capital through an MVL can be far more tax-efficient than taking them as dividends.

These tax benefits make an MVL an attractive option, especially for directors planning their financial future. Start your Business Asset Disposal Relief claim today to pay just 10% tax on qualifying assets.

When can you use Members’ Voluntary Liquidation?

An MVL could be the ideal solution if you’re looking to close your solvent company in a structured and efficient way. To proceed with a Members’ Voluntary Liquidation, you as the director must be able to legitimately make a statutory declaration of solvency. Keep in mind, making a false declaration can lead to serious consequences, including fines or even prosecution.

Here’s what you’ll need to do to ensure your company qualifies for an MVL:

Pay all debts within 12 months:
Your company must be able to settle all its current and contingent debts, as well as any future financial obligations, within a 12-month period from the start of the MVL process.

Make a statutory declaration of solvency:
You’ll need to sign a sworn statement confirming that your company is solvent. This declaration must be made within five weeks of passing the winding-up resolution.

Conduct a full financial review:
You’ll need to carefully examine your company’s finances to confirm it can meet all its obligations within the 12-month timeframe. The declaration should reflect this inquiry and your confidence in the company’s solvency.

If you meet these requirements, an MVL offers a straightforward and tax-efficient way to close your business while ensuring all creditors are paid and remaining assets are distributed fairly to shareholders.

What is the Members’ Voluntary Liquidation process?

The Members’ Voluntary Liquidation process is straightforward but must be handled by a licensed insolvency practitioner to comply with legal requirements. Here’s how it works:

1. Statutory declaration of solvency: The directors must prepare and sign a declaration confirming the company’s solvency. This involves a thorough review of the company’s finances to ensure it can pay all debts within 12 months.
   
2. Passing a resolution: Shareholders must pass a special resolution (requiring at least 75% agreement) to initiate the MVL. This formal step ensures everyone is on board with the decision to liquidate.
   
3. Appointing a liquidator: A licensed insolvency practitioner is appointed to manage the process. We’ll handle everything from paying creditors to distributing assets to shareholders.
   
4. Paying debts and distributing assets: We’ll act as Liquidator to sell any remaining assets, using the proceeds to settle outstanding debts and distribute the surplus to shareholders based on their shareholdings.
   
5. Final closure: Once all debts are paid and assets distributed, we’ll file a final report with Companies House, and the company is officially dissolved.
   

The entire process is designed to ensure transparency, fairness and compliance with legal requirements.

Using a Members’ Voluntary Liquidation vs striking off your company

If you’re considering closing your company, you might wonder whether to use an MVL or simply strike off the company. This comparison will give you an overview of the pros and cons, to help you make an informed decision.

Tax efficiency

Members’ Voluntary Liquidation: Offers significant tax advantages, including Capital Gains Tax and the potential to claim Business Asset Disposal Relief. Ideal for companies with retained profits.
Striking off: Funds are usually treated as income, which could result in higher tax liabilities.

Complexity

Members’ Voluntary Liquidation: Involves a formal process managed by an insolvency practitioner. More structured and legally robust.
Striking off: Simpler and less expensive, but only suitable for companies with minimal or no assets.

Legal compliance

Members’ Voluntary Liquidation: Ensures all legal obligations are met, providing peace of mind for directors and shareholders.
Striking off: Riskier if there are unresolved liabilities or assets not properly distributed.

Size of retained profits

In general, if your company has significant retained profits or assets (over £25,000), an MVL is the smarter choice for financial and legal reasons.

If you’re looking to close your company and want to do it in the most efficient way possible, a Members’ Voluntary Liquidation (MVL) might be the ideal solution. Call our licensed experts to learn more about the tax reliefs you can claim.