One of our visitors recently asked us: “I am looking to close my company. I’ve been recommended using an MVL – what does this mean, and why would this benefit me?”
Often, contractors with profits over £25,000 use an insolvency company to close their limited company. But what is an MVL, and why should you choose one?
Simply put, using one to reduce your tax bill could save you a lot of money.
What does MVL stand for?
MVL stands for Members’ Voluntary Liquidation and is a process available to solvent companies that lets them appoint a liquidator to formally close the company. It can be the most tax-efficient method for those who qualify.
There is no minimum amount of profit required to use an MVL, although it is generally worth considering when a company has more than £25,000 to distribute to shareholders. This is because distributions made when a company is struck off will normally be taxed as dividends if the total exceeds £25,000.
Do I need to do anything to qualify for an MVL?
Yes, your company must be solvent and able to pay all creditors and liabilities, including interest, within 12 months of liquidation.
Most directors must sign a declaration of solvency, and shareholders must pass a special resolution for voluntary winding up, normally requiring at least 75% of the votes cast.
This resolution must be published in ‘The Gazette’ within 14 days, and Companies House must be informed within 15 days.
How would it benefit me financially?
If you are certain that closing your company is the route that you need to take (see our article, How do I close my Limited Company?), this method means that instead of being charged dividend income tax, shareholders can receive the remaining value of the company as capital distributions, normally subject to Capital Gains Tax.
One main advantage is that shareholders may qualify for Business Asset Disposal Relief (BADR), which reduces the Capital Gains Tax rate to 18% on qualifying gains from 6 April 2026.
This could represent a considerable saving compared with withdrawing the remaining funds as dividends, particularly for higher-rate taxpayers.
However, BADR isn’t automatic, and you must meet qualifying conditions, including rules on how long you have owned and worked for the company.
You can find out more about the qualifying conditions in our guide to Business Asset Disposal Relief (BADR).
Using a liquidator also has costs, so it’s worth weighing them against the potential tax saving before deciding which route to take.
What’s the process?
With an MVL, you will work with a fully licensed insolvency practitioner of your choice, who will realise the company’s assets, pay any outstanding creditors and then distribute any remaining sums to shareholders.
While this process is more laborious than a standard limited company closure, it’s important that you consider it if your company has more than £25,000 available to distribute.
One thing to note is that if you intend to close your company and start another one doing the same or similar work, HMRC has anti-avoidance rules that may affect the tax treatment of your distributions.
These can apply if you continue a similar trade within two years of receiving a liquidation distribution, where the other conditions are met.
If you are unsure which route to take when closing your company, talk to your accountant, who can advise you on the best financial course of action.
