Its no secret that the UK Government has spent a lot of money dealing with the coronavirus pandemic. Taxpayers’ money has been used to fund schemes such as furlough, grants, track and trace systems, vaccinations, the list goes on. Add to that the Government guaranteed bounce back loan schemes which means the taxpayer will be footing the bill when banks and lenders are unable to recover payment of bounce back loans from failed businesses. Not forgetting that those failed business will have outstanding VAT, PAYE, Corporate Tax, CIS etc. which will be written off.
The Spring budget is due on Wednesday 3rd March 2021.
We have already experienced an increase in enquiries from business owners looking to bring forward their plans to place their companies into solvent liquidation – so that they can benefit from Entrepreneurs Relief (now called Business Asset Disposal Relief) whilst it is still here.
There are no guarantees that Rishi Sunak’s budget will remove Entrepreneurs Relief / Business Asset Disposal Relief altogether, however it is considered by a number of commentators that there is certainly a risk that its only a matter of time before paying just 10% tax is brought to an end.
As a firm, we experienced an increase in solvent liquidation / MVL enquiries early last year when changes were first rumoured. However rather than abolish Entrepreneurs Relief altogether, Mr Sunak reduced an individual’s lifetime limit from £10million to £1million. Then, before the Autumn 2020 budget was pulled, we again experienced an increase in solvent liquidation / MVL enquiries for the same reason.
Our website has a page specifically regarding solvent liquidations / MVLs and this outlines the process - https://www.idealcs.co.uk/solutions/members-voluntary-liquidation. Below we have included some common questions we’re often asked: -
What is Entrepreneurs Relief?
Now called Business Asset Disposal Relief, it is a method for rewarding business owners who have taken the plunge in setting up their own company, the company has ran its course and the business owner wants to realise their investment in their limited company. This could either be because of retirement and the company has cash and/or assets on its final balance sheet in excess of £25,000, or there has been a sale of the company’s business and assets and the company remaining is essentially a shell with a cash balance and/or other assets. A scenario which we see a lot is in relation to contractors, individuals who have set up their own limited company to work as a contractor however have then been offered full time employment and took it – meaning their limited company is no longer required yet they have significant cash reserves in the company.
The common theme being the company has ceased to trade and the business owner wants to extract their capital in the most tax efficient way possible – paying just 10% on all returns from the company (up to a lifetime limit of £1million).
Do I need to liquidate my company?
No. If the company has less than £25,000 then this can be dealt with as a capital distribution and you can apply to strike the company off instead. Your accountant can deal with this for you and is a cheaper process than a solvent liquidation / MVL.
If you have more than £25,000 you can still go down the strike off route, after paying yourself all the remaining company funds – however these will be taxed at your normal dividend rate.
Do I need to use an insolvency practitioner?
Yes, only licensed and regulated insolvency practitioners such as Ideal Corporate Solutions can handle solvent liquidations / MVLs. We work with many firms of accountants throughout the UK to help their clients with this process – providing quick, hassle free solvent liquidations.
How long does it take to liquidate my company?
Or, what this really means, how long will it be before I get my shareholder distribution?
In almost all instances, from the date we get all the information we need, we will make the initial distribution to shareholders within 14 days. We will work with your accountant to ensure we have all the required information to enable us to do our work as quickly and efficiently as possible, streamlining the whole solvent liquidation / MVL process.
When do I need to instruct ICS to beat the 3 March 2021 budget?
As soon as possible. We have already experienced an increase in solvent liquidation / MVL enquiries, business owners all wanting to get their money out before the 3 March 2021 budget and possible changes to Entrepreneurs Relief / Business Asset Disposal Relief.
We would suggest that to be as safe as possible, the latest we could receive all required information would be Friday 12th February 2021, that would allow sufficient time to have shareholder funds distributed by Friday 26th February 2021.
However, if it is simply not possible to have everything we need by Friday 12th February 2021, if we receive all the information by Tuesday 16th February 2021, then this should give enough time to have funds distributed on or before Tuesday 2nd March 2021.
How much does the solvent liquidation / MVL cost?
We will agree a fixed fee which is based on the anticipated work required getting the company into solvent liquidation / MVL and this will be discussed during the initial advice call. Our charging structure is competitive and in-line with going market rates.
There are also unavoidable disbursement costs of a solvent liquidation / MVL which are payable to third parties. This includes three London Gazette adverts as well as the bond cost. The bond is required by law and the cost is set depending on the asset value in the case.
Can the liquidation be handled remotely?
Yes, we can deal with everything remotely so there is no need for you to come to our office. Because we are able to handle the process remotely, we can help business owners anywhere in the UK, not just local to our office.
Also by working this way, this reduces any risk of contracting covid-19 through unnecessary travel and face to face meetings.
Next steps if I want to liquidate?
All our initial advice is free of charge and without any obligation.
If you are considering going down the solvent liquidation / MVL route and want to ensure you beat any potential changes to Entrepreneurs Relief / Business Asset Disposal Relief, we recommend that you act now so that there is sufficient time to prepare the company for liquidation.
You will need final accounts preparing and filed, together with final HMRC returns submitted and balanced paid, plus need to deal with a raft of other matters which we can explain to you. At the time of posting this article, there is just over three weeks until 12th February 2021 so it is important to act quickly.
You can contact either of our licensed insolvency practitioners directly as follows: -
Andy – 07812 338252 or email@example.com
Tom – 07795 196619 or firstname.lastname@example.org
- At Ideal Corporate Solutions, we handle the formalities of the solvent liquidation of the limited company and our formal engagement will be with the limited company. We therefore do not act for business owners personally and do not advise on an individual’s tax position. Your accountant or tax adviser will be able to advise you whether Entrepreneurs Relief / Business Asset Disposal Relief applies in your circumstances.
- When making distributions to business owners via the liquidation procedure, this is subject to being provided with a valid indemnity and the finalisation of the liquidation subject to appropriate clearance from HMRC. During our initial call we will provide advice in relation to the liquidation procedure, distribution of funds and how your solvent liquidation / MVL will be managed from start to finish.