Reply to: Member Voluntary Liquidation Costs and Timescale

[mvlnoob]

Thank you, yes, it appears they were deducted prior to distribution.

[Maslins]

can these costs (fee/bond/advertising/witnessing) be included as incidental costs of disposal when the company disposal is declared as part of the contractors self assesment capital gains?

Check what actually happened.

Typically the above fees would be paid from company funds before any distributions...therefore the distributions will already be net of those costs. In that case independently putting them in as costs would in effect be illegally claiming relief for them twice.

If possibly you paid the costs out of your own pocket then it would be different.

[Scratch It]

can these costs (fee/bond/advertising/witnessing) be included as incidental costs of disposal when the company disposal is declared as part of the contractors self assesment capital gains?

Wowsa, one for your insolvency practitioner I'd say.

[mvlnoob]

Incidental costs of disposal

can these costs (fee/bond/advertising/witnessing) be included as incidental costs of disposal when the company disposal is declared as part of the contractors self assesment capital gains?

[Maslins]

Could anyone give an example of voluntary liquidation?

Lets assume it's a simple ltd for an IT developer charging 10k a month + vat. After a year he has 120k + vat at his business account.

What will he get after going to MVL?

If it's someone who's just started a Ltd Co, I'd suggest an MVL isn't in their mind at all at this stage.

If they/you want to consider tax related things, think about IR35, dividends/salary, if/how much pension. If not overly keen on maximising pension contributions and don't want to take that much in dividends, a war chest will start to build up. A few years down the line an MVL might be an option worth considering.

Sure, you may think it's clever to plan ahead, and to some extent I'd agree, but you never know what's round the corner, either in terms of your own life, or tax changes. MVLs weren't a viable tax solution 3 years ago, chances are they won't be again sometime soon when the next bit of legislation tinkering comes in.

[Contractormvls]

It may also be worth hedging your bets and instead of taking dividends take the cash during the year as a loan which can be distributed in specie at the end if you proceed with an MVL. If not proceeding then they can be offset by a dividend. This will create a small beneficial loan but the tax benefit of getting the capital treatment at the end should outweigh that.

I would also warn against using an MVL as a regular mechanism to release capital. In the example cited it is fine to consider an MVL after only one year if moving to a staff position, retiring etc but not if you are continuing contracting and intend doing that every year.

[TheCyclingProgrammer]

Does the cgt allowance of 10k odd not reduce the charegeable gain??

It would if it was a normal gain.

Yes, thanks for pointing it out. Updated my post.

[jamesbrown]

Does the cgt allowance of 10k odd not reduce the charegeable gain??

It would if it was a normal gain.

Yes, the annual exempt amount applies, currently just shy of 11k.

Edit: worked example here.

[ASB]

Does the cgt allowance of 10k odd not reduce the charegeable gain??

It would if it was a normal gain.

[TheCyclingProgrammer]

Could anyone give an example of voluntary liquidation?

Lets assume it's a simple ltd for an IT developer charging 10k a month + vat. After a year he has 120k + vat at his business account.

What will he get after going to MVL?

Does this IT developer have problems with basic maths?

Back of a fag packet calculation, assuming on flat-rate VAT scheme, 14.5% rate, with rounded figures...

* Turnover: £144k
* VAT liability: just under £21k
* Salary up to personal allowance: £10k
* Other expenses, inc. travel, admin, accountancy fees etc. - maybe anywhere from £5-10k, I'll use the upper figure.
* Gross profit: £103k
* Corporation tax: just under £21k
* Net profit: approx. £82k
* Dividends taken up to higher rate, £31k
* Retained profit: £51k
* MVL costs + plus possible accountancy fees in assisting with closing down, final accounts etc.: £2k
* Distributable proceeds: £49k
* Proceeds less CGT allowance: £38k
* CGT @ 10% assuming entrepreneurs relief available: £3.8k
* Proceeds: £45.2k
* Total post-tax income: £45.2k gains + £10k salary + £30k dividends = £85.2k

Obviously if ER is not applicable then the CGT will be higher.

Have I missed anything?

[mariof]

Could anyone give an example of voluntary liquidation?

Lets assume it's a simple ltd for an IT developer charging 10k a month + vat. After a year he has 120k + vat at his business account.

What will he get after going to MVL?

[Maslins]

I can second this point. However MVL online are not for everyone, for example they did not want any debtors or creditors on the balance sheet.

Yeah it's an affordable option for simple situations only. Typically not a big task for contractor type companies to get themselves ready though, normally just means the director buying any company laptops etc (or scrapping them) and paying final corporation tax/VAT bills early.

[JB3000]

They made the process straightforward, emails were always answered promptly with detail responses.

I can second this point. However MVL online are not for everyone, for example they did not want any debtors or creditors on the balance sheet.

[swebb]

Thanks for all the replies, they were very useful I've just been chatting with my accountant and he basically agreed with most of the responses. In short he said around 6-8 weeks to get the money out and then a longer time for the company to finally close. Maybe up to 6 months.

He advised about opening a similar company why the process was taking place and for a short time after. I mentioned that if some work did come along that using an umbrella company might be a possibility and he agreed this was an option.

He also mentioned that as I was planning on taking an extended break that it would be a good time to liquidate the company if that is what I wanted to do.

[Maslins]

I typed in haste and should have qualified that the 9 months is to company having been dissolved officially on the Companies House register. The OP had asked for a 'start to finish' timescale.

True, there's typically another 4-5 months after the final distribution before the company's status changes from "In liquidation" to "dissolved". A final "meeting" (which nobody needs to attend) needs to be held ~5 weeks after the final distribution, details of that submitted to Companies House, then they wait another 3 months before changing the status.

From the company owner's perspective they're typically not that interested in this, as they've already got all their cash.

Cheers ST0001