We are starting to see an increase in Member’s Voluntary Liquidations (MVLs) within the Xeinadin Corporate Recovery team. The recent change in government has seen the new Prime Minister and Chancellor of the Exchequer putting out a regular stream of doom and gloom narrative in both actions and words. Even before the end of the summer recess, financial decisions have shocked the public and we are being prepared for things to get far worse before they improve.
10m senior citizens have seen their Winter Fuel allowance cut and there will be more cuts on the horizon as SME’s must brace themselves for what the budget may bring. This will no doubt include private sector businesses with accumulated funds as the Government has pledged that certain direct taxes are to be ringfenced, which begs the question, where will the inevitable tax rises come from.
Pensions, inheritance tax and capital gains tax (CGT) will inevitably come under scrutiny. There are some lesser known, but no less important, tax provisions which will no doubt be looked at. Business Asset Disposal Relief on capital distributions to shareholders has regularly been forecast to be targeted in recent budgets so with the change of Government, it will be interesting to see if there is a partial or total erosion of this benefit.
Why should you now consider an MVL?
During an MVL, for qualifying Companies, any capital released back to the shareholders is issued gross of taxation. Shareholders then benefit from ‘Business Asset Disposal Relief’ where they are taxed currently at 10% up to £1m in their next self-assessment return. With the Chancellor highlighting the need to make ‘difficult decisions’, we could see a change to this as the money will need to come from somewhere. Also under question is the potential timing of any implementation of this.
Other matters related to MVL could also be looked at. When the TAAR provisions were first introduced in 2016 there was an initial flurry of low hanging fruit and quite rightly beneficiaries of unscrupulous tax schemes were punished. Things have been relatively quiet on this front in recent years, but it cannot be ruled out that they will review these and maybe seek to legislate further on areas such as the treatment of overdrawn DLA’s and S455 tax in MVL’s.
Until the Autumn budget is announced on 30th October 2024, we need to be aware that there could be big changes ahead. If you have a client who is seeking to close their business, they should seek advice early. As the budget approaches, we predict there will be an increase in MVLs so time is of the essence to ensure we can support you.
