Prior to the Autumn Budget 2024, there was much speculation on some of the key changes. Termed as a ‘Budget for Growth,’ many additional costs were announced for businesses, such as the increase in the National Minimum Wage and Employers National Insurance.
Shareholders who place their (qualifying*) Company into MVL can receive dividends as distributions of capital and are still able to take advantage of the existing Business Asset Disposal Relief (BADR) rate which is currently 10% for distributions up to £1m, but only until 6 April 2025. On 6 April 2025, it increases to 14%.
Considering that the rate of Capital Gains Tax (CGT) has already increased to 24% or 28% for higher or additional rate taxpayers (depending on the type of asset involved) this represents a narrow window of opportunity to make a potentially significant saving of extra tax.
The speculation on the budget treatment of BADR, formerly known as Entrepreneurs Relief, was particularly in the spotlight. Many businesses sought advice in the run-up to the budget and indeed we had record appointment numbers in September and October. In the SME sector, directors and shareholders were anxious to avoid perceived tax increases and sought distribution before the budget announcement. Xeinadin Corporate Recovery alone distributed almost £10 million in cash and assets during October, benefitting from the prevalent 10% rate for BADR up to £1m. This trend was replicated across the Corporate Recovery sector. Many shareholders were pleased and even relieved to receive their capital distributions ‘under the wire.’
Depending on your point of view, the budget offered relief on this key point with the 10% rate being retained for now. As opposed to the pre-budget speculation, we now have a settled position. Distributions of capital for qualifying companies will remain at 10% for now, however with effect from 6th April 2025 this will be taxed at 14% and from 6 April 2026 at a rate of 18%.
For directors, shareholders of companies considering closure, and their accountants alike, calculations will need to be made, balancing the 4% tax rise on distribution with the ability to increase the pot by at least that amount, and of course the following year. Timing is very key.
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Our Corporate Recovery team has the experience and expertise to provide the support and advice for you and your business.
Shareholders of SMEs will seek to take advantage of the 10% rate, even more so now than before the budget so we anticipate being considerably busy in the early months of next year. We recommend contacting us as soon as possible to get the support you need.
*Members’ Voluntary Liquidation (MVL) is used when a company can pay its debts but the members (shareholders) want to close it.
