Pre-Budget Business Decisions



With significant changes looking likely to happen in the budget this March that could have a detrimental effect on some business owners, now is the time to be reviewing the future.

One of the most talked about areas of change is that of Capital Gains Tax (CGT). Last summer, the Chancellor requested the Office of Tax Simplification (OTS) to commission a review of CGT, in particular identifying areas where CGT could be simplified and where “the present rules can distort behaviour or do not meet their policy intent.”

The OTS identified relevant areas and then has made suggestions on how this could be fixed. The suggestions are firstly that CGT rates should be more closely aligned with income tax rates, although this could mean a significant increase in many cases. In addition, the OTS suggested that the tax-free allowance be reduced, that there should be CGT on inherited assets, and that CGT reliefs should be re-assessed. This last point could mean either the end of or a significant change to Entrepreneur’s Relief.

Most of us are anticipating reforms to CGT in the budget in March, and such reforms will certainly make entrepreneurs rethink their exit strategy. It may also prompt some business owners to consider accelerating their retirement to exit under the current tax regime.


The changes to IR35 should have come into place earlier, but were delayed due to the pandemic. They are now coming into force on 6 April 2021, and will undoubtedly mean that some individuals will rethink how they currently work.

Last year, Qdos polled 750 contractors to find out what they thought the future would hold for their job prospects in the light of the upcoming IR35 changes. Three quarters of the respondents said “they lacked faith in the ability of their clients to accurately determine how they should be taxed,” and, following this, just under half of those surveyed said they intended to carry on contracting beyond April 2021. Of all those polled, 17% said they would consider taking a permanent contract and become an employee to side-step the reforms, and 18% said they were considering ceasing contracting from April 2021.

It seems clear that the changes are already causing concern, and whilst we won’t know for a few months what the impact will actually be, it is looking likely that any changes to CGT and the incoming IR35 rules will result in business closures to some extent.

Solvent Liquidation

For many people, closing down might be the wisest financial option. Whether that’s to find permanent employment elsewhere or to retire, the simplest way to achieve this is through a solvent liquidation. You can find out more about Solvent Liquidations in my previous blog.

It’s not too late to undertake a solvent liquidation and to distribute the cash before the budget to lock in the tax you will pay and to de-risk your situation. BLB Advisory has developed its own work programme that lets us complete solvent liquidations at a very competitive price and still be able to offer this as a one-to-one partner led service. If this is of interest to you, please call Brett Barton on 07484 830607.

5MLD – Is It Time We Took It More Seriously?



There has recently been commentary in the professional services sector that OPBAS*, which is the oversight regulator of the professional bodies, is concerned with the level of compliance with the Money Laundering Regulation (AML). In particular it has noted that compliance with the 5th Anti-Money Laundering Directive (5MLD) is generally poor. It certainly seems that professional services companies aren’t doing what they should be in regards to this. But is that okay, or is this something we should be taking more seriously?

There is no disguising that this isn’t the most interesting of subjects. Complying with AML and 5MLD could definitely be deemed as boring red tape. Perhaps this is why it is generally perceived that the compliance of it by solicitors, accountants and Insolvency Practitioners (IP) is below the expected standard. Perhaps it has mentally become nothing more than a box ticking exercise.

On the contrary, though, I believe we need to be far more proactive with it. If you’re a Money Laundering Regulation Officer (MLRO), as I am, then it’s your duty to assess this regularly, and at least annually. I’ve just been through this process myself. It took a significant amount of time to check everything, enhance systems and go through the necessary internal training. But it is, I believe, necessary.

There is an interesting quirk which I picked up on as part of my review. If you’re an accountant, are you checking with your clients during the annual review that you have the most up to date company information? Is the shareholding the same, who is the Person of Significant Control (PSC)? Is the information on Companies House accurate? More than just ticking that box, knowing this information is vital, particularly if you are responsible for maintaining the Statutory Record Books. As an IP, if a company enters into an insolvency process, I have to report to Companies House if a PSC register is not adequately maintained.

There is also a concern that Suspicious Activity Reports (SARs) aren’t being submitted by solicitors, accountants and IPs, which only reinforces the notion that system compliance here is poor.

It’s not an exciting task. There’s no reason to pretend otherwise. But if the process isn’t properly followed and the level of scrutiny that is needed isn’t anywhere near met, then it could mean records get quickly out of date and it could mean that the FCA will be left with no choice but to take over the role of monitoring.

As you can probably tell, I think as an industry we need to take this far more seriously. Do other people share this view? I’d be eager to hear your thoughts.

*The Government established OPBAS as part of a wider package of reforms to strengthen the AML supervisory regime in the United Kingdom. The OPBAS Regulations 2018 came into effect on 18 January 2018 and give OPBAS duties and powers to ensure the professional body AML supervisors meet the standards required by the Money Laundering Regulations 2017. OPBAS is housed within the FCA and will facilitate collaboration and information sharing between the professional body AML supervisors, statutory supervisors, and law enforcement agencies. OPBAS aims to improve consistency of professional body AML supervision in the accountancy and legal sectors, but does not directly supervise legal and accountancy firms.

Looking Forward to 2021?

2020 to 2021



2020 to 2021

I’m sure all of us are pleased that the end of 2020 is in sight. It has been challenging year both for businesses and for each of us personally. If there’s one word that describes this year it’s “agile”, and I think it’s a true sign of human strength that we’ve adapted so well to survive this.

Certainly in the insolvency sector, we have seen the introduction of new legislation at record pace. Anecdotally, The Insolvency Service provides guidance to insolvency practitioners in the form of “Dear IP” publications. These were introduced in February 2001 and by December 2019, Dear IP 91 was issued, averaging just over four a year. We end 2020 with Dear IP 115 having just been issued, a record of 24 guidance publications in a single year!

As hard as this year has been, I think it’s important to also find the good in things. As a new business we have embraced the latest innovations in technology and have adapted to working from home without too many issues. Weekly virtual meetings with the team have kept morale high and new online solutions have been identified to make us more efficient too. I am sure that many of you have seen a positive impact on your business.

In particular I have enjoyed a more flexible approach to work and have spent more time with my family, which has been great. As things return to normal in 2021, I hope that these positive changes remain and I don’t regress back into the old habits.


As we look forward to 2021, its difficult to predict how well the economy will bounce back from the legacy issues of the pandemic, whether irreparable damage has been done to sectors such as retail and hospitality, and the possibility of a no deal Brexit. Unfortunately, there is probably more casualties to come with an increase in insolvency numbers being predicted. Whilst there have been unprecedented levels of support made available by the Government and provisions to defer payment of debts, at some point it does need to start being repaid.

The Government has a long journey ahead of it to recoup the hefty costs of the pandemic. The budget was scrapped this autumn, but there will no doubt be big announcements in the spring that will place further strain on business. I also have grave reservations about why the Government sought to go ahead with plans to once again become a preferential creditor. This will cause shock waves in the lending market. It will also render the use of Company Voluntary Arrangements almost worthless as CVAs cannot be used to bind preferential creditors without their consent. This effectively gives HMRC a veto on any proposed recovery plan put forward.

There should also be a word of warning for those who have misused the support available this year. With news of the first arrest on suspicion of Bounce Back Loan fraud, there may be many more to follow, and the Government is taking any fraudulent actions relating to the support offered this year very seriously.

It’s not all bad news. The introduction of the new vaccine and the likely relaxation of the restrictions will see things return to normality. We should also celebrate the many business successes that we have seen in 2020. I strongly believe that adversity enables innovation and prompts creative thinking.

From all the team at BLB Advisory, I wish you a Merry Christmas and a prosperous New Year.

Meet Adam Paxton



Adam Paxton works as an Insolvency Administrator at BLB Advisory, dealing with the day-to-day handling of cases. He is often at the frontline of our business, liaising directly with clients, creditors, employees, directors and shareholders. His role involves administering the progression of a portfolio of cases, realising assets for the benefit of creditors, reporting information back to the IP and managing client needs. Adam’s calmness and ambition belies his youth and he is a valuable member of the BLB Advisory team.

Warwickshire-based Adam began working in Insolvency in October 2017. After his formal education, he had started to look for Accountancy roles. Knowing he was strong with numbers and problem solving, he wanted to use these skills in his career. To date, Adam has completed his AAT Levels 2 and 3 examinations and wishes to continue his accountancy studies to complement his career progression. Despite the world of insolvency being slightly different to what he first envisioned, he has not looked back since and enjoys the diversity of the role

Away from the office, Adam is a keen sportsman having played youth football to a high level before becoming a semi-professional darts player, having previously been sponsored by one of the biggest darts manufacturers, Unicorn. He also enjoys playing golf and likes to spend time with his family whenever he can.

The Impact of HMRC Gaining Preferential Creditor Status



The Finance Act 2020, which gained Royal Assent in July this year, means that from 1 December 2020, HMRC will once again become a preferential creditor in insolvencies. This was due to come into force in April 2020 but its introduction was delayed as part of the measures to counteract Covid-19. However, unlike other measures that have been extended further as the pandemic becomes more drawn out than previously thought, this change is quietly being pushed through.

Currently, HMRC ranks equally alongside unsecured creditors in the insolvency of a company, but the changes that will take place in December mean that HMRC will move up the rankings of who gets paid out first, putting them ahead of floating charge and unsecured creditors.

In an already volatile time for the economy, this change will have quite a stark impact on business.

Business Borrowing
From banks to private lenders, business borrowing won’t be the same. It can’t be. There will be more risk for financiers. Currently, a funder will provide an overdraft to a company, with the benefit of a charge over the assets of a business, knowing that if the company were to fail, they would likely make a significant recovery under their floating charge thereby mitigating the risk. Under the new measures, HMRC would leapfrog the funder and be first in the queue to recover against their preferential debt.

Here is an active example of what might happen now. Let’s say a funder provided a £50k overdraft facility based on tangible assets within the business with a value of £100k. As a consequence of the measures put forward by the Government to support the economy, during 2020 the business amassed significant crown debt, they deferred the payments of their March and June VAT periods and have been unable to pay the last 6 months PAYE/NIC liability. This is indicative of the companies that I have been advising recently where the HMRC debt has been in the region of £50k to as much as £250k.

Now let’s say the overdraft is due for renewal on 1 December 2020. The funder, taking into account the changes to make HMRC a preferential creditor, asks the business as part of the renewal process to disclose what HMRC arrears that it has. They declare that they owe HMRC £75k. The funder determines that if the business were to fail, those assets of £100k may realise £50k and this will be absorbed by HMRC. Overnight their security has become valueless. What are the potential consequences? Well for starters, the overdraft may not be renewed, or worse, the directors could be asked for a personal guarantee to support the borrowing. The removal of the overdraft facility could unfortunately push the business into an insolvency process.

This could not come at a more dire time for business. With so many businesses facing cashflow issues, and many others being forced to close for periods, they need all the help they can get. Yet many investors simply won’t be able to take the risk now and offer the support that is so desperately needed. Even support that has been offered, such as Bounce Back loans, is likely to get caught up in the resulting problems, with many companies being unable to pay back what they borrowed.

What does this mean for trade creditors in an insolvency?
HMRC previously had preferential status, but they agreed to downgrade their status in the Enterprise Act 2002, in the main to enable money to flow down to trade creditors. As part of the wide raft of changes, legal charges created after September 2013 no longer had the power to appoint an Administrative Receiver, and the “Prescribed Part” was created that ensured that Banks didn’t just get the benefit of HMRC giving up their preferential status.

With these changes we will be a negative regression back to the days pre 2012 and ultimately trade suppliers to companies will bear the brunt in insolvency. Any chances of making a recovery are likely to now be non-existent.

It will be interesting to see how the credit agencies and credit insurers react to the changes, and are we also likely to see credit being restricted to businesses by its suppliers?

Earlier this year, R3 hit out at the changes. Past President Duncan Swift warned that “HMRC’s new creditor status will harm business rescue efforts at a critical time for the economy.” He further noted the irony of the decision, saying that “this measure, which is being brought in to try and boost the tax take, is likely to reduce the amount of tax collected, as potentially viable companies are not able to be rescued and are forced to close, while growing businesses are less able to tap into the funding they need to invest and expand.” He then added, “There are better ways of improving returns to HMRC than a proposal which works to the detriment of other creditors and the business rescue process.”

I couldn’t agree with this more. How can the government be serious about implementing a change to boost the economy when it will undoubtedly simultaneously lead to financial distress across many businesses?

Until December, we simply won’t be able to know what the impact will be, but it’s hard to see how this won’t make raising finance more challenging, and ultimately it will be unsecured creditors that once again bear the brunt of the pain of a business closure.

If you have any concerns about the financial situation of your business and how this change could affect you, please contact the team at BLB Advisory.

Budget Scrapped But Business Owners Should Still Be Wary



Further to the blog I wrote just yesterday citing the predictions in the upcoming budget, today the Treasury has announced that it is scrapping plans for an Autumn Budget this year because of the coronavirus pandemic. But where does that leave businesses now?

The Treasury has said that now is not the right time to outline long-term plans. With us still in the midst of the pandemic, it does seem like a logical decision to delay any action on recouping the costs of the virus.

However, despite these changes, the facts about MVLs and the caution that business owners must heed remain the same. This delay should be seen as merely a reprieve until the next budget in March 2021. If you are looking to exit your business for retirement in the foreseeable future, it may be best to do this before any future budget announcements are implemented, which could be as early as 6 April 2021. If Capital Gains Tax rates are ultimately changed to bring them more in line with Income Tax rates then this could be costly.

Whatever the future holds, though, the Targeted Anti-Avoidance Rule (“TAAR”) is likely to stay in place. Therefore, if you are wishing to exit your business for retirement, make sure this is definitely the long-term decision. If you wanted to re-start within two years of closing your business, HMRC has the power to reclassify capital payments as income payments, if it thinks that the distribution has been set up for the purposes of gaining a tax advantage.

As things develop, we’ll keep you updated. But for now it seems we all have a little breathing space. I’d recommend this as time to make careful decisions about the future, with that possibility of higher rates potentially coming in next year.

The Future of MVLs as Changes to CGT Lie Ahead

Retirement Fund



Retirement Fund

This blog was written prior to the announcement that the budget was scrapped. Please see our next blog for the latest news and our thoughts on this.

As we reflect on 2020, it has been a polarising year so far with some businesses having their best year ever and others struggling to see what the future looks like. We can be under no illusion that in general terms the cost of the pandemic has been felt by many, and in particular the Government, who has supported the economy with an unprecedented package of fiscal measures.

As we begin the rebuilding process, the Government is going to come under increasing pressure to recoup the money spent and to plug the gap in the Country’s finances. Given the fragility of the economy and facing a potential for a hard Brexit, the Chancellor has limited options at his disposal. For a long time, the disparity between income tax rates and Capital Gains Tax (“CGT”) rates has been widely acknowledged, particularly with Entrepreneurs Relief (“ER”), and it should therefore come as no surprise that CGT rates are likely to be increased or for ER to be curtailed in the forthcoming budget.

What does this mean for me?
If you’re not familiar with an MVL, please take a look at my previous blog which explains the process of a solvent liquidation in more detail. For this blog, I want to focus more on the key question of whether a business owner should accelerate their retirement plans to extract value at the existing CGT rates. This is made more poignant given the impact of the pandemic and the need to understand how profitable the business will be in the forthcoming years. If the forecasts show a relatively modest profit, with the risks that this brings and factoring in the potential increases to CGT rates, it could make retirement look more attractive.

By way of a recap, an MVL is a formal process to wind up the affairs of the business and, after repaying all the creditors, the surplus is distributed to shareholders. During this process, these distributions can be treated as a return of capital subject to CGT rather than taxed as income or dividends. Shareholders who also meet the criteria are able to claim Entrepreneur’s Relief (or Business Asset Disposal Relief as it is now known), which can bring the rate of tax payable on distributions down to 10% on the first £1 million of lifetime gains.

Is your retirement a genuine retirement?
Whilst this can be a notable advantage, anyone looking to benefit from this process must also be aware of the Targeted Anti-Avoidance Rule (“TAAR”). HMRC has the power to reclassify capital payments as income payments if it thinks that the distribution has been set up for the purposes of gaining a tax advantage. The income payments could potentially be taxed as high as 38.1%; a significant increase and something all business owners should be aware of.

The TAAR is designed to target business owners who use the closure of a business as a tax efficient way to release funds, but then continue to carry on with the same or substantially the same activity with a new business within two years of the closure of the first business. If you genuinely wish to retire, then the TAAR will simply not apply to you. However, it’s always vital to properly explore all future plans if undertaking an MVL. For example, if you were to decide to come out of retirement at a later stage and start up again, this could be costly.

Changes Ahead
Whilst this is all positive news for retiring business owners as it currently stands, things may be looking quite different later this Autumn. As mentioned at the start of this blog, the media have widely reported that changes are expected to be announced in the Chancellor’s Autumn statement. There is the real possibility that CGT and Income Tax rates will be aligned and ER could be scrapped altogether.

Whether these changes will go ahead or what the implications on business will be is still yet to be seen. If after reading this blog you would like to explore the financial outcomes of ‘retire now’ versus ‘carrying on’, please talk to us at BLB Advisory. We can work with your existing advisers to help find the best outcome for you.

A Time to Pay Arrangement – the key to avoiding a formal insolvency?

Payment Due



Payment Due

In recent weeks I have received an increasing number of enquiries from business owners who find themselves in a quandary. They have managed to flex and adapt their business – reducing overheads where possible – as they prepare for challenging trading conditions, but they do not foresee enough improvement in cashflow to be able to pay the arrears that have accrued with HMRC. The question often asked is how can we avoid insolvency in these circumstances?

The answer is to get the help of a professional to engage actively with HMRC at an early stage to discuss the prospect of restructuring the repayments over a longer period of time. This is known as a Time to Pay arrangement (“TTP”). I often find that using a specialist restructuring firm such as BLB Advisory gives a clear signal to HMRC that the business is at a financial crossroads and a formal insolvency process such as liquidation may be imminent if a TTP cannot be agreed.

The issue may not be immediate but may manifest itself more critically in March 2021 when any VAT deferred between April & July 2020 becomes due, which also coincides with the commencement of repayments for any Bounce Back Loan (“BBL”).

Any TTP that we negotiate on your behalf with HMRC can include any taxes that were deferred. It is important for any request for a TTP to provide a clear explanation of how the situation has arisen and that the proposed repayments are affordable. For HMRC to consider a TTP, they will want to see some or all of the following:

  • the reasons why the business can’t pay the liabilities;
  • a summary of the other options that have been considered;
  • a cash flow forecast demonstrating that the proposed repayments are affordable;
  • that future HMRC payments will be paid as and when they fall due (i.e. the problem won’t get any worse);
  • that it is a viable business;
  • the TTP proposal demonstrates that the correct balance has been found between affordability and repaying the HMRC arrears in the shortest time period;
  • the key stakeholders of the business are supportive of the TTP; and
  • full disclosure of the liabilities due to HMRC and that all statutory returns are up to date.

In our experience HMRC will also take into consideration the business’s previous compliance history, whether any previous TTPs have been agreed and maintained, and whether any significant dividends have been declared to the business owners.

What we don’t know at the moment is whether the re-introduction of HMRC having preferential status in formal insolvencies in respect of certain taxes (to take effect from 1 December 2020) will change the criteria used when considering TTP proposals.

Please get in touch if we can help you to consider your options and write a detailed proposal to HMRC on your behalf, whilst at the same time helping you to review the financial sustainability of your business.

Dissolving a Company – What do I need to consider?





There are many ways to bring about an end to a limited company and one of these is a process known as dissolving a company. More commonly referred to as a voluntary dissolution or striking off. It is a relatively simple process whereby the directors submit the relevant form to Companies House and pay a small fee. Notice of your intention to dissolve the company will be advertised in the relevant Gazette and, on the basis that there are no objections, the company will normally be struck off two months later. The directors of a company will often consider this process when there is no longer a use for the company, it is dormant or no longer trading.

It is not only directors who can dissolve a company. A company can also be struck off or dissolved if the company fails to submit the necessary statutory documents to Companies House, if the company has no directors, or if correspondence issued by Companies House gets returned as undeliverable. The Registrar of Companies will normally write two formal letters and, if the matters are not resolved, he will begin the process to have the company removed from the register.

Are there any restrictions on being able to consider dissolution?

You cannot consider a dissolution if a winding up petition has been issued against the company or if a formal insolvency process has been started. This includes processes under the Insolvency Act 1986 such as Administration, Administrative Receivership, a Company Voluntary Arrangement or a Creditors’ Voluntary Liquidation and also Schemes of Arrangement under the Companies Act 2006.

There are several other restrictions that apply, and in terms of practical importance the key ones to consider are that the company has not traded for three months (i.e. this must be a genuine cessation of trade) and that the company has no assets (in the form of property or cash at the bank).

I have seen other articles on the internet that suggest striking off a company as an alternative to liquidation. In this regard, prior to considering a dissolution, there is an obligation upon the company to provide creditors with at least three months’ notice to give them an opportunity to lodge their objection.

Our advice is that dissolution should not be used where a company is insolvent (being that its assets are less in value terms than its liabilities) and a formal insolvency procedure such as a liquidation would be a more appropriate procedure to consider, being guided by an experienced licenced Insolvency Practitioner. In the last 18 months there have been a spate of these “short cut” dissolutions and, in the majority of cases, HM Revenue & Customs, who are often a creditor, are alive to this issue and lodge an objection.

Is dissolution the best way to conclude a company’s affairs

Company dissolution is a handy and cost-effective tool. This is because directors can do it themselves without the need to engage a professional advisor (albeit directors sometimes ask their accountant to help them complete the forms), and subject to meeting all the criteria, it’s low cost and hassle free.

The reason why some unscrupulous directors have attempted to use this process instead of considering a formal insolvency is that there is no investigation into the directors’ activity, no independent analysis of what has happened in the past and very little publicity.

If the company has assets, and in particular assets above £25,000, then dissolution is not an appropriate process and a solvent liquidation should be considered. If the assets are below £25,000 (and on the basis that all known liabilities have been paid in full), since 2012, the members have been able to receive these surplus assets by way of a capital distribution as opposed to being received as income, which can be advantageous from a tax perspective.

What are the disadvantages of dissolution?

• The requirements to access the process are rigorously enforced by the Registrar of Companies and a breach of these obligations can lead to an unlimited fine and, in the worst cases, imprisonment.
• If the company has creditors, these creditors may reject the application to proceed with dissolution.
• A dissolution is not a finite process and, in certain circumstances, a company can be revived for up to 20 years after dissolution. This often occurs if creditors did not receive the correct notice, it comes to light that the company was trading during the three months prior to making an application to dissolve, or if it comes to light that the company or the directors committed some fraud, misfeasance or other unjust action before or during the dissolution process.
• While a common sense approach to collecting assets and distributing them to creditors in proper order usually suffices, there is no prescribed method. The process may be open to abuse and, if performed incorrectly, can lead to a revival of the company. I would always recommend that professional advice is taken from an expert if you are considering undertaking an informal wind down of your company’s affairs.
• Dissolution cannot terminate leases, HP agreements or contingent liabilities.

I am a creditor of a company seeking to be dissolved, what should I do?

From a creditors’ perspective, dissolution avoids a formal investigation into the director’s conduct. Of course, if any transactions such as a preference, transactions defrauding creditors or basic fraud have been committed, dissolution does not afford an investigation into past conduct. If as a creditor you believe that such transactions may have occurred, I would recommend that you withhold permission and oppose the dissolution.

Alternatively, if you have had a good dialogue with the directors of the company and you have been kept fully appraised of the reasons why dissolution is being considered (sometimes a company just simply cannot afford the costs of undertaking a formal liquidation), you may choose to do nothing and allow the process to continue.

If you need any further guidance about a particular set of circumstances, no matter how large or small, please contact us.

Alternatives to Dissolving a Company

Where the affairs of a company are more complex or the assets exceed £25,000, then a Members Voluntary Liquidation (MVL) would be an appropriate process to consider.

If the company is insolvent, before deciding your next steps, take advice from an experienced Licenced Insolvency Practitioner. They will be best placed to discuss the options that are open to you, including advising you on your fiduciary duties as a company director.

For any further information on dissolving a company, please don’t hesitate to contact us.

What is a Solvent Liquidation?



If you are looking to retire or you want to exit from your business for another reason, then the best way to do this is through a Members’ Voluntary Liquidation (MVL). This is the formal process for closing down a solvent company in a cost effective manner.

The most important thing to note if you want to close your company through an MVL is that it has to be solvent. This means it must be able to settle all its liabilities (both known and contingent) in full within 12 months. If your company isn’t able to do this, then speak to an Insolvency Practitioner about other options that are available.

Why can’t I just dissolve my company?
Dissolving a company is a simple process whereby you submit the relevant form to Companies House and pay the small fee. Notice of your intention to dissolve will be advertised in the relevant Gazette, and, as long as no objection is received, the company will be struck off two months later.

Since 2012, if the value of your company’s balance sheet is less than £25,000, then striking off the company could be a cost effective solution, subject to the other considerations set out in this blog, as any distribution below this level can be treated as a capital gain as opposed to a form of income.

However, there are a number of disadvantages to dissolution. For more information on dissolution and the issues surrounding this process, read our Guide to Dissolution.

If the company’s assets exceed £25,000, then it is imperative that the affairs of the company are handled in the correct way and wound down with the help of an experienced licensed Insolvency Practitioner. Working in conjunction with your accountant and your personal tax advisor, they will be able to assist you in unlocking the value retained within a company, taking advantage of beneficial tax savings that are available.

The cost of an MVL
An MVL can only be commenced with the assistance of a licensed Insolvency Practitioner. You cannot do it yourself. It is a formal process that is governed by the Insolvency Act 1986 and the Insolvency (England & Wales) Rules 2016.

Accordingly, the main cost of entering an MVL will be the fee charged by the Insolvency Practitioner for acting as the liquidator, together with the expenses that they will incur in discharging their statutory duties. These expenses are known as disbursements and mainly cover the items like placing legal notices in the Gazette and taking out an insurance bond.

After discharging any outstanding liabilities and the costs of the process, the remaining funds can be distributed to shareholders. One of the key benefits of an MVL is that these distributions are subject to Capital Gains Tax rather than income tax. In the majority of cases, this is deemed as a much better option than taking the funds as dividends (i.e. a form of income), and it is this tax saving which makes MVLs a popular choice, particularly if large sums of retained profits are involved. It is also worth noting that the tax saving is normally far greater than the costs that are likely to be incurred too.

Preparing for an MVL
If you are considering placing your company into an MVL then it is always best to prepare your business for the process. A priority is to ensure you get your company into as simple a state as possible. This will both improve the chances of your company qualifying for this type of procedure, as well as making the whole process run more smoothly.

In addition, it is best to make sure liabilities are paid, any debtors are collected, and all HMRC obligations including the submission of accounts are up to date. These simple tasks will help to avoid any statutory interest being incurred and keep the costs of the MVL to a minimum.

What happens during an MVL?
If you wish to start this process, it will commence with a thorough assessment of the company’s financial position. This is to determine if there will be enough surplus funds remaining in the business once its liabilities are cleared. You will then have to sign a Declaration of Solvency stating that your company can settle its liabilities within a period no greater than 12 months. Falsely signing this declaration, when you know the company is insolvent, is a criminal offence and can lead to a fine and up to 2 years imprisonment.

From this, a general meeting of shareholders will be held to consider the appointment of a liquidator. As long as 75% of shareholders agree to the MVL, the company will enter liquidation and the appointed Insolvency Practitioner will take control of the company’s affairs.

How quickly will the shareholders get paid?
In most straightforward cases, the MVL process is typically completed and the company formally closed within 6 – 9 months. Any delays in concluding a liquidation often are as a consequence of the delays in receiving formal tax clearance from HMRC. However, subject to certain criteria being met, here at BLB Advisory we often get the initial distribution to the shareholders within 7 business days following our appointment.

If you are considering closing down your solvent company, then please speak to one of our experienced team members at BLB Advisory. Whilst it is often a simple process, it’s still very important to do it correctly.