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Closing Your Limited Company

Have you recently come out of contract, retiring or perhaps returning to a staff position? Or simply decided to stop contracting and want to close your limited company and have funds remaining in your business bank account.

There are a variety of ways to close down your company. The most common way is just to take any remaining profit as a dividend. However, depending upon how much is profit is left you may be able to close it via an MVL which could be more tax efficient potentially saving you thousands of pounds. You may however already have accelerated the cash flow from the company and taken a loan as a shareholder, which can then be distributed on liquidation without the need for funds to change hands. ContractorMVL will provide limited company contractors with a quick, professional and cost effective means to close their limited company through a Members Voluntary Liquidation (MVL), one of the options available to close down a limited company tax efficiently with funds in excess of £25,000.

A MVL (Members’ Voluntary Liquidation) is a statutory process which can be used when a company wishes to close down and is solvent, the funds are distributed as capital via an Insolvency Practitioner to the shareholders, which in turn means the shareholders may be liable to pay less tax on the funds. Should a Contractor decide to stop contracting or want to close their limited company and have funds remaining in their business bank account or other assets, there are a variety of ways to close it down.

The most common way is just to take any remaining profit as a dividend. However, depending upon the value of the remaining assets Contractors may be able to close it via a MVL. Under a MVL, any cash in the company can be distributed to shareholders as a capital distribution rather than as a dividend. This can generate a significant tax saving, especially when Entrepreneurs’ Relief (“ER”) may be available (shareholders should consult with their tax adviser on the availability of ER). For instance Contractors who have retained capital in excess of £40,000 in their company, should consider using a MVL to extract the remaining capital. All distributions from the company out with a MVL would be treated as income, and therefore taxed at the shareholders’ marginal rate of tax.

When using a MVL, Contractors benefit from an annual capital gains allowance (£11,800 for 2017/18) and also the possibility of utilising Entrepreneur’s Relief. If they meet the criteria then Contractors may only pay tax at the lower rate of 10%.