MVL vs. Strike Off: Which is best for your company?

Members’ Voluntary Liquidation (MVL) is a process used to close a solvent company, meaning it can pay all its debts. During MVL, the company’s assets are sold off, and any remaining funds are distributed to the shareholders. It’s a voluntary decision made by the company’s directors and approved by its shareholders to wind up the company’s affairs in an orderly manner.

If you want to close a limited company that can pay all its debts (i.e. it’s solvent), you have two main options. You can use a voluntary liquidation procedure called a Members’ Voluntary Liquidation (MVL) or a process called Strike Off to remove it from the Companies House register.

In this article, we discuss what these two company closure methods involve, the differences between them and the circumstances that can make an MVL or Strike Off the right choice for you.

The two main ways to close a solvent limited company are via a formal procedure called a Members’ Voluntary Liquidation or an informal process known as Strike Off. Both methods will lead to the closure of your business, but there are distinct differences in the processes, costs and tax implications.  

Members’ Voluntary Liquidation (MVL)

An MVL is a liquidation procedure that’s suitable for solvent companies. If the company has significant retained profits or physical assets to distribute to the shareholders, an MVL is usually the most tax-efficient way to close it down. 

You must appoint a licensed Insolvency Practitioner to administer the liquidation process and pay their professional fees. They will wind down the business’s affairs, sell any physical assets, repay its creditors and distribute the remaining funds among the shareholders before removing the company from the official register.

Strike Off

Strike Off, also called Voluntary Dissolution, allows you to close your solvent limited company without using an Insolvency Practitioner. That means the only fee you have to pay is a small, one-off charge when you submit the application. 

The absence of fees makes Strike Off a cost-effective closure method. However, it’s less tax-efficient if you have significant physical assets or retained profits to distribute to the shareholders. If you do, an MVL will usually be the best option.

There are several key differences between Members’ Voluntary Liquidation and Strike Off.

Cost

• A Members’ Voluntary Liquidation can start at around £1,500. That covers the cost of the liquidator’s fee and the various statutory costs they must pay during the process (known as disbursements)
• Applying for Strike Off costs less than £50, with the cost determined by whether you make an online or paper application. 

Process

• An MVL is a formal process that requires you to appoint an Insolvency Practitioner as the liquidator. They will close the company on your behalf over a typical period of three to six months, although more complicated liquidations can take up to a year. 

• Strike Off is a relatively simple process you can complete online. Before applying, you must prepare the business by ceasing trading, submitting final accounts, paying your last corporation tax bill and closing the company’s bank account. Once you apply, the company will be struck off after around three months.  

Tax

• In a Members’ Voluntary Liquidation, all the funds distributed to the shareholders are taxed as capital. If you are eligible for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), higher-rate taxpayers pay Captial Gains Tax at just 10% on the proceeds.
  
• If you close your company using Strike Off, profits up to £25,000 are taxed as capital. Any distributions over that value are taxed as income, which could lead to a significantly higher tax bill. You cannot claim Business Asset Disposal Relief following Strike Off. 

Implications

• A key benefit of an MVL is that a licensed professional administers the procedure on your behalf. That gives you the peace of mind that the company has been closed properly and all your legal obligations have been met.
  

As you administer the Strike Off procedure yourself, there’s always a risk you could make a mistake. For example, if you strike off a company with an outstanding debt, the creditor can reinstate the company to make a claim and your conduct as a director will be investigated. That could lead to serious consequences such as personal liability for company debts and director disqualifications.

The most appropriate procedure depends on your company’s position. If your business has already ceased trading and has no assets or liabilities, striking it off the register is the simplest and cheapest way to close it down. Similarly, if your business has less than £25,000 of cash reserves but no physical assets or outstanding debts, Strike Off is a low-cost solution.

On the other hand, if your company has physical assets or cash worth over £25,000 to distribute, an MVL allows you to claim Business Asset Disposal Relief on qualifying gains. That effectively halves the tax bill for higher-rate taxpayers and could more than cover the additional cost of the liquidator’s fee.

If you’re unsure of the most appropriate way to close your solvent limited company, please get in touch for professional advice. We offer a free, same-day consultation to assess your position and can guide you through the process from start to finish.