A Timely Exit: How to get the most out of your business

Steve Elliott, Business Recovery and Insolvency Partner at MHA Monahans shares his thoughts on important information regarding exiting your business in the current climate.

Lots has changed in the world of business over the last two years, and understandably, some owners have spent time more time than usual, considering what really matters to them, both personally and on the work front.

Whether it’s profitable companies who have had the chance to re-evaluate over the course of the pandemic, contractors who no longer need their PSC (Personal Service Company) post-IR35 or simply those who are looking forward to a sale/retirement, we are seeing an increased number of owners who are planning to exit their business.

In order to access funds quickly and ensure the process is tax efficient, whilst cost-effective, one of the options you should consider is a Members’ Voluntary Liquidation (MVL). While ‘liquidation’ often carries a negative connotation, an MVL is a long established and well recognised route for solvent companies and can be the simplest way for business owners to exit.  It is certainly not something which carries any blackmarks if you wanted to start another business – in the way that an involuntary liquidation might.

It is, however, important to note that there are Targeted Anti-Avoidance Rules (TAARs) that come with distributions in a solvent winding-up.  The provisions are detailed and come with limited guidance; suffice it to say, if you plan to operate a similar business in the same market within two years of the distributions, then you must seek advice to ensure that you do not risk losing the capital treatment.

Make the most of the current 10% tax rate

Currently, shareholders who go through an MVL and are eligible for Business Asset Disposal Relief (formerly called but still commonly referred to as Entrepreneurs Relief) will pay 10 per cent Capital Gains Tax on capital distributions in the winding-up.

Many commentators anticipate that this will change in the near-future, with many surprised that the Chancellor did not announce a rise in Capital Gains Tax in this year’s Autumn Budget at the end of October 2021.  The risk is that will now happen in the Spring 2022 budget.

Tax isn’t the only driver in such a fundamental decision. However, if you’re already thinking about winding up your business, then you should give that serious thought, so that you get all of the existing advantages which could disappear in early 2022.

Planning is at the heart of everything we do. By understanding your specific requirements, we ensure that proceeding with an MVL is a straightforward process; shareholders can have access to funds in a matter of weeks.

Get timely advice

Another reason to consider the end of the tax year is that this can help you maximise your funds. We commonly recommend, for example, that shareholders split capital distributions across tax year ends , to utilise multiple annual Capital Gains Tax exemptions. Currently at £12,300, saving 10 per cent is well worth having; if you can find somewhere to invest the funds meanwhile and achieve that rate of return, then we want to know about it!

Additionally, if the company has a final Corporation Tax liability, you may be entitled to an early settlement discount if you get the timing right. We’ve successfully reduced a bill by £15,000 for a client, for example, simply because we were able to recommend the bill was paid on liquidation, rather than the day before.

Consider all your options

Part of our service is working extremely closely with other finance professionals – for example your accountant if it is not us– in order to ensure we maximise the funds you extract from your business.

Alternatively, it might be that MVL is not the best option for your business. In which case, we’ll be able to help you come up with an alternative. Our goal is to help you find the next, right step for your business, whatever that might be.

If you’re ready to move on from your business, a solvent winding-up could be right for you. For more information, help and advice, contact Steve Elliott.