Members’ Voluntary Liquidation: A Simple, Tax-Efficient Exit for Solvent Companies

Imagine you’ve built up a small, successful company but are now ready to retire or move on. A Members’ Voluntary Liquidation (MVL) lets solvent UK companies do exactly that: wind down in an orderly, tax-efficient way. In an MVL, all debts are paid and the leftover assets are distributed to shareholders. MVLs are only for solvent companies – those whose assets exceed their liabilities. As one expert notes, MVLs are “often utilised by company directors and contractors approaching retirement” as a way of “tying up the loose ends of a company before distributing the assets”[1].

In short, an MVL is a formal process by which directors choose to wind up a healthy company and extract its cash to shareholders. It differs from insolvency procedures (like a Creditors’ Voluntary Liquidation, CVL) because here the company can pay its bills. You might consider an MVL if you want to retire, step down from a family business, or simply stop running the company. For example, the UK government guidance explicitly says an MVL is an option if you’re solvent and “want to retire, step down… or do not want to run the business any more”[2].

Who Can Use an MVL (Eligibility)

To use an MVL, the company must be able to pay all its debts, plus interest, within 12 months. This solvent status is central. Directors must carry out a full financial review and then sign a formal Declaration of Solvency. This document (sworn before a solicitor) states that, to the best of the directors’ knowledge, all debts can be paid within 12 months of the winding-up. It includes details like the company’s assets, liabilities, and how debts will be paid over the year[3]. It’s a serious step – it is actually a criminal offence to sign a false declaration knowing the company cannot pay its debts[4].

After the declaration is signed, the company’s shareholders must hold a meeting (usually within 5 weeks) to pass a resolution to wind up the company. Typically 75% of shareholders (by value) must vote in favour. At that meeting an authorised insolvency practitioner (a licensed liquidator) is formally appointed. The liquidator then takes over all financial affairs of the company.

If the company is not truly solvent, or if a winding-up resolution is passed but then the business cannot pay its debts as promised, the process may switch into a CVL or other insolvency. In other words, MVL is only appropriate for solvent companies[5][6]. For an insolvent company (one that cannot pay all debts), a CVL is the correct route. In fact, one insolvency expert explains that the key difference is solvency: “with an MVL the company is solvent and able to meet all its financial commitments. With a CVL, the company is not solvent”[6].

How the MVL Process Works (Timeline & Steps)

An MVL follows a set procedure, usually completed within about 6–12 months from start to finish[7]. Here’s a simplified timeline of the main steps:

1. Declare Solvency: Directors draft and sign the Declaration of Solvency in front of a solicitor. This must include the company name, director names, assets, liabilities and a statement of debt repayment within 12 months[3][4].

2. Shareholders’ Resolution: Within 5 weeks of signing that declaration, call a general meeting of shareholders. Pass the winding-up resolution (usually 75% or more vote) and appoint the chosen liquidator[8].

3. Gazette Notice: The liquidator must advertise the winding-up in The Gazette within 14 days of the resolution[9]. Creditors and other interested parties are notified at this point (and a creditors’ meeting is typically held about one week later)[10].

4. Finalising Affairs: The liquidator collects and sells company assets, collects debts, and pays all known creditors in full (usually with interest).

5. Distribution to Shareholders: Any surplus cash left over (after debts and costs) is then distributed to the shareholders. Because the liquidator handles it, this distribution is treated as a capital gain rather than a dividend (see tax section).

6. Final Meeting and Dissolution: Once all assets are distributed, the liquidator holds a final meeting and files the necessary documents at Companies House. The company is then formally dissolved. According to one guide, shareholders often receive about 75% of the funds by around 3 months into the liquidation, with the remaining 25% (after any final tax clearances) arriving around 5–6 months in[11]. Ultimately, the whole process usually finishes within about 6 to 12 months[7].

For example: Imagine Mary owns a small family business. She and her brother sign a Declaration of Solvency in front of their solicitor. Three weeks later they hold a shareholder meeting and appoint an insolvency practitioner. Two weeks after that, the liquidator publishes the notice in the Gazette. Over the next few months the liquidator sells a piece of machinery and collects a final debt, pays the suppliers, then distributes the remaining cash to Mary and her brother. A final meeting is held and Companies House publishes the dissolution.

Throughout this process, the director’s role is fairly limited: cooperating with the liquidator and providing records as needed. The heavy lifting is done by the licensed insolvency practitioner.

Tax Implications: CGT vs Income Tax

One of the main advantages of an MVL is tax efficiency. Under UK tax law, any liquidation distribution is treated as a capital distribution, not as an income dividend. In practice, this means shareholders get capital gains treatment on the proceeds (with possible Entrepreneurs’ Relief/Business Asset Disposal Relief), rather than higher income tax on dividends or salary. The HMRC Capital Gains Manual confirms that distributions by a liquidator in winding up are capital distributions[12]. Likewise, tax authorities note that distributions on winding up “may still be subject to capital gains tax (and possibly benefit from BADR)”[13].

Basic CGT vs Dividend Tax: Currently (tax year 2025/26) a higher-rate taxpayer pays 33.75% on dividends above the £500 allowance[14], or 39.35% on additional rate. In contrast, a capital gain from the MVL usually qualifies for a much lower rate. Under Business Asset Disposal Relief (BADR, formerly Entrepreneurs’ Relief), gains on qualifying business disposals are taxed at 10% (before 6 April 2025) on gains up to the £1m lifetime limit[15]. From April 2025 this 10% becomes 14% on new gains. Even at 14%, that is still far lower than dividend tax rates above. (Any gain above the BADR limit or not eligible for relief would be taxed at the normal CGT rate, currently 20% for higher-rate taxpayers on most assets.)

In short, with an MVL your distributions are treated as capital gains. Assuming you meet the conditions (e.g. you’ve held at least 5% of shares/votes for 2 years, etc.), you can pay 10% CGT on up to £1m of gains[15]. By comparison, if you had tried to extract the same money as a final dividend, it could be taxed at 33.75% or higher[14], plus you’d have lost your annual dividend allowance.

A helpful rule of thumb is that if the total distribution is below £25,000, it will almost certainly be treated as a capital gain[16] (even without formal liquidation). For larger sums, doing the MVL ensures all shareholders get capital treatment. One insolvency advisor points out that “if [the assets] are above £25,000 then the distribution will normally be treated as a dividend with no BADR available… However, if a liquidator is appointed… the distributions made… may still be subject to capital gains tax (and possibly benefit from BADR)”[17]. In other words, using a liquidator (MVL) can often save shareholders many thousands of pounds in tax.

Example – Retiring Contractor: Suppose Jane, an IT contractor aged 62, has £80,000 of profits sitting in her limited company. If she simply took that as a dividend, a higher-rate taxpayer today would pay about 33.75% in dividend tax (roughly £27,000)[14]. With BADR via an MVL, Jane would pay 10% CGT on the full £80,000 (just £8,000)[15]. That’s nearly £19,000 less tax, a huge saving. (Remember, this assumes Jane meets BADR conditions and hasn’t used up her £1m relief limit.)

Other tax points: The company will still need to file any final corporation tax returns on profits up to the liquidation. Any PAYE/NIC due on final payroll also must be settled. MVL does not avoid corporation tax or NIC – it shifts the way the retained profits come out. It’s wise to ensure all outstanding VAT/CT/DST liabilities and returns are up to date before finalising the MVL. (Note: HMRC no longer issues formal “tax clearance” certificates for MVLs, but it does expect all taxes to be paid before dissolution[18][19].)

MVL vs Alternatives: CVL and Strike-Off

MVL vs CVL: If you’re solvent, an MVL is the right choice. If your company cannot pay all its debts, you must do a CVL. In a CVL the liquidator sells assets and all proceeds go to creditors. In an MVL, by contrast, the company’s debts are fully paid (using the assets) and only then the surplus is handed to shareholders[20]. A useful way to see it: “Under a CVL the assets are sold, and the funds are used to repay outstanding debt to creditors. With an MVL the value extracted from the company is directed to the members of the company (ensuring all liabilities are first covered)”[20].

Because an MVL is voluntary and the company is solvent, it is generally not seen as an insolvency event in the same way. This means directors’ reputations and credit records are unaffected, whereas a CVL might be noted as an insolvency. One guide notes that an MVL is a legal winding-up “in a tax-efficient manner” and won’t hit your credit score like a CVL could[21].

MVL vs Strike-Off: A company strike-off (dissolution) is another way to shut down a company if it’s no longer needed. Strike-off is simpler and cheaper (no liquidator), but it treats any retained profits as income for tax purposes. In practice, if you have substantial retained profits, an MVL is usually better. Experts often point to a rough £25,000 guideline: “If you have in excess of £25,000 to distribute, it is likely that an MVL will be a more cost-effective way of extracting these funds thanks to how distributions are treated when tax is levied”[22]. Above that, doing an MVL lets you use capital gains tax rates, whereas a struck-off dissolution would effectively give you a large final dividend taxed at the (higher) dividend rates.

For example, say Tom’s consultancy has £30,000 in the bank. He might try a strike-off to avoid fees, but because it’s over £25k, any distribution would lose the CGT treatment. With an MVL instead, Tom pays a small amount in fees and ends up with most of that £30k taxed at 10% (under BADR), rather than 33.75% as a final dividend.

Costs of an MVL (Fees & Disbursements)

You will incur professional and official fees in an MVL, which are paid out of the company’s assets. The largest cost is usually the liquidator’s fee. This varies by firm and complexity, but as one insolvency advisor notes, a typical MVL might cost roughly £1,000–£4,000 in fees (including VAT)[23]. Firms often quote around £995 for a straightforward case, though very cheap quotes (under £1,000) should be approached with caution[23]. Remember, the liquidator’s job is to prepare paperwork, realise assets, pay creditors, file final accounts, and distribute funds. Those fees come out of company money, but usually represent a small fraction of what the shareholders end up receiving.

In addition, there are some disbursements and official costs. These include:

• Gazette notice(s): The winding-up must be advertised in The Gazette. The standard fee (as of 2025) is about £92.20 ex-VAT for one insolvency notice[24] (around £110 including VAT). If related companies or individuals are listed, the fee can rise (the Gazette price list shows £92 for single-event, double for 2–5 related items, triple for 6–10, etc.[24]). A single notice is typically enough for an MVL.

• Insolvency bond: In some cases the liquidator may require an insolvency bond (insurance), especially if assets include trading stock or company officers’ past conduct. The bond premium is often a few hundred pounds, depending on the total asset value and risk.

• Companies House/Agent search fee: A company search is required when appointing a new liquidator. This is usually around £3–£10.

• Corporate tax clearance work: If any CT is owing, that must be settled (there’s no “fee” but the tax itself).

In total, aside from the liquidator’s time cost, you might budget a few hundred pounds for the notices and paperwork. For example, you might see something like: liquidator fee £1,500 + VAT, Gazette notice £110, bond £200 + VAT = ~£2,000 total. If the company only had £25,000 to distribute, that’s still less than 10% of the funds, and the tax saving (by using MVL) typically far outweighs these costs.

Case Study: Retiring Contractor

To tie this together, let’s walk through a fictional example. Alice is a self-employed IT contractor. At age 63, she plans to retire in 6 months. Her limited company has £80,000 in retained profits in the bank (and no debts). Alice and her accountant check that all company tax returns are up to date. They agree Alice’s company is solvent and meets MVL criteria.

Step 1 – Declaration and resolution: Alice prepares the Declaration of Solvency (with her accountant and lawyer) confirming all debts (there are none) can be paid within a year. In front of a solicitor she signs it. Four weeks later she calls a shareholders meeting (she’s the only shareholder) and passes the MVL resolution. She appoints a liquidator at that meeting.

Step 2 – Notices: The liquidator places the notice in The Gazette (cost ~£110 including VAT) and does a quick company search (£10). Within a week the notice appears. The liquidator also sends out letters to any minor creditors (Alice’s company has no creditors, since all bills were paid up to date).

Step 3 – Asset realisation: The company’s only asset is cash. There’s nothing to sell. The liquidator takes control of the bank account, ensures the final payroll taxes are paid, and then the cash is ready for distribution. The company has, say, £80,000 gross before fees and tax.

Step 4 – Paying debts and fees: The liquidator first pays any remaining corporation tax for this accounting period (if any), plus any small administration costs. Let’s say that leaves £78,000. From this, the liquidator’s fee (for example £1,200 + VAT = £1,440 total) is taken, plus the notice and search fees (total £120) and maybe a bond premium (£200 + VAT = £240). In this scenario those costs sum to about £1,800, leaving £76,200.

Step 5 – Distribution to Alice: Now comes the big benefit. That £76,200 is treated as a capital gain on Alice’s shares. She qualifies for Business Asset Disposal Relief (she’s held 100% of shares, been a director, company was trading, etc.). So she pays CGT at 10% on £76,200 – about £7,620 in tax. She ends up with roughly £68,580 net in her pocket.

If instead Alice had drawn an £80,000 final dividend outside of liquidation, that £80k (minus the small dividend allowance) would have been taxed at 33.75% (higher rate) – roughly £27,000 tax – leaving about £53,000 after tax. By using the MVL route, Alice keeps an extra £15,000+ in cash compared to dividend. Even after the £1,800 of MVL fees, she’s far better off.

This example shows how the timeline is quite manageable (Alice would get most funds out within 3–4 months) and how the tax savings dwarf the costs. It also illustrates why many retiring contractors and small business owners choose MVL as a clean exit strategy.

Key Takeaways

A Members’ Voluntary Liquidation is a formal way for solvent UK companies to close down and distribute their assets. It requires a Declaration of Solvency, a shareholder resolution, notices in The Gazette, and the appointment of a licensed insolvency practitioner. The whole process typically takes 6–12 months, during which debts are paid and remaining cash is paid out to shareholders[7][11].

The main benefit of an MVL is tax efficiency. Any funds distributed come out as a capital gain. Thanks to Business Asset Disposal Relief, qualifying shareholders may pay just 10% CGT on up to £1m of gains[15] (14% after April 2025), instead of the higher income/dividend tax rates they would otherwise face[14]. In contrast, a CVL is only for insolvent companies (and goes to creditors), and a simple strike-off may trigger dividend taxation.

There are fees – typically a few thousand pounds for the liquidator plus some Gazette notices and a bond[23][25]. For businesses with more than ~£25,000 to distribute, an MVL is usually cost-effective. The savings in tax for shareholders are often many times greater than the MVL fees.

If you’re a UK director or contractor looking to wind up a solvent company, an MVL is worth considering. It’s a regulated, orderly process. As one guide points out, it lets you extract “the value of the business in both a tax-efficient and cost-effective manner”[26]. Always work with a qualified insolvency practitioner to confirm eligibility and handle the details – their expertise will ensure you meet all legal requirements and maximise the tax advantages.