The Differences Between MVL vs Striking Off
Striking off application by a company
The Striking Off route is best suited to companies which have net assets up to £25,000.
If the assets to be distributed to shareholders are not more than £25,000, shareholders can automatically get capital gains treatment on a strike off (no prior application to HM Revenue & Customs required), but if the assets are above £25,000, the tax treatment will be as dividends so income tax.
Before applying to strike off a limited company, it must be closed down legally.
A notice is also advertised in the London Gazette.
A company is not eligible for striking off if, in the previous three months, it has:
- changed its name
- traded or otherwise carried on business
- made a disposal for value of property or rights that, immediately before ceasing to trade or otherwise carry on business, it held for the purpose of disposal for gain in the normal course of trading or otherwise carrying on business, or
- engaged in any other activity, except one which is:
- (i) necessary or expedient for the purpose of making an application under that section, or deciding whether to do so,
- (ii) necessary or expedient for the purpose of concluding the affairs of the company,
- (iii) necessary or expedient for the purpose of complying with any statutory requirement, or
- (iv) Specified by the Secretary of State by order for the purposes of this sub-paragraph.
A company is also not eligible if it is subject, or proposed subject, to any insolvency proceedings or compromise arrangement.
If a company does not meet these conditions, it will have to be voluntarily liquidated.
Additional considerations for striking off
- Bona Vacantia: If the company has any remaining assets when it is dissolved, these automatically vest with the Crown.
- Keeping records: Business documents must be kept for seven years after the company is dissolved.
- Director liability: If a director fails to comply with the rules regarding a company’s application for striking off, he can be held personally liable to a fine and possible prosecution.
- Restoration: A company can be restored to the register within six years of dissolution.
Members’ Voluntary Liquidation
This route is best suited to companies which have net assets in excess of £25,000 or are not eligible for a striking-off application and are solvent.
Benefits of a Members’ Voluntary Liquidation?
- Tax efficient distributions over £25,000 to shareholders (capital gains tax treatment)
- Cost effective procedure (MVL cost vs personal tax savings to shareholders)
- Shareholders can get quick access to funds
- Distributions can be in cash, in specie or both
- Timing (no need to wait for three months post cessation of trade)
- A legal process to bring the company’s affairs to an orderly conclusion
- Saves accounting fees as requirement to file statutory accounts ends on a company entering liquidation
- An independent licensed Insolvency Practitioner is appointed to complete the process for you
- Companies House commence the dissolution process once the liquidation ends
- Company books and records only kept for twelve months after dissolution
- Restoration period of six years is the same as striking off application
Capital gains tax normally leads to lower tax bills than dividends, but not always, so check with your personal tax accountant first. If you do not have a personal tax accountant, we can help you.
This information is only provided for general information. For specific advice, contact us for a free no obligation consultation.
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