Firstly, and most importantly, the company must be solvent. That means that it's assets are worth more than the value of it's creditors, and that creditors will be paid in full (with interest) within 12 months of Liquidation. In practice, almost all assets are realised (leaving just cash) and all known creditors are paid in advance of the liquidation to minimise risk, often with the exception of Corporation Tax.

Secondly, there should be enough money left after paying creditors to make the the liquidation worthwhile. If the final distribution is £25,000 or less, there is no need to place the company into Members Voluntary Liquidation and your accountant will be able to talk you through the process. If you are interested exploring this option, HMRC have guidance here. If you are above that £25,000 limit, but not by a great deal, it may be worth asking your accountant to run the numbers to see if the likely tax savings will outweigh the costs of the liquidation. As an Insolvency Practitioner, I cannot give you or the company tax advice.

Finally, to get the tax benefits of a Members Voluntary Liquidation, you cannot carry on, or be involved with, the same trade or a trade similar to that of the wound up company at any time within two years from the date of the distribution. That scenario is covered by the Targeted Anti-Avoidance Rule, for further information see HMRC's guidance here.

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In the vast majority of cases, a Members Voluntary Liquidation will be the most tax-efficient way to close down a company.

Once a company is in Members Voluntary Liquidation, any distributions made by the Liquidator are treated as capital, rather than income. That means that rather than declaring the distributions as income, and potentially having to pay up to 45% tax, you will pay Capital Gains Tax of which is 18% or 28% depending on income. In owner-managed companies, you will often be qualify for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief), and only pay 10% on the distributions above your tax-free allowance.

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You cannot carry on, or be involved with, the same trade or a trade similar to that of the wound up company at any time within two years from the date of the distribution. If you fall foul of that, the distributions will considered income, and you will have a sizeable tax bill to settle. That scenario is covered by the Targeted Anti-Avoidance Rule ("TAAR"), for further information see HMRC's guidance here.

The TAAR was introduced to stop people from placing their company into a Members Voluntary Liquidation, taking the tax benefits that come with that, and then setting up a new company to do the same thing. In the past, people had abused this, looping the process to avoid income tax and pay the lower capital gains tax.

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Whilst the process looks longwinded in writing, it actually quite simple and JWH Insolvency Solutions Limited will produce all of the necessary paperwork required. It is vital to have the company's affairs in order prior to the Liquidation to avoid any unexpected complications.

When you shareholders receive their money depends on a couple of factors, such as whether they enter into a deed of indemnity and whether they pay the company's funds into our client account. If the answer to both is yes, then the bulk of the funds will be paid out within the first week of liquidation. Depending on your circumstances, you may want to hold some funds back to split the distributions over two tax years, making use of your Capital Gains Tax Allowance.

Drawing the money out of the company before liquidation is also an option, and the Liquidator will then be able to distribute the Directors' Loan Accounts in specie to the shareholders. It is important to calculate this correctly prior to Liquidation. HMRC have advised that this is acceptable practice.

A very simplified, brief outline of how the process will look for you:

• 1. Preparation - Prior to starting the process, the company should have ceased trading, dealt with it's physical assets leaving just cash at bank, have creditors paid and its accounts up to date.
• 2. Board Meeting to call a General Meeting to place the company into Members Voluntary Liquidation, deciding who will swear the Declaration of Solvency.
• 3. Swear the Declaration of Solvency before a solicitor.
• 4. Hold the General Meeting and Place the company into Liquidation and appointing a Liquidator.
• 5. Sign a Shareholders indemnity and receive the bulk of the company's net funds.
• 6. Wait for the Liquidator to carry out all of his duties and checks, this will take up from 12-16 weeks to deal with HMRC. Receive final distribution and notice of closure.

There will be things going on in the background throughout, and you will be kept updated on the progress, but that is generally what you will expect to see. If there are creditors or unresolved tax issues, then the process may take a lot longer to complete.

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The Deed of Indemnity is standard and very specific to Members Voluntary Liquidations. It essentially allows a Liquidator to make distributions to shareholder prior to the deadline for receiving creditor claims and HM Revenue and Customs clearance. In it's most basic terms, it say that the Liquidator is distributing the funds early, based on the information provided to him, and if that turns out to be incorrect and monies are required to settle legitimate debts, then the shareholders will pay back the amounts required.

Providing a shareholder indemnity enables the Liquidator to make payments to shareholders far sooner than normal. It currently takes at least 12 weeks from the date of Liquidation to received clearance from HMRC, with an indemnity in place, the bulk of funds will distributed within the first couple of days of the liquidation.

You always have the option to not provide an indemnity, but a distribution will not be made until the notice for claims has expired and HMRC's position is clear (a minimum of 12 weeks).

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A Declaration of Solvency is document that lists the company's assets and liabilities, evidencing its solvency. It also includes estimated costs for the Liquidation, such as fees, disbursements and interest.

It needs to be sworn by the majority of Directors, explicitly stating that the company will be able to settle its liabilites (including interest) within 12 months of the date of Liquidation.

There are severe consequences for swearing a Declaration of Solvency that turns out to be false, so it is vital that the information provided to your Insolvency Practitioner is full and accurate. The normal process is that your accountant will prepare final accounts in preparation for the Members Voluntary Liquidation, and the information will be taken from that.

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Once the Liquidator's Fees are fixed, working out the costs of a solvent liquidation is quite straightforward. Below is an example of costs on a Members Voluntary Liquidation with £95,000 of assets.

Cost	£
Liquidator's Fees	£2,000
IT Fees	£210
Statutory Advertising	£300
Insolvency Bond	£175
Total	£2,685

The only variable here is the Insolvency Bond, that is a payment that needs to paid on every formal appointment and depends entirely on the value of assets under the Liquidator's control. For assets over £5,000,000 the Insolvency Bond costs £1,450. I will be able to provide an accurate costing once the asset position becomes clear.

In almost all cases, every creditor apart from Corporation Tax will be paid in advance of the Liquidation. The reason behind that is because from the date of Liquidation, there is Statutory Interest running at 8% per annum. The reason for not normally paying the final Corporation Tax bill until after Liquidation is that the Early Repayment Discount is often higher than the Statutory Interest, effectively reducing the amount paid. That calculation is not as straightforward as costs, as it depends on various timings and the amount owed. Once a provisional liquidation date is set, I will be able to calculate the potential savings.

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