A Members’ Voluntary Liquidation is one option. Talk to us about how to withdraw your company monies in a tax efficient way via Business Asset Disposal Relief (“BADR”)
Following the Government’s announcement that it will significantly reduce the energy costs support it will offer businesses by 85% for the 12 months from April 2023, The Federation of Small Businesses (FSB) described the move as “catastrophic”, saying the decision to reduce support marks “the beginning of the end for tens of thousands of small businesses, which have been relying on the Government’s energy support to survive this winter.”
As Insolvency Practitioners we know that many thousands of businesses have been severely affected by energy price rises, as well as the ravages wrought by the Pandemic, supply chain problems, labour shortages and Brexit related disruptions. This reduced energy support package could well be what tips many firms that were just surviving into insolvency. In this article, we look in more detail at this new, much reduced energy support package, and suggest that a Members Voluntary Liquidation might be the best way out for some, especially if the liquidation qualifies for Business Asset Disposal Relief (BADR).
FSB warns over reduced energy bill support
The Government’s plans are for a maximum support package of £5.5bn over the 12 months from April 2023, down from an estimated £18bn over the six months of this winter. The new package will comprise discounts set at £19.61 per megawatt hour for electricity and £6.97 per MWh for gas, at a time when current wholesale prices are above £302 per MWh and £107/MWh, respectively.
Martin McTague, national chair of the FSB, has warned:
“Many small firms will not be able to survive on the pennies provided through the latest version of the scheme. Two pence off a kilowatt-hour of electricity and half a pence off gas is totally insignificant for small businesses.”
Research from the FSB shows that one in four small firms anticipate either closing, downsizing, or radically changing their business model when the Government reduces energy support after March.
The British Chambers of Commerce said the value of the support package was “nowhere near” enough and meant “that for some firms, energy will now be a cost too far.”
Given that SMEs account for more than 30% of business turnover and jobs in the UK, it is easy to see the potential scale of the fall-out if wholesale energy prices remain high. Elaine Wilkins from our Bournemouth office comments:
“We are certainly seeing an increasing number of enquiries from businesses who are deeply concerned that continued energy price hikes will push them over the edge.”
What can firms facing Insolvency do?
For some firms, the recovery and turnaround procedures of Company Voluntary Arrangement (CVA) and Administration will be appropriate.
In their latest survey, published in 2021, R3 found that the Insolvency and Restructuring profession:
- Rescued 7,200 businesses
- Saved 297,000 jobs
- Returned £1.82 billion to creditors
- Advised 60,000 businesses and 144,000 individuals
Indeed, in c.40% of cases, where Insolvency Practitioners are instructed, liquidation is avoided, using processes such as Company Administrations and Company Voluntary Arrangements.
Sadly, there are also likely to be many thousands of businesses who have gone past the point of no return, for whom a Creditors Voluntary Liquidation (CVL) is the only option.
However, for those who might wish to close their companies before insolvency strikes, whilst there is still money in the bank, then a solvent liquidation – a Members’ Voluntary Liquidation – is worth considering, especially if Business Asset Disposal Relief is still available.
Business Asset Disposal Relief might be available if you close your solvent company using a Members Voluntary Liquidation.
When business owners decide to sell or wind-up their solvent company using a Members Voluntary Liquidation (MVL), they might be eligible for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief). This has been an attractive and popular method of reducing the amount of Capital Gains Tax that must be paid on the sale of a company and/or its assets, from the standard rate to a 10% rate, subject to the existing statutory limits. We can advise whether your business qualifies for such relief and what these limits are. It can save business owners many £000s.
In recent budgets there has usually been speculation that BADR will either be scrapped or reduced. The March 2020 budget, for example saw the relief capped at a lifetime limit of £1 million. Since then, BADR has remained untouched. However, against the background of Government budget ‘black holes’ each new budget produces speculation that BADR might be further cut or scrapped.
The next budget is due on 15th March 2023. Will BADR be affected?
We will not know for sure until the budget announcement is made, of course. The current consensus is that it will not be scrapped, but that further reductions/restrictions could be applied. These might include one, some, or all of the following:
- A minimum shareholding of 25%
- A minimum length of share ownership of 10 years
- A minimum age – 55? – for the relief to apply
In addition, any tax savings under whatever amendments are made to BADR could be combined with a reduction in Capital Gains Tax (CGT) personal allowances and/or an increase in the rate of CGT to align with income tax. This latter move was proposed by the Office of Tax Simplification in 2021 but has yet to be implemented by the Chancellor.
Talk to us about a Members Voluntary Liquidation and Business Asset Disposal Relief
So, if you are a company owner/director and you are considering winding-up your solvent company – especially if the current economic and financial pressures point to that being the best decision – consider whether using a Members Voluntary Liquidation would work for you.
As Elaine says:
“Now is the time to talk to us. Even if future budgets do not scrap BADR, further restrictions/reductions could apply. There is unlikely to be a better time than now.”
Here at Antony Batty & Company, we have successfully completed hundreds of MVLs since we opened for business in 1997.