Members' voluntary liquidations: what does HMRC's new approach mean for clients and advisers?

Members’ voluntary liquidations (MVLs) have long been an attractive way of returning capital in a tax efficient manner to shareholders of companies which have reached the end of their useful lives.

Until now, HM Revenue & Customs (HMRC) has provided clearance to liquidators, confirming it has no objection to the liquidation being completed and the company dissolved. This was good in terms of providing certainty to liquidators and shareholders. The bad news was that HMRC could take a very long time to provide the clearance, forcing liquidators to keep liquidations open and increasing costs.

All this changed in December 2023, when HMRC moved the goalposts by announcing it would no longer provide any clearances to liquidators. Instead, it is now up to directors, their advisers and liquidators to use their professional judgement as to when all of a company’s tax affairs are fully dealt with – and presumably face the consequences if HMRC disagrees afterwards.

What does this mean for liquidators?

Distributing assets to shareholders when there might be outstanding HMRC issues is a personal risk for liquidators – that is why liquidators get indemnities from shareholders.

The absence of any clearance from HMRC will increase the importance of those indemnities.

In order to exercise professional judgement, liquidators will need to carry out full due diligence of a company’s tax affairs (including PAYE, VAT and corporation tax) in order to be able to demonstrate with reasonable certainty that tax affairs have been fully and finally dealt with.

What does this mean for clients and advisers?

Directors and their advisers will also need to review the company’s tax affairs and make sure the company has been fully compliant, paid all tax due and completed all de-registrations/final returns as part of the pre-liquidation work.

This will require gathering a lot of evidence and reviewing for any risk areas.

Is this good or bad news?

Overall, we think this change by HMRC is good news.

On the one hand, the need to gather evidence and review it in the pre-liquidation period will add to costs, both for the prospective liquidators and the advisers to the company, who will need to review and provide quite a lot of information.

However, on the positive side, if the company is a low risk, fully compliant taxpayer, then it will be possible to close liquidations much more quickly than before, which will reduce the post-liquidation costs.

On balance it is likely that the positive news for post-liquidation costs will be offset by the additional need for pre-liquidation work, leaving the overall cost in an MVL broadly the same. But it should avoid the long and costly delays in getting to dissolution.

Find out more about PKF Francis Clark’s specialists in Business Recovery and Tax Advice for Businesses.

Our upcoming webinar ‘Navigating the business journey: Exit options, managing risk and protecting assets’ will include deciding when voluntary insolvency has benefit. To register, click here.