The Autumn Budget 2024 has introduced significant tax reforms that will impact Company Directors, particularly those considering a Members’ Voluntary Liquidation (MVL) to close a solvent business or a Creditors’ Voluntary Liquidation (CVL) to address financial distress.
With changes to Capital Gains Tax (CGT) rates and Business Asset Disposal Relief (BADR) taking effect, timing and planning have become essential for maximising financial outcomes.
In this post, we’ll explain these key changes and their potential impact on your business exit strategy. We’ll also outline how Clarke Bell can help you make the right choice based on your company’s position.
Key Budget changes to consider
The Autumn Budget 2024 introduces major tax adjustments that could significantly affect Company Directors. Here’s what you need to know.
Business Asset Disposal Relief (BADR) and Capital Gains Tax (CGT)
What’s changing?
In the Autumn Budget, Chancellor Rachel Reeves announced immediate and future increases to CGT rates and phased adjustments to BADR:
CGT Rate increase
Effective 30 October 2024, the CGT rate on distributions through an MVL has risen to 18% for lower-rate taxpayers and 24% for higher-rate taxpayers. Although this increase narrows the gap with Income Tax, MVLs remain a more tax-efficient option than standard Income Tax treatment for many shareholders.
BADR changes
Business Asset Disposal Relief, which reduces CGT on qualifying business gains, is currently at a reduced rate of 10%. However, this rate will rise to 14% in April 2025 and 18% in April 2026, significantly impacting business owners aiming to close their companies tax-efficiently in the future. The £1 million lifetime cap on qualifying gains remains unchanged.
Impact on MVLs
These increases in CGT and BADR rates will reduce the net tax savings that make MVLs so appealing for solvent companies. Directors considering an MVL should aim to complete the process by 6 April 2025 to secure the current BADR rate of 10%. Failing to meet this deadline could result in higher tax liabilities, reducing the financial benefits of the MVL.
Employers’ National Insurance and National Minimum Wage increases
What’s changing?
The Budget also included increases to Employers’ National Insurance contributions and a rise in the National Minimum Wage. While these changes aim to support employees, they can place further financial strain on businesses already struggling to stay afloat.
Impact on insolvent companies
These cost increases can exacerbate financial challenges for companies facing significant debts and cash flow difficulties. If your business is struggling to manage these liabilities, a Creditors’ Voluntary Liquidation (CVL) might offer a viable route forward. It allows you to close the company, resolve outstanding debts, and start afresh.
Understanding your options with Clarke Bell
We understand navigating these situations can be complex. Here’s how we can help:
Members’ Voluntary Liquidation (MVL)
A Members’ Voluntary Liquidation is ideal for solvent businesses looking to wind down operations. This process allows you to extract remaining company funds and assets in a tax-efficient way, particularly if done before the new CGT and BADR rate increases.
How we can help:
To assess if an MVL is right for your company, we’ll need:
- The company name
- The final net asset position (including cash, debtors, etc.)
- The value of assets after liabilities are paid
- The preferred MVL option (see more details on our website).
Once we have this information, we can provide you with a quote and outline the MVL process and fees (starting from £995 + VAT + disbursements). Our team will also help ensure you complete the MVL process before the April 2025 deadline to lock in the most favourable tax treatment available under the current regulations.
Creditors’ Voluntary Liquidation (CVL)
For companies burdened by unsustainable debts, a Creditors’ Voluntary Liquidation offers an organised way to wind down operations while addressing outstanding creditor claims. This process can allow Directors to close a company in financial distress, legally discharge liabilities, and move forward without escalating debt pressures.
How we can help:
To assess if a CVL is appropriate for your company, we’ll need:
- The company name
- An overview of the company’s financial situation (such as trading status and creditor pressure)
- The nature of the business’s trade
- Details of assets and creditors
- The number of employees owed money (if applicable)
- Pension scheme information (if contributions are pending)
Using this information, our team will review your company’s specific needs, determine if a CVL is the right option, and provide details on the process and fees (starting from £1,995 + VAT). We’ll also explore alternative solutions if a CVL isn’t the most suitable path.
Timing is critical: act now to secure current tax advantages
Given the immediate and upcoming rate changes, acting quickly can significantly impact your company’s financial outcomes:
MVLs: For those considering an MVL, initiating the process well in advance of the April 2025 deadline is crucial. To meet this deadline, Clarke Bell recommends beginning the process by February 2025 to ensure timely completion and secure the lower 10% BADR rate.
CVLs: For companies facing financial distress, the sooner a CVL is initiated, the quicker you can resolve outstanding debts and move forward with a clean slate. Prompt action can help you manage creditor pressures effectively and avoid additional liabilities.
Get in touch with Clarke Bell for expert advice
Navigating the impact of the Autumn Budget can be challenging, but you don’t have to do it alone. Clarke Bell’s experienced team of licensed insolvency practitioners is here to guide you through your options and provide expert advice tailored to your company’s needs.
For a free and confidential consultation, reach out to us at 0161 907 4044 or email [email protected]. Alternatively, complete the contact form below to speak with one of our advisers. Together, we can explore the most tax-efficient solution for your business and ensure you’re well-prepared to face these Budget changes with confidence.
