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In the right circumstances, can MVLs be used for tax planning?

Historically the tax benefit of trading through a company has been one of the main reasons contractors opt for that trading structure rather than operating as a sole trader or being in employment. However, the proposed changes in dividend tax rates and the loss of the dividend tax credit, due to come into effect from April 2016, will result in much of this benefit being eroded. The proposals include the introduction of a new tax free dividend allowance of £5,000 and the dividend rates are changing as follows:

  • 5 % on dividend income within the basic rate band
  • 5% on dividend income within the higher rate band
  • 1% on dividend income within the additional rate band

The new system means that anyone with significant dividend income will pay more tax.

Considering an MVL as part of the overall tax planning for contractors at the start and throughout the period of their contract (rather than simply as a trade cessation plan) has now never been so pertinent. The continuing existence of Entrepreneurs Relief for individual shareholders means that the single-contractor company can still be considered a tax efficient structure. There was mention in the Chancellor’s Autumn Statement that a consultation paper will be issued as regards the rules concerning company distributions which may result in more tax being paid and this will need monitoring. It may result in a window of opportunity to use MVLs for a period of time to achieve tax efficient distributions.

My-MVL is a unique online product allowing accountants to prepare and manage a solvent liquidation on behalf of their clients, presenting the solution as their own tax service rather than simply handing the process over to an insolvency practitioner. My-MVL is particularly suitable for the contractor accountant market were liquidations may be required across multiple clients at any one time.

Accountants can set the fee for the liquidation, either on a global or case-by-case basis. Within this fee there is a small fixed cost for using the software and the liquidators’ time in finalising the return of cash to shareholders.

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