A members’ voluntary liquidation (MVL) is the formal way to close a solvent company. The directors make a statutory declaration that the company can pay all its debts, with interest, within 12 months; the shareholders then resolve to wind up and appoint a licensed insolvency practitioner, who pays the creditors in full and distributes what is left to the members, usually as capital rather than income.

When is an MVL used?

Gov.uk describes the typical cases: the owner wants to retire, wants to step away from a family business nobody else will run, or simply does not want to run the business any more. To qualify the company must be solvent and able to pay its debts within 12 months. The Insolvency Service also notes that an MVL treats all parties equally, with remaining funds distributed to members.

A solvent company can instead be struck off with form DS01, which is cheaper but has different limits and tax consequences; see company strike off and the tax side of closing a limited company. An MVL is generally chosen where the reserves are significant, where a formal process is wanted for creditors and shareholders, or where capital treatment of the final distribution is the priority.

What is the declaration of solvency?

It is the statutory declaration under section 89 of the Insolvency Act 1986 that turns a voluntary winding up into a members’ winding up (section 90). Its requirements are precise:

  • Who makes it: the directors, or a majority of them where there are more than two, at a directors’ meeting.
  • What it says: that they have made a full inquiry into the company’s affairs and formed the opinion that it will pay its debts in full, with interest at the official rate, within a stated period of no more than 12 months from the start of the winding up.
  • What it contains: a statement of the company’s assets and liabilities at the latest practicable date. Gov.uk adds the company’s name and address and the directors’ names and addresses, and says it must be signed in front of a solicitor or notary public.
  • When: within the five weeks immediately before the winding up resolution, or on the same day before the resolution is passed (section 89(2)). Made earlier, it has no effect.
  • Filing: a copy goes to Companies House within 15 days after the resolution (section 89(3)).

The official rate of interest is defined in section 189(4) as the greater of the Judgments Act 1838 rate on the day the company went into liquidation and the rate that applies to the debt anyway.

What if the directors get it wrong?

Making the declaration without reasonable grounds is a criminal offence punishable by imprisonment, a fine or both (section 89(4)). If the debts and interest are not paid or provided for within the stated period, the law presumes that the director did not have reasonable grounds unless the contrary is shown (section 89(5)). That is why the full inquiry needs to cover contingent items: open HMRC enquiries, warranty claims from a past business sale, dilapidations on a lease, and claims customers may bring.

If the liquidator later forms the view that the debts will not be paid within the declared period, section 95 requires a statement of affairs to be sent to creditors within seven days, and creditors are invited to nominate a liquidator. Under section 96 the case becomes a creditors’ voluntary liquidation from the day they nominate, or the day that procedure ends without a nomination, and the Act then applies as if the declaration had never been made.

What are the steps?

  1. The directors bring the books up to date, settle what liabilities they can and swear the declaration.
  2. If there is a qualifying floating charge, written notice goes to the holder at least five business days before the resolution, unless the holder consents sooner (section 84(2A) and (2B)).
  3. The members pass a special resolution to wind up voluntarily (section 84(1)(b)). The winding up starts at that moment (section 86).
  4. The members appoint one or more liquidators in general meeting (section 91(1)). The liquidator must be a licensed insolvency practitioner; see insolvency licensing.
  5. The resolution is advertised in the Gazette within 14 days (section 85) and the declaration is filed within 15 days.

On appointment, all the directors’ powers cease, except so far as the members in general meeting or the liquidator allow them to continue (section 91(2)).

How are creditors paid?

The liquidator pays the company’s debts and adjusts the rights of the shareholders among themselves (section 165(5)). Debts are paid equally, subject to the preferential rules (section 107). Because the company is solvent, section 189 then requires any surplus to be used to pay interest on proved debts for the period since the liquidation began, before anything else. Final corporation tax returns and the treatment of accounting periods are explained in corporation tax in liquidation.

How are distributions to members taxed?

Once creditors are paid, section 107 says the balance is distributed among members according to their rights and interests, unless the articles provide otherwise. The tax treatment is what makes an MVL attractive:

  • A distribution in respect of share capital in a winding up is not a distribution for the purposes of the Corporation Tax Acts (section 1030 of the Corporation Tax Act 2010), so it is not taxed as a dividend.
  • Instead, under section 122 of the Taxation of Chargeable Gains Act 1992, the shareholder is treated as disposing of an interest in the shares in return for the capital distribution, so capital gains tax applies.
  • Business Asset Disposal Relief charges qualifying gains at 18% for disposals from 6 April 2026 (14% for 2025 to 2026), up to a £1 million lifetime limit. For at least two years the shareholder must have been an officer or employee and held at least 5% of shares and votes in a trading company. If the company has stopped trading, the relief can still apply if the disposal is within three years.

Capital treatment is not guaranteed. Section 396B of the Income Tax (Trading and Other Income) Act 2005 treats the distribution as income where all its conditions are met, including a 5% interest in a close company, involvement in a similar trade or activity within two years after the distribution, and a main purpose of avoiding income tax; see the TAAR on distributions in a winding up.

Illustration only. Sam owns all 100 £1 shares in a trading company that ceased trading in March 2027. After paying all creditors and costs, the liquidator distributes £200,100 in July 2027. Sam’s gain is £200,000, ignoring the annual exempt amount. If Business Asset Disposal Relief applies, the tax is £36,000 at 18%. Paid as a final dividend instead, the same amount would have been taxed at dividend rates.

How does an MVL end?

When the affairs are fully wound up the liquidator makes up a final account showing how the winding up was conducted and how the property was disposed of. It must be sent to members within 14 days of being made up, and to Companies House within the same period but not before the members (section 94). The company is deemed dissolved three months after Companies House registers the account (section 201).

What are the common mistakes?

  • Swearing the declaration more than five weeks before the resolution, which makes it ineffective.
  • Treating the inquiry as a formality and missing contingent or tax liabilities.
  • Assuming every MVL distribution qualifies for Business Asset Disposal Relief without checking the two year conditions and the three year window after trading stops.
  • Starting a similar business soon afterwards without considering the TAAR.
  • Paying a large interim dividend just before the MVL, which is taxed as income and gives up the capital treatment.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.