# Advice for contractors closing down their contracting company Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2020-10-24 Category: BUSINESS Category URL: https://financedigest.com/category/business Meta Title: Closing Down Your PSC: Expert Advice for Contractors Facing Meta Description: Learn why a Members’ Voluntary Liquidation (MVL) is the smart choice for contractors looking to close down their company tax-efficiently with expert guidance URL: https://financedigest.com/advice-for-contractors-closing-down-their-contracting-companyhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/flexibility-15-1736838768346-compressed.jpg) _By **John Bell,** Director of insolvency firm [Clarke Bell](https://www.clarkebell.com/), which he founded in 1994._ We are living and working in unprecedented times – both personally and in our work. And, contractors with a limited company/Personal Service Company (PSC) will have been through more than their fair share of turbulent times recently. In the last two years contractors/PSCs have been bracing themselves for the impact of off-payroll legislation (IR35) on their lives and livelihoods, as the Government ploughed ahead with its plans to roll out the reforms to the private sector; as it, wrongly in many cases, believed some contractors should be deemed as employees and not genuine self-employed contractors.  Then came [Covid-19 and once again those self-employed workers were dealt another blow as the pandemic](https://www.financedigest.com/tissue-tapes-market-remains-afloat-amid-covid-19-pandemic-to-surge-positively-projects-fmi-2019-2029.html "Tissue Tapes Market Remains Afloat amid COVID-19 Pandemic, to Surge Positively, Projects FMI 2019 – 2029") left many without work overnight, albeit there was some relief as Off-Payroll was paused until April 2021.   And let’s not forget Brexit and all the uncertainty around it which is having a huge effect on a lot of businesses in the UK. It has been a bumpy few months for businesses of all sizes and, despite the [emergency measures announced by the Chancellor in an effort to keep the economy](https://www.financedigest.com/industrial-automation-incentives-by-governments-in-emerging-economies-drive-industrial-robots-market-fmi-study.html "Industrial Automation Incentives by Governments in Emerging Economies Drive Industrial Robots Market: FMI Study") afloat, not every contractor will want to carry on trading. Some will want to retire earlier than they’d previously planned – to get away from all the turmoil and ‘cash in’ all their hard earnings. Others, however, will have seen their [income falling](https://www.financedigest.com/four-fifths-of-uk-households-saw-disposable-income-fall-in-august-says-asda.html "Four fifths of UK households saw disposable income fall in August, says Asda") to such an extent that they are now having cash flow problems and are unable to pay some of their bills.   Some may be considering taking up a PAYE role for job security whilst others may be forced to put their [retirement plans](https://www.financedigest.com/should-i-roll-my-old-retirement-plans-into-a-roth.html "Should I Roll My Old Retirement Plans into a Roth?") on hold and continue working until they feel confident that their pension pot will serve them well. The combined effects of Brexit, Covid-19 and the new Off-Payroll tax have hit [businesses](https://www.financedigest.com/5-saas-tools-to-help-your-company-business-save-money-in-2022.html "5 SaaS Tools To Help Your Company/Business Save Money in 2022") hard and some company directors now think that closing down their company is the best course of action for them. John Bell is a chartered accountant and insolvency practitioner who founded insolvency firm [Clarke Bell](https://www.clarkebell.com/) in 1994.  Here is his [advice for contractors who are faced](https://www.financedigest.com/the-changing-face-of-financial-advice.html "The changing face of financial advice ") with the decision of closing down their PSCs. **A Members’ Voluntary Liquidation is the best option for contractors** If a contractor is planning on moving into an employee/PAYE role, retiring or pursuing some other life or career plan then a Members’ Voluntary Liquidation (MVL) is likely to be the most tax-efficient way to close a solvent company – particularly if the assets of a company are more than £25,000. An MVL is an HMRC-approved process and a licensed insolvency practitioner must be appointed. While it may have a negative-sounding ring to it – with terms like ‘liquidation’ and ‘insolvency practitioner’ – there is nothing negative about it. Quite the opposite, in fact. By placing a company into an MVL it is a clear illustration that someone has been [running](https://www.financedigest.com/elon-musk-who-runs-four-other-companies-will-now-be-twitter-ceo.html "Elon Musk, who runs four other companies, will now be Twitter CEO") a successful company. An MVL allows a contractor to draw any remaining [profit as a dividend](https://www.financedigest.com/british-property-portal-rightmove-hikes-dividend-after-annual-profit-jump.html "British property portal Rightmove hikes dividend after annual profit jump"), paying income tax on the dividend amount.  With the help of a licensed insolvency practitioner who will liquidate a company, the reserves can then be distributed as capital, which are then subject to [capital gains tax](https://www.financedigest.com/capital-tax-hikes-looming-how-companies-soften-the-blow.html "Capital Tax Hikes Looming: How Companies Soften the Blow") (CGT) at either 18% or 28%. Through an MVL, a contractor can also take advantage of [Business Asset](https://www.financedigest.com/more-businesses-investing-in-assets-like-virtual-credit-cards.html "More Businesses Investing In Assets Like Virtual Credit Cards") Disposal Relief (this was known as Entrepreneurs’ Relief before 6 April 2020).  If someone qualifies for this relief, this can mean that CGT will be paid at a rate of 10% on qualifying assets, which can translate into considerable [tax savings](https://www.financedigest.com/what-you-need-to-know-about-tax-savings-for-businesses-in-las-vegas-nv.html "What You Need to Know About Tax Savings for Businesses in Las Vegas NV").  Each shareholder of the limited company could also benefit from a tax-free allowance of £11,000, the Annual Exempt Amount.  If there are multiple shareholders, this can be highly efficient. To ascertain eligibility for Business Asset Disposal Relief / Entrepreneur’s Relief, contractors should speak to an Accountant and also look at the [Gov.uk website](https://www.gov.uk/business-asset-disposal-relief). **Free and confidential advice is available** Off-Payroll (IR35), Brexit and [Covid-19 are all things that are likely to have a huge impact](https://www.financedigest.com/predisposition-biomarkers-market-future-trends-segmentation-strategies-to-boost-growth-applications-with-covid-19-impact-till-2028.html "Predisposition Biomarkers Market Future Trends, Segmentation, Strategies to Boost Growth, Applications with Covid-19 Impact till 2028") on contractors and their limited companies and most firms of Insolvency Practitioners will offer free and confidential advice.  Navigating the solvent liquidation path can be done smoothly and painlessly.  My advice to contractors is to talk to their [accountants now so that they can steer a steady insolvency course and move on with their lives and careers](https://www.financedigest.com/how-to-get-started-on-a-career-in-accounting-and-how-to-know-if-its-right-for-you.html "How to Get Started on a Career in Accounting (and How to Know if It’s Right for You)"). --- This blog is powered by Superblog. 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