BADR tax advantages still available for Members Voluntary Liquidations (MVL) at the current 10% tax rate until 5th April 2025
The Chancellor did not scrap BADR in her budget on 30th October as many had predicted, but she did increase the current Capital Gains Tax rate that applies to BADR from 10% to 14% for disposals made from 6th April 2025, and from 14% to 18% for disposals made from 6th April 2026. The relief being subject to a £1 million lifetime limit on gains is unchanged. In this article we look at what these BADR changes will mean to those business owners/directors who are looking to close their solvent businesses down using Members Voluntary Liquidations. We also look at some of the other measures in the budget that will increase business costs and could lead to an increase in business insolvencies.
Act now to benefit from the current 10% tax rate on BADR
When business owners decide to sell or wind-up their solvent company using Members Voluntary Liquidations (MVLs), they might be eligible for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief). This has been an attractive and popular method of reducing the amount of Capital Gains Tax that must be paid following the closure of a solvent company, from the standard rate to a 10% rate.
The relief is capped at a lifetime limit of £1 million, which at the 10% tax rate means that the maximum saving per person is currently £100,000.
From 6th April 2025, the tax rate increases to 14%, and from 6th April 2026 the tax rate increases to 18% – meaning that although the tax advantages of an MVL that qualifies for BADR remain in place, they will be considerably reduced over time.
So, if you are considering closing your solvent company via an MVL, your accountant has advised that you qualify for BADR and you do not want to pay the increased CGT that is coming, then please contact us soon for an initial discussion. Each individual’s tax position will be different, so it is important to take appropriate advice in the first place from your specialist tax advisor.
Now is the time to act. The deadline for new Members Voluntary Liquidations qualifying for BADR to enjoy the current 10% CGT tax rate is likely to be mid-February 2025 if we are to be able to make a distribution pre-6th April 2025.
Some of the other Budget measures and their possible effect on businesses
The insolvency statistics show that businesses have been struggling for several years. Company insolvencies in 2023 were just over 25,000, the highest since 1993 and 14% higher than 2022. Of these, the number of Creditors’ Voluntary Liquidations in 2023 was the highest since records began in 1960.
The reasons for this are well know: debt hangover from the Covid pandemic (and difficulties repaying Covid loans), high inflation, high energy costs, supply chain difficulties, etc.
The headline tax/cost increases in the Budget affecting businesses were:
- An increase in the rate of employer NICs to 15% and a cut in the Secondary Threshold to £5,000 from April 2025.
- The National Living Wage (NLM) will rise from £11.44 to £12.21 an hour from April 2025 and there will also be an increase in the National Minimum Wage for 18 to 20-year-olds from £8.60 to £10 an hour.
- The current 75% discount in business rates will be replaced by a reduced discount of 40% up to a maximum of £110,000 in April 2025
These measures will have an effect on businesses. We are particularly concerned for businesses in the hospitality and childcare sectors who traditionally employ a larger number of staff on minimum wage. They will see a huge increase in staff costs, as a result, and with the added burden of an increase in employer national insurance contributions, we envisage an increase in enquiries.
There were some ‘good news’ measures for business with Corporation Tax remaining at 25% for the duration of the Parliament, and the increase in the Employment Allowance from £5,000 to £10,500 to help small businesses with the employers NI rise.
However, the employer NIC increase was the single biggest tax increase in the budget, and whilst its impact on businesses, along with the increase in the NLM and the cut in business rates relief, remains to be seen, the concern is that these tax/cost increases will put more pressure on already struggling businesses, with the possibility of more insolvencies to come.
As Tina McKenzie, the Policy Chair of the Federation of Small Businesses said:
“Larger small, and medium-sized, businesses will struggle with the rises on employer national insurance. We’ve been very clear in our warning of the difficulty SMEs will be confronted with in meeting all of these changes at once – and the potential impact on jobs, wages and prices.”
Dr Roger Barker, Director of Policy at the Institute of Directors said:
“The changes to employers’ National Insurance represent a straightforward increase in business costs and take no account of whether a business is profitable or not. At a time when business confidence is low, hiring plans have already been hit by the government’s employment rights reforms, and the minimum wage is set to rise by more than inflation, this will hit employment prospects and earnings.”
As Insolvency Practitioners our aim is always to help struggling businesses survive and turn things around. The sooner we are contacted, the more we can do to help.
Our teams in all our offices are here to help. Our appointment taking Licensed Insolvency Practitioners are Antony Batty, Hugh Jesseman, Claire Howell, James Stares, Jeff Brenner, Matt Waghorn, Lawrence King and Bethan Bryant.
The initial consultation is FREE and without obligation. Contact us at any of our offices:
Or talk to any of our Antony Batty & Company Thames Valley sister company, located at:
