A Members' Voluntary Liquidation (MVL) is the formal, solvent way of closing a limited company and distributing its remaining reserves to the shareholders. For a contractor closing a PSC with retained profit, an MVL allows those reserves to be distributed as capital rather than as an income dividend, potentially within Business Asset Disposal Relief.
The attraction is the tax rate. Where it applies, BADR taxes the capital distribution at 18% (2026/27) up to the £1m lifetime limit, which can be lower than the income dividend rate (up to 39.35%) on the same reserves. An MVL is carried out by a licensed insolvency practitioner and is only available where the company is solvent and can pay its debts in full.
The major trap is the winding-up TAAR (ITTOIA 2005 s.396B). If the contractor carries on the same or a similar trade within two years of the distribution and a main purpose of the winding up was to reduce income tax, the capital distribution is re-characterised as an income dividend and BADR falls away. This is the classic "phoenix" pattern (liquidate, take capital, restart the same contracting business). An MVL should therefore never be presented as a clean capital exit for a contractor who intends to keep working in the same field within two years.