A record number of businesses are voluntarily closing due to the toll of Covid restrictions and rising taxes on business owners, according to data obtained by Price Bailey, the Top 30 accountants.
According to data obtained by Price Bailey, 14,526 businesses voluntarily appointed liquidators in 2021, a record number, and a seven per cent increase on the previous record set in 2020 when 13,590 businesses voluntarily appointed liquidators. Just 9,916 businesses voluntarily appointed liquidators in 2019.
Members’ voluntary liquidations, 2017 to 2021
Price Bailey says that it has seen a surge in enquiries from business owners looking to close their businesses down in an orderly way and take cash out. In many cases, however, business owners are acting in haste and could take more cash via a trade sale or management buy-out.
Price Bailey points out that many businesses which have been half-mothballed are likely to no longer be viable due to the disruption caused by Covid restrictions and lingering uncertainty about future restrictions in response to new variants.
Matt Howard, Partner at Price Bailey, comments: “We are seeing a surge of enquiries from business owners who are solvent but wish to cease trading and cash out. Many of these businesses have been wholly or partially mothballed over the past two years and the accelerated digitisation of the economy has left businesses needing to invest heavily to adapt. For businesses with significant overheads such as property the best option might be to terminate the lease and liquidate.”
“Increases to the dividend and National Insurance tax rates for company directors from April has prompted many owners of lifestyle businesses and limited company contractors to quit. Successive governments have chipped away at the tax advantages of running a business to the point where business owners are deciding that the risks outweigh the potential rewards. We may well see a flood of voluntary liquidations ahead of April’s tax rises.”
He adds: “Tax rises, a lack of financial support from the government, and changes to the IR35 rules have undoubtedly prompted many limited company contractors to cease trading and take employment.”
Price Bailey explains that the Government recently announced a 1.25% increase to dividend tax rates and National Insurance contributions from April 2022. The main rate for Corporation Tax will rise from 19% to 25% from April 2023. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief.
Businesses should consider a sale rather than an MVL
According to Price Bailey, many of these business owners are a decade or more before retirement age and their businesses are perfectly viable. Closing them down in many cases will result in job losses, which will have a knock-on effect on the wider economy.
Matt Howard says: “There is a large pool of potential buyers with cash to spend, and many of these businesses will have built up intangible value, such as goodwill, which will be lost if they simply cease to trade. Business owners are missing an opportunity to boost their pension pots if they liquidate without thoroughly exploring a sale first.”
According to Price Bailey, for viable businesses a members’ voluntary liquidation is often the worst option. Low interest rates mean that debt is cheap for potential buyers, so a trade sale or management buy-out are alternatives worth exploring.
Matt Howard says: “There are plenty of available buyers that are able to access cheap debt to finance acquisitions. High Street banks are showing a greater willingness to lend and there is a flourishing ecosystem of alternative lenders with an appetite to finance acquisitions.”