Going, going, gone…the tax implications of selling a business
Selling a business is a complex procedure, and there are various tax implications to consider, some of which we explore below. For advice that is tailored to your specific circumstances, please contact us.
Forward planning will ensure a tax-efficient sale, which utilises all of the available reliefs. With careful forethought, and by consulting us, you can help to maximise the sale value and avoid an unnecessary tax bill.
It is generally beneficial to utilise losses prior to the sale of the business, as it can be difficult to transfer losses to a new owner. Furthermore, the purchaser may be reluctant to pay for losses for which there is no guarantee of future relief.
Terminal loss relief is available for individuals and companies, allowing the loss of the final 12 months of trading to be set against profits of the same trade made in any or all of the previous three tax years/accounting periods, with losses offset against the most recent year/period first.
Capital losses can only be relieved against capital gains and consideration can be given to selling assets to generate gains to ‘mop up’ unrelieved losses.
Taking advantage of Entrepreneurs’ Relief
Entrepreneurs’ Relief is a valuable relief available to individuals who are either in business as a sole trader, in a partnership, or who have a personal company in which they own shares.
The relief is given in respect of the disposal of all or part of a business, the assets in the business after it has stopped trading, or for the disposal of shares in a company, providing that the associated disposal conditions are met. The relief reduces the rate of CGT payable to 10% on qualifying disposals. It is available for qualifying gains up to the maximum lifetime limit of £10 million. This is a valuable relief, potentially saving tax of up to £1.8 million for an individual and £3.6 million for a couple. Please contact us for advice on maximising the relief.
Relief for costs
Costs will be incurred when selling a business and it is advisable to secure tax relief whenever possible. Although it is not always possible to control the timing of expenses, it is easier to obtain relief for expenses incurred prior to cessation. The general rule is that relief is available for costs incurred wholly and exclusively for the purposes of the business. To the extent that this condition is met, the expenses are deductible in computing the profits of a business.
Relief may also be available for post-cessation expenses to the extent that they would have been deductible had the business still been trading. However, post-cessation expenses can only be set against post-cessation receipts and without any receipts they may go unrelieved. CGT relief for costs of disposal will be at only 10% if the disposal scores for Entrepreneurs’ Relief, so please discuss your disposal with us at an early stage.
Value Added Tax (VAT)
Where a VAT registered business is transferred as a going concern, the new owner of the business can apply to keep the VAT registration number. Although VAT is normally due on a sale, special rules apply to a transfer on a going concern basis, meaning that where the conditions are met, the sale is not treated as a supply for VAT purposes.
Pay As You Earn (PAYE)
If you are an employer, the action you need to take in relation to your PAYE scheme will depend on whether the purchaser is taking over your payroll. If this is not happening, you will need to close down your PAYE scheme. Further guidance can be found on the HM Revenue & Customs (HMRC) website at http://www.hmrc.gov.uk/paye/ payroll/close-or-change.htm.
If you sell your business we will need to tell HMRC so that they can avoid sending unnecessary correspondence or asking you for payments that are not due.
Whatever your reasons for selling the business, we can work with you to help minimise your tax liability and…