Have You Considered All Tax Implications of Selling Your Business?
Whilst the highest tax cost of any business disposal will typically be Capital Gains Tax, there are various other taxes that should be considered. Thinking about these as early as possible within the sale process can help avoid any delays or unexpected costs further down the line, and can help ensure any available reliefs are identified.
If you are selling the trade and assets of a business, taxes applicable to each of the assets being transferred may include:
- VAT: it may be necessary to charge VAT on certain assets being transferred. However, if the sale qualifies as a Transfer of a business as a going concern (TOGC), it will not be treated as a supply for VAT purposes and no VAT should be charged. A number of conditions must be met to qualify as TOGC, and if these are met then the TOGC rules are mandatory.
- Land and Buildings Transaction Tax (LBTT): if properties are included in the sale these will be subject to LBTT in Scotland, or Stamp Duty Land Tax (SDLT) in England and Northern Ireland, or Land Transaction Tax (LTT) in Wales. Whilst this is a tax borne by the purchaser and not the seller, the additional cost may impact on what the purchaser is willing to pay.
- Capital allowances (CAs): the sales price of assets such as plant and machinery, fixtures, cars etc. has CAs implications for both the seller and purchaser, and therefore impacts the tax position of both parties. In addition, elections may need made to determine the value at which assets will pass for CAs purposes and these need to be dealt with at the correct stage of the disposal process.
If you are instead selling the shares in a company there are no VAT, LBTT or CAs implications as the assets and trade remain within the company. Instead stamp duty at 0.5% is payable on the value of shares being sold, but this is a tax payable by the purchaser.
Where the seller of either shares or a trade and assets is a company, the profits/gains after any applicable reliefs will be subject to corporation tax at 19%. When the shareholder then extracts the profits from the company or disposes of their shares they will be subject to income tax or capital gains tax, resulting in possible double taxation.
Once a sale is complete the seller’s on-going tax position should also be considered. This will include their inheritance tax position, as their position changes from owning an asset that may be exempt from IHT if it qualifies for Business Property Relief (BPR), to having proceeds that do not qualify for BPR so become part of their taxable estate.
Failure to identify the correct tax treatment of any transaction could result in unexpected costs, and HMRC charging penalties and interest for any errors.
What is our role?
Our Taxperts will work with you before, during and after the sale process to ensure that all taxes are considered to avoid unexpected liabilities or cashflow implications.
If you are thinking of selling your business and would like to discuss your circumstances with sector leading experts, then please contact our Transaction Tax team today.
You can read our advice on ‘Are you a trading business’ here.