SELF-EMPLOYED SOLE TRADER: Business owners must comply with the rights of their employees if they sell a business.
They are also responsible for finalising all company tax affairs.
If You Employ Staff
The people who work for you have employee rights when you are selling your business (or closing it down).
All employers must inform their staff about:
- When and why they intend to sell the business or close it down.
- Any relevant redundancy terms or business relocation packages.
Note: Employers must avoid breaching the employment rights of workers if their business changes ownership. Read more in business transfers, takeovers and TUPE.
Informing HM Revenue and Customs
There is an online form to let HM Revenue and Customs know that you sold your business. You can use the same form if you stop self-employment or have never been self-employed. It also covers National Insurance.
Authorised agents can complete the form on behalf of their client. That is providing the agent used HMRC 64-8 or the online authorisation service. Contact the HMRC National Insurance helpline to cancel Class 2 NI contributions.
Note: HM Revenue and Customs do not accept dates earlier than 7 days before the end of self-employment.
VAT Registration
Most businesses will have VAT registration. It may be possible to change VAT details and the existing registration number to a new owner.
Self-assessment Tax Returns
Sending a Self Assessment tax return is another responsibility of selling your business. You must send the return before the Self Assessment deadlines to avoid a penalty. Make sure you insert the date that you ceased trading on the return.
Capital Gains Tax
In some cases, selling your business can realise a ‘capital gain‘. Typical examples include money made by selling company assets from your business.
This may mean that you need to pay Capital Gains Tax. But, some business sellers can often reduce the amount by claiming ‘Business Asset Disposal Relief‘. In some cases, there may also be some other reliefs available.
Responsibilities of Selling a Business Partnership
You will have different responsibilities when selling a business partnership. It will depend most on whether you sell only your share of the partnership or the entire partnership.
Note: Always check the agreements in the business partnership. It often has conditions attached or some restrictions for the sale.
If You Employ Staff
Your staff will have workers’ rights when you are selling your business partnership. The same also applies if you are closing it down.
You must inform your workforce about the sale and:
- When and why you are going to sell the partnership.
- Any relevant redundancy terms or business relocation packages.
Note: Employers must avoid breaching the employment rights of workers if their business changes ownership.
If You are Ending Self-employment
Often, you will stop self-employment after selling a partnership. You should contact HM Revenue and Customs to cancel your Class 2 National Insurance contributions.
VAT Registration
Most business partnerships will have VAT registration. You can usually change VAT information and an existing registration number to a new owner.
Self Assessment Tax Returns
Selling Your Share in a Partnership
Sending a personal Self Assessment tax return is another responsibility of selling your partnership. You must send the return before the Self Assessment deadline to avoid a penalty.
Selling a Whole Partnership
The legal responsibilities of selling an entire partnership include:
- Ensuring the ‘nominated partner‘ sends in a Partnership Tax Return before the deadline.
- Sending your personal Self Assessment tax return before the deadline.
Capital Gains Tax
In some cases, selling your business can realise a ‘capital gain‘. Typical examples include money made by selling company assets from your business.
This may mean that you need to pay Capital Gains Tax. But, some business sellers can often reduce the amount by claiming Entrepreneurs’ Relief. In some cases, there may also be some other reliefs available.
Claiming Business Transfer Relief
Incorporation Relief means you are receiving shares for transferring a business to a limited company. The main reason for claiming Incorporation Relief is to delay paying Capital Gains Tax (CGT). Thus, no tax would be due until you ‘dispose of’ or sell the shares.
To qualify for Incorporation Relief (often called business transfer relief), you must be trading as a sole trader or a business partnership and transfer the business, along with its assets (excluding cash), in return for ownership of shares in the company.
As a rule, claiming Incorporation Relief is an automatic process as long as you meet the eligibility criteria. Even so, you need to work out the amount of Capital Gains Tax you need to pay, by deducting the gain after selling the business from the market value of the shares that you received.
An Example:
The transfer of your business means you receive shares in the company that are valued at £150,000 – with a profit of £60,000.
After selling the shares you would need to work out the gain. In this example, the Capital Gains Tax calculation would be £90,000 (£150,000 – £60,000).
Receiving Cash with Company Shares
It is not uncommon to get shares and a sum of cash when transferring a business. If so, Incorporation Relief only applies to the proportion of the business that you exchanged for the shares. As a result, you would need to pay Capital Gains Tax on the cash portion.
Note: You may need to get help from a tax adviser (or HM Revenue and Customs) if you decide not to use your Incorporation Relief.
Responsibilities of Selling Your Limited Company
The legal responsibilities of selling a limited company vary. It will depend most on whether:
- You are selling the entire shareholding in a limited company.
- The company is selling part of its business.
Selling the Entire Shareholding
Capital Gains Tax
In some cases, selling your business can realise a ‘capital gain‘. Typical examples include money made by selling company assets from your business.
This may mean that you need to pay Capital Gains Tax. But, some business sellers can often reduce the amount by claiming Business Asset Disposal Relief (BADR). Often, there may be some other CGT reliefs for businesses available.
Appointing New Directors or Company Secretaries
There are several steps to make before you resign as a director yourself. You should appoint new directors and inform ‘Companies House‘ about the changes.
Charges against the Company
You may have secured finance for the company against your own personal property. An example would be a mortgage on a house to secure a business loan. In this case, you must inform the finance provider within 21 days of selling the company.
VAT Registration
Most companies will have VAT registration. In most cases, you can change the registered information and number to the new owner.
When a Company Sells Part of a Business
In some cases, the employees may get affected by the sale of your part in the business. An example is if the company sells its production business. It may affect the workforce in the factory.
In these situations you must inform the workers about the changes. This would include:
- The reason for selling and when part of the company will get sold.
- The details of any redundancy terms or company relocation packages (where applicable).
Note: During the change of a business ownership you must ensure the rights of employees do not get breached.