As a rule, you need to pay Corporation Tax when you sell business assets and make a 'chargeable gain'. Find out how limited companies work out chargeable gains and get taxed on intangible assets.
COMPANY ASSETS: There is more than one tax-efficient reason to sell, or 'dispose of', a business asset.
But, there are several key factors for company directors to be aware of before selling some, or all, of the assets that belong to the company.
As a rule, all limited companies pay Corporation Tax. It becomes liable on profit gained from selling (or disposing of) company assets, such as:
So, if you need to pay Corporation Tax when you sell business assets, why would you sell them? There are several valid reasons. It could be that the item is no longer required. It is also a practical way of generating extra capital.
A business asset can be tangible (e.g. equipment). It can also be intangible (e.g. brand reputation, goodwill, or types of intellectual property).
Business assets are items purchased either 'exclusively' or 'primarily' for business use. They can also get divided as current or non-current for corporate taxation purposes.
In simple terms, current assets are items which could get turned into cash within one year (e.g. inventory). Non-current assets are items which would be expected to provide value for more than one year (e.g. equipment, land, and property).
You can work out the gain (or loss) using a calculation (see below). The outcome will determine whether you need to pay taxes at the current Corporation Tax rate.
Note: Different rules apply for intangible assets like business reputation and intellectual property (see below).
There are certain situations whereby you would pay Capital Gains Tax for business assets (not Corporation Tax) such as if:
It would be unusual to sell an asset for exactly the same price that you originally paid for it. Thus, the gain (or the loss) is the difference between the price you paid for the asset and the price you sold it for.
There are times when you must use the market value instead. This rule would apply if the business 'gifted' the asset or sold it for less than its true value (e.g. to help the buyer).
Note: You would be able to deduct certain costs in the workings such as solicitor fees or Stamp Duty.
The calculation changes if you had the asset before December 2017. Instead, calculate how much you would have paid for the asset in today's money before working out the gain.
You should use HM Revenue and Customs Indexation Allowance for this part of the process. The allowance makes the gain smaller which means you would pay less tax.
You have now worked out the chargeable gain on sold business assets. In fact, you can also ask HM Revenue and Customs to check the valuation.
Fill in the 'SAV: post-transaction valuation checks for capital gains (CG34)' form. Send it to the address written on the form and you should get a response from HMRC after eight weeks.
You can also deduct any capital losses to reduce the total chargeable gains. The amount you claimed as capital allowances when selling an asset reduces the loss that you can claim.
Note: You can only deduct the capital losses from the chargeable gains. They must not get deducted from the trading income or from other profits.
Intangible assets relate to intellectual property and your work. They include things like the business reputation or 'goodwill'. The way you get taxed on gains made from intangible assets would depend on when they were first owned by your limited company.
Did your company acquire or create them after the 31st of March 2002? If so, you should include the gains on intangible assets in your company business income (trading profits). Thus, you would pay Corporation Tax on the trading profits.
Detailed guidance in the Capital Gains Manual can help you work out gains on intangible assets before the 1st of April 2002. It is wise to get help with taxation issues from a professional (e.g. a tax adviser or accountant).
Note: Company intangible assets can also come from a change in business structure. Examples would be after starting a business partnership or becoming a self-employed sole trader. In this case, you should use the date that you acquired or created the assets before the change in the business structure.
Paying Corporation Tax When a Limited Company Sells an Asset in United Kingdom