Tax Tips When Selling a UK Business

Tax Tips for Selling Your Business

Selling a business can be a roller coaster ride. From the emotional involvement inherent in business ownership to the practical considerations of determining pricing, finding a buyer, and completing the sale, business transfers present numerous occasions for stress.

Added to this the prospect of navigating government tax regulations, and sellers may be tempted to throw their hands up in the air in frustration! But if you are seeking to sell your business, be encouraged. By investing a bit of time to read this article, you can ensure that abiding by tax regulations remains as least “taxing” as possible.

Before You Sell

Once you decide that you are going to sell your business, there are several preparatory steps you should take in order to be able more easily to abide by tax regulations.

• Update any and all official records relating to your business.

• Complete all final collections procedures with your customers.

• Have ready appropriate documentations for the buyer.

o For instance, many buyers’ agents will request background information regarding your business. This may include profit and loss data, lease agreements if applicable, and any pending loans.

• If you have any outstanding issues with HM Revenue & Customs (HMRC) – be they tax, VAT (value added tax), or National Insurance issues – be sure to adhere to the appropriate procedures for resolving these issues.

Depending upon the type of transaction your business sale will be – i.e., large-business or small-business, whether the transaction involves changes to business directors, etc. – you may need to notify certain officials of the pending sale and/or follow certain additional regulations.

These include:

• Notifying Companies House if your business sale involves personnel changes with the secretary or directors. (Additional information and forms can be found on the Companies House website.)

• Following the Information and Consultation of Employees (ICE) Regulations if your business is of a certain size.

Tax Regulations

Once you have completed these preliminary preparations for the sale of your business, you must be sure as you complete the sale to continue to adhere to the legal tax regulations for business sales. These include regulations regarding capital gains taxes and value added taxes (VAT).

• Capital Gains Tax

A capital gain is defined as an increase in the value of an asset from the time you acquire it to the time you dispose of it, such as through a sale. The value of this increase is viewed as a profit, i.e. as income, and, as such, may be subject to the capital gains tax.

For the purpose of selling a business entity, if since the time you acquired your business, it has experienced a profit resulting from the sale of assets, then you may be required to pay capital gains taxes on these assets. However, if you choose to reinvest any or all of the profit in the purchase of another business, the law includes a provision under which you may temporarily escape the capital gains tax through an asset “roll-over” into your new business.

• VAT

Certain companies are required to register for VAT, or the value added tax, and this registration requirement depends upon several factors.

1) Sales Outside of the European Community – When an EC company services a non-EC customer, the servicing company may be required to register for VAT.

2) Dealing in Taxable Supplies – When a company supplies goods or services that are subject to the value added tax, the company may be required to register for VAT.

3) Acquisitions – When an UK company purchases supplies for import from a VAT-registered company in another EC country, the UK company may be subject to VAT registration.

If the company you are selling is a VAT-registered company, then you must either cancel your VAT registration with the HMRC or transfer your registration to the new owner. A registration cancellation may be accomplished by filling out form VAT 7, and a transfer may be achieved by completing form VAT 68.

Additionally, effective September 1, 2007, regulations guiding VAT record-keeping have been updated, and current law now requires that the business seller keep all VAT records following the sale of the business. Once the business is in the hands of the new owner, the new owner may request permission to retain the seller’s original VAT registration number. If permission is granted, then the seller is required to transfer the VAT records to the new owner. The one exception to this requirement is if the seller requests and receives permission from HMRC to keep the original records. In this case, however, the seller must still provide to the buyer certain information to enable the buyer to remain in full compliance with VAT regulations.

While these rules and procedures may at first seem overwhelming, by following them, business sellers can, in reality, reduce the overall stress that so often seems “par for the course” in selling a business. So before yielding to the temptation to buckle under the “taxing” weight of tax considerations, implement the tips offered in this article – one step at a time – and you may just find that the weight of tax regulations suddenly becomes a bit lighter on your shoulders!

Find other information about selling a UK Business at www.thebusinesswizard.co.uk

This article was submitted by Paul Leach of PGL Internet Services, a Sydney based Search Engine Optimisation company.