Capital Gains Tax for business

Our experts at DSR Tax Refunds know how hard it is to find good, quality information about HMRC’s tax regulations that is easy to understand, and that’s why we have created these handy guides to tell you everything you need to know. Our aim is to make life easier for our clients and that is why we want to share our expertise with you. You can also call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.

What do you have to pay Capital Gains Tax on?

If you have read our guide to Capital Gains Tax for individuals, you may have a bit of an idea about the kinds of possessions (assets) that Capital Gains Tax is applicable to, but they are slightly different for businesses. Just as Capital Gains Tax for an individual relates to the assets that person either sells or disposes of, when dealing with businesses it relates to assets of the business that are sold or disposed of in some way. When HMRC are talking about business assets, they mean such things as:

• Land and buildings

• Plant and machinery (such as a digger or a printing press)

• Fixtures and fittings

• Shares

• Registered trademarks

• The reputation of your business (this used to be referred to as the ‘goodwill’ your business has developed over its years of trading).

You only have to pay Capital Gains Tax on the gain, or profit, that you make when you dispose of the item. So if, for example, you decide to dispose of a printing press owned by your business, Capital Gains Tax works like this: the printing press initially cost you £20,000 and you have just sold it for £25,000 – so you are liable to pay Capital Gains Tax on the £5,000 gain you made but not on the whole £25,000 sale price you received for the asset. But you would only pay Capital Gains Tax if your total gains (that is the profit made in a tax year from all the assets you have disposed of in that tax year) is above a certain threshold set by HMRC.

To work out whether you are liable for Capital Gains Tax, you have to work out the gain or profit you made from disposing of the asset.

Our experts are at hand to help you with any tricky tax matters, so if this seems too complicated for you, give our friendly team a call on 0330 122 9972 and we can help.

Who is liable for Capital Gains Tax?

You will pay Capital Gains Tax if you are self-employed as a sole trader or in a business partnership. If you are in another kind of business set up, such as a limited company, then you would be liable to pay Corporation Tax on the profits of any asset sales instead.

When would you not pay Capital Gains Tax?

If you gifted the asset to your spouse or civil partner, or to a charity, then you wouldn’t be liable to pay Capital Gains Tax on the disposal of your business asset.

How do you work out your gain?

As shown in our example above, HMRC consider your gain to be the profit you made on disposing of the business asset – that is the difference between what you paid for the asset and what you have sold it for. However, there are a few instances when HMRC expect you to use the market value instead or the sale price to work out how much Capital Gains Tax you might be liable for.

You should use market value if:

• You gave the asset away instead of selling it (these rules differ if you gave it to a spouse, civil partner or to a charity).

• You sold it for less than it was worth as a favour to the buyer

• You inherited the asset and you don’t know what its Inheritance Tax value should be

• You owned it before April 1982.

If you are not sure what the market value of the asset should be, you can ask HMRC to check your valuation but be warned that this can take up to 2 extra months so this isn’t a quick option for you.

If the asset was originally given to you and you claimed Gift Hold-Over Relief, you need to use the amount it was originally bought for to work out how much profit you have made selling the asset – and if you paid less than it was worth, you need to calculate your gain or profit based on the amount you actually paid, not what it was worth at the time.

Can you make any deductions from the gain?

If you have incurred any costs whilst buying, selling or improving the asset in any way, you can deduct those costs from the gain (profit) you have made.

Costs that HMRC allow you to deduct include:

• Any fees you might have picked up, such as valuation fees or advertising costs in selling your asset.

• Any costs to improve your asset – although this doesn’t include normal repairs as HMRC would consider that you would’ve had to do those anyway to keep the asset in good working order.

• Stamp Duty Land Tax and VAT – unless you are able to reclaim your VAT.

HMRC won’t let you deduct the following costs:

• Loan interest on any loan used to buy your asset in the first place.

• Any costs that you could claim as business expenses – for example, utility costs for your business premises.

If you’re not sure whether a cost can be deducted, our team of tax preparation specialists can help you out, so call us on 0330 122 9972.

You can also apply any tax reliefs you are eligible to claim from the gain you make on disposing of your asset.

How do you work out if you need to pay anything?

Once you have calculated your initial gain and made any allowable deductions, you should then have a final gain figure. To work out whether you need to pay Capital Gains Tax, you need to add together all your gains that tax year (6^th April to 5^th April the following year) and then if your gains were above the tax-free allowance – also known by HMRC as the Annual Exempt Amount and not to be confused with your personal tax-free allowance – then you will need to pay Capital Gains Tax on those gains (profits) above that allowance.

If you are in a business partnership then you need to work out your share of each gain or loss and then the nominated partner will report this to HMRC through form SA803.

Expert help can be invaluable when calculating your Capital Gains Tax burden so if you are finding this far too tricky, call our team on 0330 122 9972 and we can make things much simpler for you.

How do you report a loss?

You can use any losses to reduce your taxable gains – HMRC call these ‘allowable losses’. You can deduct these from any gains you make in the same tax year and then if there are still unused losses, you can deduct them from previous tax years or carry them forward to a future tax year. They don’t need to be reported straight away and can be claimed up to 4 years after the end of the tax year in which you sold or disposed of the asset.

What about tax relief?

There are some ways in which HMRC will allow you to reduce the amount of Capital Gains Tax you have to pay or delay when you have to pay it. These are:

• Entrepreneurs’ Relief: you would only pay a rate of 10% Capital Gains Tax on any qualifying profits instead of the normal rate. This relief is for sole traders, business partnerships or those with shares in a ‘personal company’.

• Business Asset Rollover Relief: you can delay paying your Capital Gains Tax when you dispose of some types of asset if you go on to replace those same assets. To be eligible, you need to buy the new asset within 3 years of disposing of the old one and use both old and new assets in your business (rather than for personal use).

• Incorporation Relief: you can delay paying your Capital Gains Tax when you transfer your business to a company, if you are transferring the business in return for shares in that company. You can’t include cash assets in this transfer.

• Gift Hold-Over Relief: you don’t pay any Capital Gains Tax if you give away a business asset – the person you have given it to will pay the tax when they sell it. You have to have used the business asset in question while trading as a sole trader or business partner though, it doesn’t apply to any other business set ups.

• Disincorporation relief: you might be eligible for this relief if you become a partnership or sole trader after having been a limited company – this means that you would pay Capital Gains Tax in any assets you acquired during the change of business structure but you could apply this relief when you dispose of them.

If you sell your home and you have used any part of it for business purposes, you may have to pay Capital Gains Tax in that part when you sell it if the gain you make is above the exempt threshold.

How can DSR Tax Refunds help you?

We know that Capital Gains Tax can be a complicated affair for businesses, even with our helpful guide to tell you everything you might need to know. it’s all very well reading about it and knowing what HMRC’s stand on it is – but how do you apply that to your own circumstances? It can seem like an absolute minefield but help is always available and you don’t need to battle through this alone. Our team of experts at DSR Tax Refunds are always on hand to help our client and our excellent standing with HMRC means that we can make sure you don’t fall foul of their regulations, while claiming your maximum tax relief. We can even take care of all that paperwork and deal with HMRC on your behalf too. Call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.

This page was last updated on 24/10/2018.

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