Selling a recruitment business has several tax implications that you need to consider. Here’s a breakdown of the key aspects. This is not intended to be tax advice and you should always contact a specialist accountant or tax adviser for full and certain information.
1. Capital Gains Tax (CGT)
When you sell your business, the profit you make from the sale is subject to Capital Gains Tax (CGT). The gain is calculated as the difference between the sale price and the base cost of the business (usually the purchase price plus any improvements).
CGT Rates:
- For higher or additional rate taxpayers, the CGT rate on the sale of business assets is 20%.
- For basic rate taxpayers, the CGT rate is 10% if the gain does not push your total income into the higher tax bracket. If it does, the excess gain is taxed at 20%.
2. Business Asset Disposal Relief (formerly Entrepreneurs’ Relief)
If you qualify for Business Asset Disposal Relief, you can reduce your CGT rate to 10% on gains from qualifying business assets, up to a lifetime limit of £1 million.
Qualification Criteria:
- You must be a sole trader, business partner, or shareholder.
- You must have owned the business for at least two years before the sale.
- If you are a shareholder, you need to own at least 5% of the shares and voting rights.
3. Holdover Relief
Holdover Relief allows you to defer CGT if you give away (rather than sell) the business assets as a gift or sell them at less than market value. The gain is passed on to the recipient, who will pay the CGT when they eventually sell the assets.
4. Incorporation Relief
If you transfer your business to a company in exchange for shares, Incorporation Relief allows you to defer the CGT on the gain until you sell those shares. The deferred gain reduces the base cost of the shares.
5. Stamp Duty
When you sell business assets, there may be Stamp Duty implications:
- Stamp Duty Land Tax (SDLT): Payable on the transfer of property.
- Stamp Duty: Payable on the transfer of shares.
6. Value Added Tax (VAT)
If your business is VAT-registered, you need to consider the VAT implications of the sale:
- The sale of the business as a going concern may be exempt from VAT if certain conditions are met.
- Otherwise, VAT may be applicable on the sale of individual assets.
7. Income Tax
If you are selling a business structured as a sole trader or partnership, the profits up to the date of sale are subject to Income Tax.
8. Legal and Professional Fees
While these are not taxes, you should also factor in the costs of legal, accounting, and professional advice when selling your business. Some of these costs may be deductible from the gains for CGT purposes.
Summary
The tax implications of selling a business in the UK can be complex, and it is essential to plan carefully. Speak to your tax adviser or accountant to ensure you understand all potential liabilities and reliefs available to you.