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A limited company in the United Kingdom is liable to pay Corporation Tax on earnings/gains made on disposing or selling business assets. Assets can either be tangible or intangible and might include equipment and machinery, land and property, and shares. Corporation Tax on gains is payable by:

  • Foreign organisations with a United Kingdom office or branch
  • Limited corporations
  • Unincorporated associations, such as co-operatives and clubs

An ‘unincorporated association’ is an establishment set up through a contract between a set of individuals who aim to work together for a motive that is other than earning profit (for example, a sports club or a voluntary group). It is not imperative to register an unincorporated establishment, and it does not cost much to set up an ‘unincorporated association’.

Corporation Tax When You Sell Business Assets

Individuals in the United Kingdom will be required to compute their gains to figure out the amount of tax payable. The gain is typically the variance between the amount paid to purchase the asset and the price at which the asset was sold for. If the asset is sold for less than it’s worth, then in such a scenario the business will be required to consider the asset’s market value to compute the gain. It must be noted that the business can subtract costs, such as Stamp Duty or solicitors’ fees

Tangible assets

If an individual had an asset before Dec-2017, he/she will be required to compute the amount payable for the asset in today’s currency using the HM Revenue and Customs (HMRC) Indexation Allowance, prior to calculating the gain.

Through this process, the gain amount will become smaller which will mean that the businesses pay less tax. The below mentioned steps can be followed to compute the gain amount:

  1. Calculate value of asset when it was sold – in other words, this is typically the amount received by a company post the sale of an asset
  2. Subtract the amount paid by the company for the asset. In case the asset wasn’t purchased in a regular commercial deal, the business will be required to compute it using the market value
  3. Subtract the amount spent by the business for improving, purchasing or selling the asset – this might include Stamp duty, solicitors’ fees but cannot include cost of maintenance of the asset
  4. If the business had the asset prior to Dec-2017, it can refer to HM Revenue and Custom’s Indexation Allowance guide for Dec-2017 and state the month when the asset was sold by the company. In the Indexation Allowance guide, find the inflation factor for the month and year when the business purchased the asset and multiply the inflation factor by the amount paid to purchase the asset.
  5. Subtract the total from the profit earned by the business

    Indexation Allowance provides inflation factor up to Dec-2017 and beginning 1-Jan-18 Indexation Allowance for capital gains has been ceased. When a business earns a capital gain on or post 1-Jan-18, the Indexation Allowance that will be applied to decide the chargeable gain will be computed up to Dec-2017. Below is the Indexation Allowance details from 2010-2018 and 2003-2009

    2010 2011 2012 2013 2014 2015 2016 2017
    January 0.276 0.214 0.168 0.131 0.101 0.089 0.075 0.047
    February 0.269 0.202 0.159 0.123 0.094 0.083 0.070 0.036
    March 0.260 0.196 0.155 0.118 0.091 0.082 0.065 0.033
    April 0.248 0.186 0.147 0.115 0.088 0.078 0.064 0.028
    May 0.244 0.182 0.147 0.112 0.087 0.076 0.061 0.024
    June 0.241 0.182 0.150 0.114 0.085 0.074 0.057 0.021
    July 0.244 0.185 0.149 0.114 0.086 0.075 0.056 0.019
    August 0.239 0.178 0.144 0.108 0.082 0.070 0.052 0.012
    September 0.234 0.169 0.139 0.104 0.080 0.071 0.050 0.011
    October 0.232 0.168 0.132 0.104 0.079 0.072 0.050 0.010
    November 0.226 0.166 0.132 0.103 0.082 0.070 0.047 0.008
    December 0.218 0.162 0.127 0.101 0.080 0.067 0.041 Nil
    2003 2004 2005 2006 2007 2008 2009
    January 0.559 0.519 0.472 0.438 0.379 0.326 0.324
    February 0.551 0.513 0.467 0.432 0.369 0.316 0.316
    March 0.546 0.507 0.460 0.426 0.361 0.311 0.316
    April 0.535 0.498 0.451 0.415 0.354 0.300 0.315
    May 0.532 0.491 0.448 0.407 0.349 0.293 0.307
    June 0.534 0.489 0.447 0.401 0.342 0.283 0.303
    July 0.534 0.489 0.447 0.401 0.349 0.285 0.303
    August 0.531 0.484 0.444 0.396 0.342 0.280 0.297
    September 0.524 0.478 0.440 0.390 0.337 0.273 0.292
    October 0.523 0.475 0.439 0.388 0.331 0.277 0.288
    November 0.522 0.471 0.436 0.383 0.326 0.288 0.284
    December 0.516 0.464 0.433 0.372 0.319 0.306 0.276

  6. If the business has made any improvement to the asset, it can calculate the effect of inflation in the similar manner. Subtract the total amount from the profit earned

Once the business has arrived at chargeable gains, the business can request HMRC to verify the gains by filling in a valuation check form. Business can use form CG34 to request HMRC to verify the valuation of an asset which has been used to calculate the Capital Gains Tax liability for the business. Completely filed form must be sent to the address mentioned on the form and permit HMRC a minimum of 2 months to respond. Let’s understand chargeable gains through an example:

  • Suppose the business sold an asset in Nov-2015 for £100,000
  • Subtract the amount spent on purchasing the asset in Mar-2003 – let’s assume the amount was £20,000. Then, £100,000 - £20,000 = £80,000
  • Subtract the amount spent on improving the asset in Feb-2010. Deduct £10,000 from £80,000 = £70,000 profit
  • Identify the inflation factor in Indexation Allowance for the month of Mar-2003 (0.546), and multiply the Indexation Allowance with the purchase price of the asset i.e. £20,000 × 0.546 = £10,9200
  • Identify the ‘improvement cost’ inflation factor for Feb-2010 (0.269), and multiply it will the cost of improvement (£10,000). Hence, 0.269 × £10,000 = £2,690
  • Reduce these amount from the profit i.e. £70,000 - £10,920 - £2,690 = £57,020 chargeable gain

However, if the business makes a loss while selling an asset then it possible to reduce the total chargeable gains by subtracting the capital losses

Intangible assets

Intangible assets comprise business reputation (such as goodwill) and intellectual property (IP). Having the correct type of IP protection can assist the business to stop other people from copying the following:

  • The name of a company’s brand or product
  • Any invention made by a company
  • The structural design or appearance of a product
  • Research papers, white papers written or produced by the business

Copyright, designs, patents, and trade-marks are different categories of IP protection. The business might get certain types of protection automatically, however, the business will be required to apply for others. A business owns an intellectual property if the following apply:

  • The business has created something and it meets the necessities for copyright, a design or a patent
  • The business purchased IP rights from the inventor or a former owner

It must be noted that an IP can – have multiple owners; belong to a business or an individual; be transferred or sold to another business or individual

Tax on chargeable gains

Businesses, in the United Kingdom, will be required to pay tax on chargeable gains generated by selling business assets. Here, business assets can be defined as:

  • Buildings and land
  • Business shares
  • Fittings and fixtures
  • Plant and machinery
  • Registered trademarks
  • Reputation of business (goodwill)

It is imperative to note that Capital Gains Tax is payable by an individual if he/she is in a business partnership or a self-employed sole trader. Other businesses such as limited companies are required to pay Corporation Tax on earnings from sales of their assets. Below mentioned are the Corporation Tax rates:

Rate 2014 2015 2016 2017 2018
Main rate (all profits except ring fence profits) - 20% 20% 19% 19%
Main rate (business with earnings above £300,000 21% - - - -
Upper limit – Marginal Relief £1,500,000 - - - -
Lower limit – Marginal Relief £300,000 - - - -
Small profits rate (business with earnings below £300,000) 20% - - - -
Distinct rate for unit trusts and open-ended investment corporations 20% 20% 20% 20% 20%
Standard portion 1/400 - - - -

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