There are many instances in which you and your business may part ways. Business owners sometimes decide to cash in on their business, may leave it due to retirement or may be forced to close it down because it’s just not a sustainable going concern.
In this article we’ll look at some of the considerations to be made when selling or closing down a business.
Selling A Business
Sole Traders & Partnerships need to settle up on any taxes owed to HMRC and notify their employees before selling their business. Employees may have to be provided with a redundancy or relocation package depending on what happens to them after the business has been sold. Realistically, this should be discussed with the buyer of your business. Employees have certain rights and it is important these aren’t violated during the process of selling your business.
Other considerations include VAT and tax – if your business has been VAT registered you will need to transfer the VAT details to the new owner of the business. You will need to send your self assessment tax return to HMRC and specify the date at which you stopped trading. Finally, if you have enjoyed a profit on selling your business, you could be subject to capital gains tax , although there are reliefs (such as entrepreneurs relief) that can lower the amount of capital gains tax you need to pay.
Selling A Limited Company – Some of the major responsibilities when selling an entire company are described below:
- New directors will need to be appointed, and the details of these will need to be registered at Companies House.
- Capital Gains Tax is payable upon the profit clocked up by the sale or on the value of any assets that you’re withdrawing from the company. You may be able to get Entrepreneurs Relief on taxes due, and these can be exceptionally generous.
- The VAT registration number will need to be transferred to the new owner.
If only part of the company is being sold, you will need to tell any employees that are directly affected, and provide them with details about their relocation or redundancy packages where required.
Entrepreneurs Relief – For sole traders, partners or company shareholders that sell their business, generous Entrepreneurs Relief is available to reduce the amount of capital gains tax payable from the sale. There are no limits to how many times Entrepreneurs Relief may be claimed. There is a £10 million lifetime claim on Entrepreneurs Relief.
For shareholders of a company who wish to claim Entrepreneurs Relief, they must first own at least 5% of the company shares for at least one year, and also be registered as a director, partner or employee of the company.
Sole traders that wish to claim Entrepreneurs Relief must be trading for a minimum one year in order to qualify.
Entrepreneurs relief must be claimed through HMRC, either via the Self Assessment Tax Return, or via the Entrepreneurs Relief form. The form also has more meaty detail about the specifics on who can make a claim and how to go about it. If you have a good accountant, they should be able to provide you with potent advice on a tax efficient exit strategy for the sale of your business.