Corporation Tax when you sell business assets
A limited company usually pays Corporation Tax on the profit when it sells a business asset. This profit is known as a chargeable gain. The same applies when a company otherwise disposes of an asset. Therefore, it pays to understand Corporation Tax when you sell business assets before you make any decisions.
What counts as a business asset?
Business assets come in many forms. For example, they can include:
- land and property
- equipment and machinery
- shares.
In addition, the rules don’t only cover limited companies. They also apply to most unincorporated associations. Likewise, they cover foreign companies with a UK branch or office.
However, sole traders and business partners follow different rules. Instead of Corporation Tax, they usually pay Capital Gains Tax when they sell business assets.
How do you calculate a chargeable gain?
To start with, companies normally take the sale proceeds of an asset. Next, they deduct the amount they originally paid for it. The result forms the basis of the chargeable gain.
Furthermore, companies can deduct certain costs linked to the asset. These include costs of buying, selling or improving it. Typical examples include legal fees and Stamp Duty.
When does market value apply?
Sometimes, a company gives an asset away. Alternatively, it may sell an asset for less than its market value to benefit the buyer. In these cases, the company may need to use market value instead. As a result, the gain may be higher than the actual proceeds suggest.
Can you use the Indexation Allowance?
For assets acquired before December 2017, companies can usually use the Indexation Allowance. This allowance reduces the gain to reflect inflation up to December 2017. However, it doesn’t cover any inflation after that date. In other words, the relief stops at December 2017 for later disposals.
How do capital losses work?
Generally, companies can deduct capital losses from chargeable gains. On the other hand, they can’t use these losses to reduce trading income or other profits. Moreover, HMRC may restrict losses where a company has claimed capital allowances.
What about intangible assets?
Intangible assets follow a separate set of rules. These include intellectual property and goodwill. Consequently, companies should take extra care with Corporation Tax when you sell business assets of this kind.
Get in touch
Are you planning to sell or dispose of a business asset? Our experienced tax team can help you calculate your gain and reduce your tax bill where possible. Contact us today for clear, expert advice.
