Corporation Tax when you sell business assets

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Corporation Tax when you sell business assets

Overview

Your limited company usually pays Corporation Tax on the profit (‘chargeable gain’) from selling or disposing of an asset.

Corporation Tax on chargeable gains is also paid by:

Company assets

Assets are things your company owns, eg:

  • land and property
  • equipment and machinery
  • shares

There are different rules for intangible assets, eg intellectual property and business reputation (‘goodwill’).

When you pay Capital Gains Tax instead

You pay Capital Gains Tax instead of Corporation Tax if:

Work out a chargeable gain

  1. Work out the asset’s value when it was sold - either the amount of money your company received or the market value of the asset (if it was given away or sold for more or less than it was worth).

  2. Take away the amount your company paid for the asset - if it wasn’t acquired in a normal commercial transaction you may need to use the market value at the time.

  3. Take away any money your company spent buying, selling or improving the asset, eg solicitors’ fees and Stamp Duty. You can’t claim maintenance costs.

  4. Work out the value of the asset at today’s prices using HM Revenue and Customs’ (HMRC) Indexation Allowance - download the table for the month when your company sold the asset and find the figure (‘inflation factor’) for the month when the asset was bought. Then multiply the amount it was bought for by the inflation factor. If improvements were made to the asset, work out the effects of inflation in the same way.

You can’t use inflation factors to create or increase a loss.

Check your valuation

Fill in a valuation form and send it to your Corporation Tax office to check if you’ve worked out an asset’s value correctly.

Check recent tax forms or letters from HMRC for your tax office address, or call the helpline.

Example - working out the gain

Step Result
1. How much your company got for the asset in May 2011 £200,000
2. Subtract the amount your company bought it for in November 1997 (£120,000) £200,000 - £120,000 = £80,000
3. Subtract any fees (expenses on improving the asset in June 2006 were £10,000) £80,000 - £10,000 = £70,000
4. Find the inflation factor (in HMRC’s Indexation Allowance) for the month it was bought in 0.474
5. Calculate the indexation allowance - multiply the amount it was bought for by the inflation factor £120,000 x 0.474 = £56,880
6. Take away the indexation allowance from the profit £70,000 - £56,880 = £13,120
7. Find the inflation factor for the expenses 0.185
8. Calculate the indexation allowance for the expenses £10,000 x 0.185 = £1,850
9. Deduct the indexation allowance for the expenses £13,120 - £1,850 = £11,270
Gain £11,270

The Indexation 
Allowance means that there’ll be no gain unless the value of an asset
 has gone up by more than the inflation rate.

Intangible assets

‘Intangible assets’ include intellectual property and business reputation (‘goodwill’).

How you’re taxed on gains from intangible assets depends on when your limited company first owned them.

After 31 March 2002

Include gains on intangible assets in your company’s business income (‘trading profits’) if your company acquired or created them after 31 March 2002. You pay Corporation Tax on trading profits.

Before 1 April 2002

Use the detailed guidance to work out gains on intangible assets if your company acquired or created them before 1 April 2002.

If your company’s intangible assets came from a change in business structure (eg from a business partnership or self-employed sole trader) use the date the assets were acquired or created before the structure change.

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