It’s essential to know your tax duties while managing a small business.
If your company sells or transfers assets, you might wonder if you have to pay capital gains tax.
Unlike sole traders and partnerships, limited companies don’t pay capital gains tax when they sell assets. You’ll pay corporation tax on your chargeable gains instead.
So, what are my gains?
To understand if you must pay corporation tax on an asset you sold as a firm, you must figure out how much profit you made.
Work out the asset’s value at the moment of sale (often the amount your firm got) and deduct the price you paid for it initially to get your chargeable gains. If the asset wasn’t purchased by you, you must subtract the market value.
You may also exclude any money your limited company spent when buying, selling, or improving the asset from the overall gains.
Keep in mind, though, that maintenance expenses are not tax-deductible. You can’t deduct the cost of maintenance for a corporate car from your gains, for example.
Once you’ve calculated everything, you must record your chargeable gains when you submit your yearly business tax return.
Depending on what assets you’re selling, there are different rules for reporting your gains. Speak to an expert if you’re unsure, and consult the guidance on the HMRC website.
What about older assets?
If your limited company bought an asset before December 2017, you’ll need to adjust for inflation slightly differently. To determine how much tax you owe, you must first determine what you would have paid for the asset in today’s currency:
- find out when your company sold the asset using the HMRC Indexation Allowance Guide
- find the figure (or inflation factor) for the year and month your company bought the asset
- multiply that inflation factor by the amount you paid for the asset
- deduct the total from your profit
Before subtracting the amount from your gains, you’ll need to calculate the impacts of inflation if you made any amendments to the asset.
Although it’s a little more complex, it does reduce your gains, which means you pay less tax.
What if I make a loss?
Sadly, you might not always make a profit when you dispose of a company asset. Sometimes you have to take a hit or just get rid of it to save on storage costs.
If this does happen, you can reduce the amount of chargeable gains by declaring this loss to HMRC.
You won’t be able to deduct the loss from your total taxable profits, however. Bear in mind the loss will be reduced by any allowances you’ve already claimed.
Talk to an expert
Business owners across the country still struggle to work out just what they need to do when calculating corporation tax on their company assets.
But you don’t have to do this by yourself. We’ve helped countless businesses with their company tax, so you’ll be taken care of.
Get in touch with us to talk about your assets, HMRC, and all things buying and selling.