Selling your business? Move before taxes rise further

The Chancellor’s Spring Forecast Statement, delivered to a packed Parliament on 23 March 2022 and set against the backdrop of the Russian invasion of Ukraine and the cost-of-living crisis, will have offered temporary relief to business owners looking to sell their business. Since a review by the Office for Tax Simplification (OTS) which recommended that the rates of capital gains tax (CGT) and income tax be more closely aligned, and for the generous annual allowance to be reduced, many have been waiting with bated breath for a punitive rise to materialise. And, despite the government’s 2021 rejection of all but the most minor technical recommendations proposed by the OTS, business owners should remain watchful for future rises – especially given a highly uncertain economic outlook.

Meanwhile, a higher rate of Corporation Tax (in the form of a sliding scale up to 25%, as previously announced in the 2021 Autumn Budget) is set to come into force in April 2023.

Get your business sale ready

So, if you’re even vaguely thinking about selling your business, now is the time to act. It can take many months, and even years, to prepare your business for a sale. From instructing the right team to getting your house in order for buyer due diligence, and from deciding between a share or asset sale to negotiating heads of terms, there is a great deal of work to be done before a successful transaction can be made. Getting started as soon as possible could potentially help you to avoid the Corporation Tax rise in April 2023, depending on the complexity of your sale, or a hefty tax bill should a CGT rise be implemented, whether in the Autumn Budget or several years’ time.

How are business sales taxed?

Business sales are taxed differently, depending on whether the transaction is structured as a share sale or an asset sale. To read more about the differences between the two transactional structures, read our comprehensive blog here. Those disposing of their business via a share sale have to pay CGT on the profits of their sale; CGT is currently payable at a rate of 10% if the basic rate applies and 20% for higher rate taxpayers (and note that separate rates apply in relation to disposals of residential property). Now, imagine that CGT was payable at the same rates as income tax – i.e. 20% and 40% for higher and additional rate taxpayers, respectively. This would constitute a hefty additional tax bill that would eat significantly into the profits of a lucrative business sale. Those planning to sell their business via an asset sale, however, face paying Corporation Tax on the chargeable gains at a rate of 19% (in addition to other potential tax charges) – but, as mentioned earlier, they face a rate of up to 25% from April 2023.

It’s not too late

It’s not too late to get your business sale off the ground before higher business taxes come into force. Get started by instructing our expert team of Corporate Lawyers, whose knowledge and experience could help you achieve an expedient, smooth and tax-efficient sale that allows you to keep more of the hard-earned profits from your business sale.

To start getting your business ready for sale, get in touch with Mark Stigwood, who heads up our Corporate, Company & Commercial department:

mark.stigwood@attwaters.co.uk

0203 871 0022