The importance of budgeting in your small business cannot be underestimated. Not only does budgeting provide a benchmark against your peers, it also allows for variance analysis and performance assessment, leading to improved sales. Are you actively budgeting in your small business? Read on to learn more on budgeting processes that can help your small business.… Continue Reading
If you are planning on selling your small business, the two main options available to you are selling your company shares, which normally includes all the assets and liabilities of the company with no remaining connections to with the company. Or you can sell the business with its assets, name and goodwill usually referred to as an “asset sale”.
Selling your company shares is usually the best route to take as it is a much cleaner process of extraction for you and much more tax efficient option, as an asset sale can lead to a double tax charge when trying to extract the sale proceeds. Furthermore, you will also need to deal with the remaining liabilities and the legal entity of the company that remains.
Capital Gains Tax
Capital gains tax is a tax charged on all capital gains, which are profits on the sales of business assets. If you have a business asset, the capital gains tax only applies when you sell the asset, whether it be for a profit or loss.
Capital losses are tax differently depending on how long they are held. Short-term capital gains which are held under a year are taxed at the regular income tax rate. The tax rate for long-term gains, however, is 17 percent.
If you are selling a business, the most important consideration will normally be whether or not you will qualify for Entrepreneurs’ Relief, which means you only pay 10% capital gains tax on any qualifying gains. Entrepreneurs’ Relief can be claimed by Directors as well as Directors’ spouses or partners in qualifying cases, sole traders as well as Partners and employees of companies.
It is an incredibly valuable tax relief and there is no limit to how many times you can claim and you are able to claim up to £10 million of relief in total, during your lifetime.
Do you qualify for Entrepreneurs’ Relief?
You should be able to qualify for Entrepreneurs’ Relief if you decide to dispose or sell any of the following:-
- All or part of your business as a sole trader or business partner – including the business assets after it closed
- Shares in a Company where you have at least 5% of shares and voting rights
- Assets you lent to your business or Company
If you are sell shares in your company you must be meet all the following criteria for at least 24 months, before you sell your shares:-
- You are a sole trader or business partner
- You have owned the business for at least two years before the date you sell or close it
- You sell or dispose of your business assets within 3 years after selling or closing the business
You have at least 5% of the shares and voting rights in the Company
- You are entitled to at least 5% of the distributable profits & net assets of the Company
- You are an employee or director of the Company (or one in the same Group)
- The Company’s main activities are in trading (rather than non-trading activities like investment)
If you decide to sell assets you lent to the business, all of the following criteria must apply:
- You have sold your part of a business partnership or your shares in a Personal Company
- You owned the assets but let your business partnership or Personal Company use them for at least two years up to the date you sold your business or shares
Do I need to consider anything else to proceed?
When looking to partially or wholesale sell your business, it is important to consider your overall tax and long-term financial position before extracting profits.
For example, you may not be receiving tax credits or universal credits currently, which you not want to lose, as any income you receive could affect your personal allowance entitlement. Ideally, you should aim to avoid paying tax at the 45% additional rate if at all possible or 41% in Scotland.
You would expect though that whoever buys your company will expect you to extract all of the company’s held before the sale, albeit some working capital for the shorter term will likely be retained by the company. If there is a substantial amount of funds in the business to extract, it may make sense to stagger profit extraction over several years, which is more tax efficient than a last minute total extraction of profit.
Southside Accounting can help
If you are thinking of selling a business, remember that tax rules often change and it always pays to take professional advice first. Certainly, any shareholders with anything but a simple share structure should seek advice on their right to claim this highly important tax relief.
Southside Accounting are your local cloud accountants in Wimbledon and London. We’re local, like you. And we’re a dynamic small business. Just like you.
We are fully chartered, certified accountants so we’re well qualified to be the trusted advisers you need to help make your company a success.
All our clients are on the cloud and have access and support on cloud accounting software, in both QuickBooks and Xero.
Our fixed fee structure means there are no surprises. And our smart Service Plans are tailored to meet the particular demands of your business.
Call us to book a free no-obligation meeting today.
We always offer an initial free face to face meeting with prospective clients, so we can get to know you and your business and understand your unique circumstances and business goals.
Written by Shaima Todd.
Ponder this: When you head off on a long journey, would you not first check your car is road worthy and check it along the way if you had any concerns on the running of the car? Perhaps a seasoned traveller would wing it a few times – but is it really worth the risk? Imagine if you found yourself stranded in the middle of nowhere, kids in the back, and no phone signal to call for help, what then?
And so it is the same with your business finances. Without due planning or careful thought on how you will reach your end destination, including how you plan to finance your venture, how do you know you will achieve your goals? And why leave it to chance when you don’t have to?… Continue Reading
The concept of a four day working week is not a new one. Indeed, it has become the norm in Netherlands and piloted earlier this year by New Zealand based Perpetual Guardian, a financial services company, who claim a 20% rise in productivity in their workforce, increased profits and improved staff well being. So with such positive indicators in these early days of trialling, is this something you should be considering in your small business?
Good business management is essential for small business owners. As a small business owner, there will inevitably be areas of running your business where you will require expert advice or software solutions to help with the business management of your company.
Take the financial side, for instance. Some of your legal obligations when running a business, such as declaring your earnings if a sole trader or completing accounts if a limited company, are perhaps not the top of your agenda as you focus on establishing or growing your business.
While you may realise the importance of keeping an eye on your finances, this is in fact a common problem faced by small business founders. Indeed, while more than 660,000 new businesses are formed in the UK every year, over half will fail within their first five years of launching, one of the main reasons being down to poor cash management.
As a limited company, pension contributions are one of the few remaining tax breaks you can take advantage off as a company director and your employees, if you have any.
Pension contributions are already set in law as compulsory as part of the UK government’s auto-enrolment arrangements, which you can read more of here.
However, as a limited Company Director, you may want to consider contributing more than the minimum statutory amount to reduce your tax bill.
You may remember the major cyber security attack in 2017 ‘WannaCry’, which affected a huge swathe of individuals and organisations, including the NHS, and had a significant financial impact on all those infected. Since then, there has been a growing awareness heightened of cyber security measures and a strategic view by companies of the measures required to operate safely online.
Here are four key takeaways for small businesses to keep safe online and ensure robust cyber security measures are in place.
Every trade business is different. Whatever trade you are in, and whether you are looking to maintain your current lifestyle or if your looking to grow your business, it doesn’t have to cost the earth. Here we set out a few simple techniques that can bring in more business.
If you’re a small business that employs staff you will need to set up a payroll system to make sure you’re fulfilling your legal obligations and making payroll filings with HM Revenue & Customs (HMRC).
You will therefore need a robust, and ideally online, system in place that stands muster. Here’s where to start – setting up payroll and your definitive checklist.
If you are a business owner and are keen to reward your employees with bonuses, but would rather not have tax on bonuses, you do have the option to set up an Employee-Ownership Trust (EOT) which allows founding shareholders or owners of the company to give shares to employees tax efficiently as well as gift employees a tax-free bonus to a certain level per annum which is not subject to income tax (but does incur National Insurance Contributions charges).