The document provides an overview of key tax issues related to buying and selling a business as a sole trader, partnership, or company. It discusses capital gains tax implications for the seller and options for structuring an acquisition, such as offering cash, shares, or loan stock. The document also provides useful questions for clients related to tax planning, capital gains, losses, incorporation, and expansion opportunities.

1. Business Tax Planning:
AUGUST 2012
PRACTICE BRIEFS
FACTSHEET 13
BUYING AND SELLING A
BUSINESS OR COMPANY
This factsheet is designed to be a quick,
easy to read summary of the main tax issues
that arise when buying or selling a business
owned by a sole trader, a partnership or
a company. We have also included some
questions that you may want to ask to
establish your clients’ needs.
For a more detailed account of the
taxation issues when buying or selling
a business and some test questions,
please see the full chapter included in
your Practice Briefs pack.
BUYING A BUSINESS FROM
A SOLE TRADER OR A
PARTNERSHIP
The buyer could either offer cash or, if the
buyer is a company, it could also offer its own
shares or loan stock, or any combination of Stock yy Route A – the purchasing company
these. The price agreed for stock and work-in- may offer shares in exchange for the
progress at the date of sale is included in business.
Capital gains tax ‘sales’ in the final accounts of the seller. The yy Route B – the purchasing company
The seller is chargeable to capital gains tax buyer can claim the cost in ‘purchases’ in the
may offer shares in exchange for shares
(CGT) on the sale of each chargeable asset of first year.
in a company owning the underlying
the business.
Stamp duty land tax and stamp business. Under this route, there are two
The seller may be able to claim CGT duty steps:
entrepreneurs’ relief, rollover relief or
reinvestment relief, subject to various Transfer of property is liable to stamp duty »» Step 1, the seller (sole trader or
conditions. land tax (SDLT) normally on the consideration partnership) incorporates a company
paid. Stamp duty is charged at 0.5 per cent (Newco) and transfers the business
Income tax on the transfer of shares and marketable
and assets into it.
securities. The duty is payable by the buyer.
When a sole trader or partnership sells a »» Step 2, the seller exchanges the
business, they are taxed on the same basis as Value added tax
if the business had ceased to trade. shares in Newco for shares in the
Value added tax (VAT) is normally payable on acquiring company.
Losses taxable supplies made by a VAT-registered
• The seller might be entitled to terminal business, and this includes the transfer of
most assets on the sale of the business. Assets
With both routes, CGT can arise on the
chargeable assets in the same way as if
loss relief if the business has made a loss they had been sold for cash. With route A,
before being sold. such as cash, debtors and investments are
the seller can claim entrepreneurs’ relief.
not normally liable to VAT. No VAT is payable
• If the business is a new venture for the on the sale of a going concern. This is a sale
With route B, any gain can be deferred until
the disposal of the shares in the purchasing
buyer (rather than an addition to an where the assets transferred are used by the
existing business), any losses made in the company.
buyer in the same kind of business as that
first four years of assessment can be offset carried on by the seller.
against other income in the previous Loan stock
three years. Offer of shares The purchasing company might offer
• Another option for both buyers and A company buying a business owned by a
to pay some or all of the purchase price
by way of a loan or loan stock, as an
sellers is to set losses arising in a particular sole trader or partnership has the option of
year of assessment against total income alternative to offering cash or shares. The
offering shares for a business as well as or
of that year. Any excess is available to tax is payable at the normal due date
instead of cash. There are two main ways in
set against capital gains (subject to relating to the date of sale, even though
which shares can be offered:
detailed rules). the loan might not be repaid for some
time.
01

2. FACTSHEET 13
PRACTICE BRIEFS
BUYING AND SELLING A BUSINESS
BUYING A BUSINESS Buy the shares in the company
OWNED BY A COMPANY Buy the shares in the company for cash, or, if the buyer is a company, for an issue of its own
There are two main ways to buy a business shares or loan stock. The seller’s capital gain arises on the sale of the shares. In practice, there
owned by a company. might be several shareholders, who must calculate their own gain or loss under the usual
rules. There is no rollover relief on the sale of shares, but reinvestment relief under the EIS or
Buy the business from the SEIS might be available to individual shareholders. Entrepreneurs’ relief may be available on
company a sale of shares in a trading company.
Buy the company’s business and its assets. A company will normally still be carrying on the same business after a sale of its shares, and
The seller company is chargeable to tax on so its tax position will generally not change.
capital gains on the sale of each chargeable There is no transfer of the business for VAT because the business remains in the company,
asset of the business. If the gains made by the unless the company is part of a group VAT registration.
company are distributed to the shareholders,
the shareholders will usually be liable to
further tax.
Listed below are some questions you may find useful when
USEFUL QUESTIONS talking to your client about buying or selling a business
1) Have you considered preparing your business received advice on the accounting and other
for sale from a tax point of view? If you fail to preparations for making the business easier to
qualify for entrepreneurs’ relief, you could end up sell?
paying 28 per cent tax on the gain, rather than
just 10 per cent. 6) Have you made any other capital gains in the
same year as the sale of your business?
2) Do you keep full and complete business
records? For example, does your company 7) Have you considered expanding your busi-
identify research and development costs sepa- ness by buying another business rather than by
rately? There are attractive tax reliefs for revenue growing it from within?
expenditure.
8) Have you considered how you and your
3) After the sale of your business, do you have spouse/partner could share the ownership of
further business plans? It may be possible to the business and other assets? Is there any scope
roll over any capital gain on the sale into other for your spouse/partner to work in the business?
assets.
9) There are potential tax savings to be achieved
4) Have you considered EIS (the enterprise from trading as a limited company. Would you
investment scheme) as a way to defer a capi- consider incorporation before selling your busi-
tal gains tax liability? It could be worthwhile, ness/after buying your business?
but you need to take great care with such risky
investments and obtain competent specialist 10) Does the business you are buying/selling
advice. have any losses? There are many opportunities
for relieving losses, but there are also some
5) If you are considering the purchase of a busi- pitfalls.
ness, have you received professional help with
the investigation? If you are selling, have you
ACTION: “We can help you with regards to buying and selling a business. Let’s
arrange a no-obligation consultation to find out how.”
This has been produced for general guidance only. The publishers can accept no liability for any loss made as a result of actions taken or not taken
02 as a result of relying on information contained in this publication. © Taxbriefs Ltd and PracticeWEB August 2012. Information correct at time of
going to press.