All good things come to an end! All businesses will eventually cease upon selling or closure due to retirement or sadly death. Just as there are tax planning options when a business is purchased or started, there are also ways to mitigate and reduce taxes upon selling or closure. There are also ways to maximise the proceeds you will get from selling your business.
Selling a business
1. Long term planning is essential. Most businesses can be “tailored” over a number of years to maximise their attractiveness to potential buyers, leading to a quicker sale and higher proceeds;
2. Higher proceeds can be achieved by “vendor finance” where the buyer pays the seller over a number of years;
3. “Earn outs” where the sale proceeds are linked to future sales/profits can mean substantially higher amounts;
4. Apportioning the sale proceeds properly between the components can substantially reduce tax;
5. Careful timing of the sale can sometimes reduce tax payable;
6. Once sold, there are options for re-investing the proceeds into tax-efficient investments to reduce tax liabilities.
Closure of a business
1. Again, where possible, long term planning is essential. It is often better to wind down a business over a number of years to maximise proceeds.
2. We can help work out “the numbers” to see whether it’s better to wind down gradually and sell off stock slowly or whether to have a “fire sale” to quickly sell off stock at higher discounts;
3. Careful timing of the wind down and/or fire sale can sometimes reduce tax payable;
4. Limited companies have their own legal existence so will continue even without a “trade” being operated, so we can help you decide whether to wind down the limited company or to continue it but convert to to an investment company instead of a trading company.
Capital Gains Tax
In most cases, the sale of business assets, (including shares in a limited company), will create a capital gains tax liability. There are some reliefs and exemptions which can be used to reduce the tax due, if planned properly in advance, such as entreprenneurs’ relief and rollover relief.
Tax planning nearly always long term, and preferably considered at least 2-3 years before selling or closure. Last minute planning due to lack of foresight or unforeseen circumstances usually means that tax planning opportunities are lost and taxes are higher.
Tax De-registrations and Company Strike Off
As a business closes down or is sold, it needs to de-register from the various taxes. This is an area where there are still some opportunities for tax saving, such as de-registering from VAT at the optimum time to reduce final VAT liabilities, or paying more/less to the directors through the payroll scheme. It is also important to deregister at the right time to avoid having to submit unnecessary returns, risking late filing penalties etc.
For limited companies, there are formalities to adhere to. Solvent companies with relatively small reserves can apply for informal striking off which is relatively quick and cheap. Insolvent company (those who can’t pay all their debts including taxes) or those with larger reserves must use a qualified liquidator. But before either of those options, final accounts and returns need to be prepared and submitted. We can help with the planning of transactions in the final stages of trading such as deciding optimum levels of final dividends or final lump sum pension contributions. We can also help you decide which liquidation/strike off option is best for you and do preparatory work to reduce the time and cost of a liquidator if necessary.
Please contact us for more details of our services if you are thinking of selling or closing your business.