As a business owner, it’s important to understand the tax implications of selling assets. One common question does a limited company pay capital gains tax. In this article, we’ll explore the answer to this question and provide some helpful information for business owners.
Does a limited company pay capital gains tax?
When you run a limited company, it’s important to understand what obligations you have to the taxman. If you’re selling or transferring assets your business owns, you might wonder does a limited company pay capital gains tax.
Essentially, both companies and individuals do pay tax on gains – but they’re called different things and have different reliefs. If you’re a limited company, you’ll pay corporation tax on any chargeable gains.
Calculating chargeable gains
You’ll need to calculate how much profit you made from the sale of a company asset to find out whether or not you need to pay corporation tax on it.
In most cases, you’ll work this out by taking the amount you paid for the asset away from the amount you sold it for. There are lots of factors and scenarios that can change this calculation though – for example if you received the asset from a relative – so you’ll need advice to make sure you’ve worked it out correctly.
If your limited company incurred any costs in purchasing, selling, or making improvements on the asset, you can usually deduct those from the total gains, too.
Keep in mind that maintenance costs are non-deductible. That means that if you pay for repairs on a property, for example, you can’t claim that cost against your gains.
After you’ve worked all that out, you need to report your chargeable gains when filing your yearly company tax return.
Depending on what assets you’re selling or disposing of, there can be different rules for reporting your chargeable gains. To make sure you’ve got everything right in your tax return, you should speak to an expert and check out guidance on the HMRC website.
Older assets
If your limited company acquired an asset before December 2017, you should be eligible for the indexation allowance. To calculate how much tax you owe:
- Find the month 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
If you made any improvements to the asset, you’ll also need to work out the effects of inflation before deducting the total from your gains.
This is a little more complicated, but the benefit is that it makes your gains smaller, meaning you pay less tax.
Making a loss
You may not always make a profit on selling company assets. Sometimes, you may sell an asset for less than you paid for it, or end up giving it away.
If this happens to you, you can reduce the amount of chargeable gains tax you have to pay by declaring this loss to HMRC.
However, you won’t be able to deduct the loss from your total taxable profits. You should also keep in mind that the loss will be reduced by any allowances you’ve already claimed.
Talk to an accountant
We hope that we have answered the question “Does a limited company pay capital gains tax?” But even the most savvy business-owners struggle to get their heads around the ins and outs of corporation tax and chargeable gains. Luckily, you don’t have to tackle it by yourself.
At Harries Watkins Jones, we pride ourselves in making your life easier. From preparing your limited company’s tax returns to providing in-depth financial analysis, we make sure everything is done right so you don’t have to worry.
Get in touch today to learn about how we can sort out your tax return and help you make the most out of your limited company.
