Corporation Tax When Selling Your Business

When you sell or transfer your business, there are important Corporation Tax consequences to consider—both for your company and for you personally as a shareholder or owner. The tax you'll pay depends on how you structure the sale, whether you're selling shares or assets, and...

Selling Your Company as a Going Concern

When you sell your company as a going concern, you're selling the shares in the business for its market value as a whole. The business continues to operate under new ownership.

For the company: There are Corporation Tax consequences when the company is sold this way, though the company itself continues to exist under new ownership.

For you as a shareholder: You'll be liable for Capital Gains Tax on the sale of your shares. You pay tax on any increase in the value of the shares above what you originally paid for them (known as the base cost). You may be able to reduce this tax bill by claiming Business Asset Disposal Relief or other available reliefs.

If you're selling a limited company, remember to appoint new directors before you resign, and tell Companies House about these changes. If you've secured company finance against personal property (such as a mortgage on your home), you must notify the lender within 21 days of the sale.

Selling Business Assets Separately

If your company stops trading and you sell its assets separately—such as plant, machinery, vehicles, computers, or customer lists—your company will pay Corporation Tax on any chargeable gains and other profits from these disposals.

For the company: Corporation Tax is due on any profits made when selling assets for more than their original cost or book value.

For you as a shareholder: The tax you pay personally depends on what happens to the company afterwards:

If you wind up the company properly through members' voluntary liquidation, you'll pay Capital Gains Tax on the increase in share value, minus any winding-up costs and available reliefs.
If you let the company be struck off the Companies Register (rather than winding it up formally) and keep the cash proceeds, you'll normally pay Income Tax instead—unless all these conditions apply:

- The company's debts are settled

- Any debts owed to the company are collected

- The amount you receive is £25,000 or less

This is an important distinction: Income Tax rates are typically higher than Capital Gains Tax rates, so the method you choose to close your company can significantly affect your tax bill.

Transferring Your Business Out of a Company (Disincorporation)

You can transfer a company's business and assets to yourself and other shareholders, then continue running the business as a sole trader or partnership. This is called disincorporation.

Corporation Tax on asset transfers: When the company transfers assets to you or other shareholders, it must treat the transfer as if it sold the assets at market value on the transfer date—even if you pay nothing or less than market value. The company pays Corporation Tax on any gains.

For example, if the company transfers an asset with a market value of £1,000 to you for free, the company must calculate its Corporation Tax liability as if it sold that asset for £1,000.

Trading losses: Corporation Tax losses cannot be transferred to you personally when you take over the business, as you'll be paying Income Tax going forward. Any unused company losses will be lost. However, the company may be able to claim Terminal Loss Relief, which allows trading losses from the final 12 months to be carried back and offset against profits from the previous three years.

Income Tax or Capital Gains Tax for you: The tax you pay depends on whether and how you close the company:

If you keep the company (dormant or for other purposes), distributions are treated as income and you pay Income Tax
If you close through members' voluntary liquidation, distributions are treated as capital and you pay Capital Gains Tax
If you strike off the company, distributions are usually treated as income and you pay Income Tax

Anti-avoidance rules: Special anti-avoidance provisions may apply if you continue carrying on the same or similar trade after winding up, or if the main purpose of the transaction is to reduce Income Tax. These rules can cause distributions that would normally be subject to Capital Gains Tax to be taxed as income instead. If you're unsure whether these rules apply, you can make a statutory clearance application to HMRC.

Ongoing Responsibilities During Winding Up

If your company is being wound up, it remains subject to Corporation Tax obligations throughout the process.

When winding up starts: The winding up begins on whichever comes first:

Shareholders pass a winding-up resolution
A court imposes a winding-up order
A liquidator is appointed

Accounting periods: Your current Corporation Tax accounting period ends when winding up begins, and a new period starts. From then on, accounting periods run for 12 months until winding up is complete.

Filing and payment: You must continue to file Company Tax Returns and pay Corporation Tax on taxable profits arising from:

Trading income and other income (such as investment income)
Sale of goods or assets (chargeable gains), including sales to pay creditors

Corporation Tax rates during winding up remain the same as before.

After Your Company Is Struck Off

Once a company is dissolved and struck off the Companies House register, it no longer exists as a legal entity. HMRC cannot respond to correspondence from former directors, agents or shareholders.

Any property, cash and assets still owned by the company when it's dissolved automatically pass to the Crown under a legal principle called Bona Vacantia (meaning "vacant goods"). It's the responsibility of directors and shareholders to deal with all property and assets before dissolution to avoid this.

If you want to make a voluntary payment of Corporation Tax after dissolution, HMRC will accept it.

VAT Considerations

If your company is VAT-registered, you may be able to transfer the VAT registration number to the new owner. When a business is transferred as a going concern, VAT is not chargeable, provided certain conditions are met.

If you're disincorporating (moving from a limited company to sole trader or partnership), you may need to transfer the VAT registration due to the change in legal status, or you can cancel the existing registration and register again.

Notifying HMRC

When selling a sole trader business or partnership, use the online form to tell HMRC you've ceased trading. This covers both Self Assessment and National Insurance. You should also cancel your Class 2 National Insurance contributions.

Make sure you file your final Self Assessment tax return by the deadline, including the date you stopped trading.

Sources

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.