Sold my business

[pbell1234]

I have recently sold my business after 4 years of growing it to where we are.

I have lent the (Ltd Co) business £100k and this debt remains. The company also has taxable losses of £100k. I have sold the business (assets/goodwill sale) for £220k.

So am I in the right ball park in thinking that the company has made a profit of £120k, so I expect £20k of corporation tax to pay? I then presume that I can pay myself back the £100k loan (tax free?)

So I have about £100k left. If I close the company down does this get treated as a capital gain with entrepreneur relief? I have heard that I may need to go down the route of an MVL to make this possible and so a further £10k of tax to pay plus the cost of the MVL.

I'm sure this happens all the time but concerned I might get this wrong. Seeing my accountant soon to discuss but he has said in the meantime not to shut the company down.

Thanks for any useful thoughts in advance.

PB

 

[The Byre]

Me no understand! How can you sell a business and still have that business and be free to close that business?

What this just an asset sale and you still have the Ltd.?

 

[Mr D]

You sold the limited company?

You have a charge on the company for £100k or is it less formal than that?

 

[pbell1234]

Hi. I sold the trade (the business). My company (Ltd Co) is the vehicle that it traded through.

So I was told I could sell my business in 2 different ways. 1. Sell the business/assets/goodwill - therefore my Ltd Co now just has the cash and liabilities or 2. Sell the shares of the Ltd Co - when I no longer own the Ltd Co at all.

I opted for the first one (actually the buyer insisted on the first one as they didn't want any surprise law suits or debts)

I am now left with the cash £220k and a debt to myself of £100k - so net assets of £120k (however I am assuming I have a corporate tax bill of £20kish?)

Hope that clears it up

 

[The Byre]

You may be assuming correctly, but only your accountant, in full possession of all the facts and figures, can tell you what other options are available.

 

[Mr D]

Your accountant is the one best able to minimise your tax bill.

 

[pbell1234]

I have invested in 2 accountants with 2 slightly different opinions. I was hoping that there may be some accountants on this forum hovering about who understand about selling a trade.

My assumptions above are based on a chartered accountant opinion although we are looking at other small variants i.e. claiming some further expenses.

Another accountant suggested that I should simply claim ER on the entire amount and pay no corp tax but I think I can discount that as being factually incorrect.

Thanks for your help so far.

 

[Lisa Thomas]

Work out what distribution will be available to you in your capacity as a shareholder (after the loan and any other liabilities/creditors have been paid).

Then calculate the personal tax savings if you were to wash the Company through an MVL (less the costs) when compared to the normal capital taxes you would pay if you didn't go down the MVL route.

If assets are over £25k you may have to go down the MVL route anyway.

Also take into consideration HMRC's TAAR (phoenix) regulations if you are considering starting the same or similar business in the next 2 years.

 

[Clinton]

@pbell1234 , all of this should really have been worked out long, long before you actually sold the assets of the business! I'm appalled you've come to this point before trying to figure out taxes etc.

I'm sure this happens all the time ...

No, it doesn't. People get proper advice before they sell the business, not after. And, going by the comments you've made here, I seriously doubt if those were accountants who advised you.

You don't get Entrepreneur Relief on the sale of assets, you get it only on the sale of shares.

When the company sold the assets I hope it charged VAT on them (as they were likely subject to VAT). Otherwise the company is going to have to pay VAT out of that £220K it got. And the company may also have to pay CGT on some (or all!) of that £220K it got.

Further, you don't pay Corporation Tax on the sale proceeds, you pay CT on the profit the business made for the financial year. So your CT could be £100K or £100m for all we know. What's the point of asking us if your CT is £20K when we have no idea what profit the company made for the year?

Yes, you can take out the £100K director's loan and pay no tax on that (but note preferential treatment of creditors issues if the company later goes insolvent). If there's anything left in the business after paying VAT on that £220K and paying CGT and paying CT, if you want to take it out you'll probably have to pay further tax.

For goodness sake, the next time you sell a business get proper advice before you sell and do not sell till you know exactly how you want it to play out post-sale.

Another accountant suggested that I should simply claim ER on the entire amount and pay no corp tax ...

That line demonstrates an extreme ignorance about even the most basic principles of taxation. I find it difficult to believe that any qualified accountant would say something that stupid.

 

[Lisa Thomas]

Perhaps the OP has misunderstood/misquoted what the accountant said?

 

[UK Contractor Accountant]

The company also has taxable losses of £100k.

look closely at how these can be relieved against the capital gain in the final period and/or claiming terminal loss relief.

The loss rules changed in 2017 so have it checked by a qualified person who understands how looses are relieved pre and post 1 April 2017.

 

[pbell1234]

@Clinton Vat on the transfer of a going concern? That surprises me as we took that advice and felt confident on the VAT treatment but thank you, I can beat my accountant with that.

Also in respect of corporation tax. I was under the impression that as my trade losses to date (before the sale) were £100k then working out my CT might not be too difficult, I.e. Profit in final period was £220k.

Regarding ER, you seem to be stating that I am not selling shares so ER won't apply on my final distribution to me as sole shareholder. I thought the point of an MVL was to get ER?

@UK Contractor Accountant thank you really good point. I will work out but I believe a large proportion of losses will be post April 17. Will that mean that only these can be offset against my profit in the final year?

@Lisa Thomas really helpful thanks. Yes I have kind of misquoted the 'other' accountant (never said qualified in his respect) but I took it as 'advice down the pub' and not to be relied on, which is why I didn't mention in the OP. Very helpful on MVL process thanks.

 

[Clinton]

@Clinton Vat on the transfer of a going concern? That surprises me as we took that advice and felt confident on the VAT treatment ...

TOGC is a very grey area. In fact, there are things the buyer of those assets can do now that could backfire on you and leave your old business with a VAT liability on the full amount! That's why it's often the case that business owners selling assets a) apply for TOGC clearance from HMRC and b) include appropriate protections in the Purchase & Sale Agreement.

With respect ER (CGT) and CT - you don't get a choice of one or the other.

And no point did you mention what the company's profits are for the current year though your OP suggests (I think) £100K of retained losses. You later seem to suggest that your CT bill is going to be based on £120K (£220K less the £100K retained loss, presumably). This suggests no trade happened this year or trade happened but left the company at breakeven. Those two are not the same thing. If no trade happened this year then this transaction is hardly a TOGC.

But none of that detracts from the fact that the queries you raise in the OP leave you way, way behind the game. All of that, and I mean all of it, should have been sorted out long before the sale!

 

[pbell1234]

Thanks for the clarification of TOGC. We are covered there and that's a red herring to my initial query.

If it makes it easier our year end is April. Profit year 1 and 2 were break even. Year 3 loss of 20k, Year 4 trade loss of £80k before final transaction which was a sale of goodwill/assets of £240k. I tried to simplify my query. Please assume accounting and taxable profits are the same for same reason.

So CT historically is £0. Anyone able to work out CT for year 4 to the nearest £10k? I came to £20k.

 

[Clinton]

My suggestion: Don't ask here - there are far too many unknowns - take it to a good accountant and pay well for quality advice.