What is Capital Gains Tax for Small Businesses?

Capital gains tax is a form of tax that you must know about if you’re a self-employed sole trader or in a business partnership. This is because a failure to declare CGT could cause you issues with HMRC. We answer all the questions you may have below, from ‘what is capital gains tax’ to ‘what is the capital gains allowance tax’. Read on to find out more for your small business.

What is capital gains tax?

Capital gains tax is the tax you pay on an asset that you sell. Whatever money you gain on the asset is what you pay tax on, not the money you receive. Property may not be included in capital gains tax, however.

Note that limited companies pay corporation tax on assets, not capital gains tax.

What is the capital gains tax allowance?

Like with income tax, there is a threshold allowance for Capital gains tax. This is £3000 or £1500 for trusts.

What do you pay capital gains tax on for small businesses?

You may need to pay CGT on the following business assets:

  • Machinery
  • Land or buildings
  • Registered trademarks
  • Any shares
  • Fixtures
  • Your business’s reputation
  • Or, selling your business

Selling a business: capital gains tax explained

If you sell a business and you get either money from the sale or money from the assets that you keep, you could pay capital gain tax.

How do you work out capital gains tax for small businesses?

You’ll need to work out your gain to see if you need to pay CGT. This is essentially what you paid for it vs what you sold it for. To do this, you’ll need to:

1.     Deduct the cost of selling

This includes what it costs you to sell it, like advertising, Stamp Duty Land Tax and VAT (but not if the VAT can be reclaimed.) However, you cannot deduct some costs that you claim as a business expense.

2.     Consider Tax relief

If your business is eligible for tax relief, you could reduce your capital gains tax.

3.     Calculate what you need to pay

When you’ve worked out your gain, you’ll need to check if you need to pay capital gains tax. You might need to work out the share of your gain (or loss) if you’re in a business partnership.

How much do I pay for capital gains tax for my small business?

Once you’ve worked out the gain for each asset and added them together, take away any losses. You’ll then be able to check if you need to pay capital gains tax, and if so, how much.

Do I need to pay capital gains tax?

Not everyone will need to pay capital gains tax for their small business.

If your total amount of gains is less than the CGT allowance, you won’t have to pay it. However, you will have to report your gains in your tax return if the total asset amount was more than £50,000 and/or if you’re registered for self assessment.

What if I make a loss when I calculate my capital gains tax?

You can report your loss to HMRC as this might reduce the capital gains tax for your small business (also known as an ‘allowable loss’). The loss is taken away from your total gains for the tax year.

If you’re registered for self-assessment, you can claim your loss on your tax return.

We hope this guide on capital gains tax for small businesses was helpful! If you need more guidance on capital gains tax, our helpful team of accountants is here to help. Contact Accountancy Solutions to speak to one of our experts.

Next, check out our guide on balance sheets to find out more about essential accountancy for small businesses.