Important things to remember when calculating a capital gains tax bill
According to recent research, almost two-thirds (63%) of SME owners plan to pass on their business to a member of their family once they hit retirement, while almost half (48%) would pass their business on to their offspring.
Yet despite the large numbers of those at the helm of small businesses already having a succession plan in place, 45% haven’t made provisions for how they will deal with the tax implications of drawing out profit from their business when it changes hands. It is definitely important for companies of all sizes to keep up to date with the latest changes in the tax system and get their affairs in line.
Capital gains is one such tax, and applies to profit that is generated as the result of businesses disposing with all or part of their business assets.
Business assets can include land, buildings, shares, the goodwill of the business, a business franchise and even fixtures and fittings.
Here are just some of the things that businesses need to keep in mind when calculating capital gains tax:
Capital Gains Tax is paid through a system of Self Assessment and forms part of your overall tax return. If you fail to send in your tax return when Capital Gains Tax is due then you could face a penalty.
This is why it is important to get the appropriate documentation from HMRC at the earliest opportunity. If you are a business owner you will need to complete the Self Assessment tax return (form SA100) and the Capital Gains Tax summary (form SA108).
If you are in a business partnership, both partners will need to complete the Partnership Disposal of Chargeable Assets (form SA803) as part of their tax return.
Get your calculations right
In order to work out how much Capital Gains Tax needs to be paid you will need to establish the gain or loss that has been made from each asset that is set to be disposed and is liable for Capital Gains Tax.
You will then need to calculate the figures from gains, before subtracting your losses. Your Annual Exempt Amount, or tax-free allowance, will then need to be deducted from this figure.
Finally, you will need to calculate the tax on the remaining gains.
Identify if you are eligible for Capital Gains Tax relief
Capital Gains Tax relief, which will act to reduce your overall Capital Gains Tax bill, is available for a range of business types and circumstances and this includes Entrepreneurs' Relief, Incorporation Relief and Business Asset Roll-Over Relief amongst others.