An Introduction to Tax and National Insurance for Business

From sole traders to large companies, get the lowdown on your obligations here

An Introduction to Tax and National Insurance for Business

What is Capital Gains Tax?

Capital gains tax, or CGT, is essentially a tax levied on successful investments. If you sell property or shares for more than you bought them for, you may be liable to pay CGT. CGT is a tax generally levied on individuals – limited companies pay corporation tax on capital gains, as they will be treated as part of their general profits. Particular features of CGT include:

  • Almost everyone is entitled to an Annual Exempt Amount. You don’t have to pay CGT on capital gains before they reach a certain threshold. The current Exempt Amounts are:
    • Individuals, personal representatives and trustees for disabled people: £11,000
    • Other trustees: £5,500.
  • There are two bands of CGT. The amount of CGT charged on your profits depends on your personal income:
    • Up to £32,010: 18%
    • 32,010 or more: 28%
  • Capital losses can be set off against capital gains. You can also carry forward losses to set off against successful investments made in the future.
  • Entrepreneurs’ relief is available when you sell a business. If you complete a successful exit and sell your business for a profit, entrepreneurs’ relief allows you to reduce the rate of CGT payable on your gains by 10%, up to a total of £10m. You can make subsequent claims for entrepreneurs’ relief when selling businesses in the future, as long as you remain under the lifetime allowance of £10m.
  • You can defer payment of CGT using relief schemes. Two such schemes:
    • Business Asset Roll-Over Relief. This is a scheme that applies when you sell or dispose of a business asset, such as an office or vehicle, only to replace it with another one. You might be able to postpone the CGT normally payable – more information can be found here.
    • Incorporation Relief. If you transfer your business to an incorporated company as a sole trader or partner, CGT might not be due straight away. More information can be found here.
  • Certain private investments are exempt from CGT. If you have never claimed any of your mortgage payments as a business expense, any profit you make on the sale of your private residence will usually be exempt from CGT. Increases in the value of your care are also normally exempt.

What are the tax relief schemes for business investment?

  • The Enterprise Investment Scheme (EIS). EIS provides 30% income tax reliefs to investors who purchase no more than a 30% stake in a company. It is designed to encourage investments in small, unquoted companies (total value of assets less than £15m). More information can be found here.
  • The Seed Enterprise Investment Scheme. Similar to EIS, but targeted at start-ups in particular. The investee company cannot raise more than £150,000 in total and must have less than 25 employees and assets worth less than £200,000 for investments to qualify. More information can be found here.

 

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