Capital Gains Tax for small businesses – What do you need to know?

Capital Gains Tax (CGT) collections surged to an all-time high of £16.7 billion in the last tax year, marking a significant jump from the previous year’s £14.3 billion.

It is crucial for small to medium-sized businesses (SMEs) to be aware of this increase in CGT collections, as this tax has always been a major factor for them.

A major catalyst for this rise was the adjustment in the business asset disposal relief (BADR). The threshold was reduced from a £10 million lifetime limit to just £1 million.

This led 47,000 taxpayers to apply for this relief, accounting for £12.6 billion.

Consequently, the tax liability from this adjustment was a substantial £1.2 billion.

Understanding CGT for SMEs

CGT is charged on the profit made from the sale or disposal of an appreciating asset.

For SMEs, this is pertinent when they dispose of business assets, like land, buildings or machinery. The sale of assets such as shares, securities, or intellectual property is also subject to CGT.

It is worth noting that CGT doesn’t tax the full sale amount of the asset. Instead, it targets the profit, which is the difference between the selling price and the asset’s original cost.

An upcoming significant change is the lowering of the yearly exemption to £6,000, with a strategy to further reduce it to £3,000 by the 2024/2025 tax year.

These changes are anticipated to broaden the range of businesses affected by CGT. Though there hasn’t been any current suggestion of adjusting the CGT rate, the future remains unpredictable.

Adhering to deadlines

The deadlines for CGT payments are strict, making it imperative for SMEs to adhere to them.

For property sales, except for your own primary residence, the CGT due must be reported and settled within 60 days post-sale.

For other assets, CGT needs to be declared and paid as part of the Self-Assessment tax return. This provides businesses until 31 January following the tax year of asset disposal to address their CGT dues online.

Consequences of non-compliance

HM Revenue & Customs (HMRC) implements rigorous penalties for delays or failures in CGT payment.

The initial penalty stands at £100. If delays persist, daily fines of £10 are levied for up to 90 days.

If the tax remains unpaid after a period of six months, an additional fine, which is either the greater of 5 per cent of the due tax or £300 – is charged.

This charge repeats if the tax remains unsettled after 12 months. 

Therefore, it is critical for SMEs to prioritise CGT payments.

As the landscape of CGT evolves, businesses should actively plan their finances and remain informed about recent shifts.

For further guidance on Capital Gains Tax for your small business, please get in touch today.