What should I consider when selling my business?

If you have decided to sell your business, then there will be many different things that you need to consider both from a financial and personal point of view. However there are also many legal responsibilities to consider and these are what we will look at here.

The issues that we will consider in this guide include your responsibilities to employees, dealing with suppliers, finalising your tax issues, and informing Companies House. We will cover selling a business as a self employed sole trader, partnerships and selling a limited company.

Business records

It is important that you bring your tax and other official business records up to date. Your buyer’s representatives will need to carry out due diligence in order to make an informed decision whether to complete the purchase.

For instance amongst other items they will wish to see you profit and loss statements, tax returns, loans, repayment schedules, and leases.  

Customers and suppliers should also be informed of the sale to give them the opportunity to settle any outstanding financial issues. 

Self-employed sole trader

Tax and National Insurance considerations

• Notifying HM Revenue & Customs (HMRC) - as you will be stopping trading you must inform HMRC in writing that you have sold your business and you are no longer trading.
• Income Tax – you will need to complete a self assessment tax return for the full tax year that your business was sold.
• Capital Gains Tax - if the sale includes business assets such as buildings, plant and equipment, and goodwill, then you will probably have to pay capital gains tax. There are a number of ways of minimising your capital gains tax liabilities, so you should seek professional advice on doing this. For example, Entrepreneurs’ Relief means that you need pay only 10% tax on capital gains over the threshold.
• Offsetting costs against tax liabilities – the costs that you incur selling your business can be offset against tax. Typically your costs would include professional services from accountants, estate agents, solicitors; administrative costs; and any trading losses made over the last three years. 
• Class 2 National Insurance contributions – you should use the National Insurance helpline to cancel your class 2 NI contributions

Your responsibilities to your staff

You must inform your staff that you are selling your business and the reasons for your decision. The regulations regarding your staff are likely to be covered by Transfer of Undertakings (TUPE), in which case the employees jobs along with their employment terms and conditions transfer to their new employer so that their continuity of employment is maintained.

Business Partnership

Tax and National Insurance considerations

• If you are selling simply selling your share in a partnership then you will simply complete your self assessment tax return for the year of the sale.
• If you are selling the whole partnership then in addition to your self assessment tax return you will need to complete a partnership tax return.
• Capital gains tax will apply to the sale, but there are a number of ways of offsetting this such as Entrepreneurs’ Relief which means that you need only pay 10% tax on capital gains over the threshold. Again it is worth while seeking professional advice.
• Class 2 National Insurance contributions – you should use the National Insurance helpline to cancel your class 2 NI contributions

Your responsibilities to your staff

If the partnership is being sold as a going concern then your responsibilities to your staff are the same as if you were a sole trader; see above.

Limited Company

If you are selling your limited company then you must appoint new directors and a company secretary if appropriate before you resign your directorship. The best way to do this is through the Companies House Web Filing service. You will also need to transfer your VAT registration to the new owner.

Any profits that you make from the sale may be subject to Capital Gains Tax though you may be able to offset much of that for instance by claiming Entrepreneurs’ Relief which would reduce your liability to 10% of gains over the threshold. You will need to include financial details of your receipts from the sale on your Self Assessment tax return.

Your responsibilities to your staff are the same as selling a partnership of sole trader business.

If you need guidance or help with dealing with selling your business, find your local QualitySolicitors firm here. 

QualitySolicitors are changing the way you see lawyers. We promise direct lawyer contact, Free First Advice, no hidden costs, same-day response and Saturday openings.