Should you prepare to sell your business before tax year 2024-25?

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HMRC has set two key tax changes in motion

A reform by HMRC has set two key tax changes in motion for the coming year which means that if you’re planning to sell a business, you may need to make some adjustments.

Should you prepare to sell your business before tax year 2024-25?

Revisions identified in the Autumn 2023 Statement are the basis period reform and the CGT (Capital Gains Tax) allowance, which will see changes implemented in the new tax year.

This blog will give you the information you need to ensure you’re prepared to tackle the 2024/25 tax year head-on. It could be that a change to the CGT may be an incentive to prepare your business for sale. 

From April 2024, the existing current year basis period rules will be replaced with a tax year basis of assessment. 

In essence, this means that every business will be taxed on the profits generated between the start and end of the tax year, from the 6th of April 2024 to the 5th of April 2025. The measure will apply regardless of a business’s chosen accounting date.

HMRC has announced this change in order to streamline processes and avoid overlapping basis periods which can sometimes result in profits being taxed twice. 

Switching your business operation to adhere to the tax year basis as soon as possible will make the transition smoother, and you will also avoid any cumbersome bureaucracy in the longer term.

If you are planning to sell your business at some point down the line, you may want to consider conducting a review of your tax processes too. Starting on your business exit strategy as soon as possible can minimise the extra stress coming from sorting out changes to the tax systems, while also preparing for a sale.

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When selling your business, you may qualify for a special capital gains tax (CGT) known as ‘Asset Disposal Relief’ or ‘Entrepreneurs’ Relief’.

In practical terms, the relief means you will be charged CGT at the basic rate of 10% on the first £1m gains. For higher rate taxpayers, who usually pay 20% on assets, it means you will be charged half the custom rate.

If your business doesn’t quality for Entrepreneurs’ Relief, you will have to calculate your capital gains following the same procedure as selling any other asset. Whereas in 2023, you could earn up £6,000 in capital gains free of tax, the government announced the CGT allowance will be cut to £3,000 from April 2024.

Business owners will pay CGT on any gain above this threshold, charged at 10% for basic and 20% for higher.

This turn in legislation is an incentive to consider selling before the new tax year in order to make the most of the current CGT.

While the upcoming HMRC changes may need extra preparation on your side to keep your business accounts sharp, the new CGT reform could be the push you were waiting for to consult an expert regarding a seamless business sale.

Having conducted thousands of successful sales, Hilton Smythe is here to help you work out what is best for you and your business at this time. 

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