How Corporation Tax Works When Your Limited Company Sells Business Assets in the UK

Small businesses make up over 99% of the 5.7 million UK companies[1], so chances are your startup or limited company will one day sell an asset. In UK tax law, a “chargeable gain” is essentially the profit your company makes when selling something it owns – like land, equipment, vehicles or even shares[2]. The surprise for many founders is that this gain isn’t just extra cash to pocket: your limited company pays Corporation Tax on it[3]. I learned this the hard way years ago. For example, we sold an old company laptop thinking it was a windfall – only to realise HMRC saw it as taxable profit! (Had it been me trading as a sole proprietor instead of a limited company, I’d pay Capital Gains Tax on that profit[4] instead.)

When your company sells an asset for more than it originally cost, the tax-man calls that difference a chargeable gain. Calculating it is straightforward in concept: gain = sale price – purchase price[5] (ignoring inflation for the moment). You can then deduct any selling costs (like legal fees or Stamp Duty) and improvement costs from that gain[6]. HMRC even lets you index older assets for inflation to lower the gain[7]. After all adjustments, the result is your taxable chargeable gain.

Calculating your chargeable gain

Suppose your company bought a machine for £10,000 and sold it later for £15,000. The basic gain is £5,000 – and Corporation Tax will apply to that. In practice you do this step-by-step, as HMRC explains[8]:

1. Find the sale proceeds. This is usually the amount your company received or stated in a sale agreement in a sale of a big ticket items[9].

2. Subtract the original cost. Deduct what your company paid for the asset (or its market value at acquisition if it wasn’t a normal sale)[10].

3. Subtract any related costs. This includes fees for solicitors, brokers, Stamp Duty, etc.[6]. (Note: repairs and maintenance don’t count – only improvements or direct disposal costs.)

4. Apply indexation (if applicable). If the asset was acquired before December 2017, use HMRC’s Indexation Allowance. Multiply the original cost (and any improvement costs) by the HMRC inflation factor for that month, and subtract these indexed amounts[11]. This step can significantly shrink your gain.

5. Offset losses. If you’ve made any capital losses on other assets, you can subtract them from your total gains[12]. (Important: losses can only reduce gains – they don’t offset your trading profits.)

After these steps, the final figure is your company’s chargeable gain. For example, HMRC gives a walkthrough: a firm sells an asset for £200,000 that it originally bought for £120,000 (with £10,000 spent on improvements). By step 2 above the raw gain is £70,000; but after indexing for inflation, the taxable gain is only £7,330[13][14]. See how indexation helped!

Intangible assets

Some business assets are intangible – think intellectual property, goodwill or brand reputation[15]. The tax rules change here based on when you acquired them. If your company created or bought the intangible asset after 31 March 2002, any gain is simply added to your normal trading profits and taxed under Corporation Tax[16]. In other words, it’s handled just like selling a piece of equipment. However, if the intangible asset dates from before 1 April 2002, the calculation is more complex[17]. In that case it’s wise to get professional help or follow HMRC’s detailed guidance. (The key point: always note when you first owned that IP or goodwill.)

Paying the tax and deadlines

Once you’ve worked out the gain, it goes on your Company Tax Return for that accounting period[18]. In practice you simply add the chargeable gain to your profits and file it in your return. Keep all the paperwork: purchase invoices, sale contracts, legal bills and your calculations. HMRC expects companies to keep these records for at least 5 years after the return[19]. You’ll also need to send any Corporation Tax due by the normal deadline – generally 9 months and 1 day after your accounting year end[20]. (For example, if your financial year ends 31 March, the CT deadline is 1 January.) File the return (usually within 12 months of year-end[20]) and pay the tax on time to avoid penalties.

Corporation Tax on that gain is charged at the usual rate for company profits. Currently the rate is 19% for profits up to £50,000 and 25% for profits over £250,000[21] (with a taper in between). In most small companies you’ll fall into the 19% band. Remember, this is paid by the company on its profits. If you then distribute the remaining money to shareholders, there could be further tax at dividend rates or even Capital Gains Tax. In short, asset sales can trigger “double taxation”: first at the 19–25% company rate, and then again at the owner level on any payouts[22]. (By contrast, selling shares in the company avoids the company paying tax on the sale – only shareholders pay CGT[22].)

Key takeaways for business owners

• Know your assets: Keep clear records of what you paid for business assets (equipment, vehicles, property, etc.)[2]. These become the base of your chargeable gain calculation.

• Calculate step-by-step: Follow HMRC’s steps to work out the gain (sale price minus cost, minus selling/improvement costs, adjusted for indexation if pre-2018)[8][11]. Don’t forget to subtract capital losses if you have them[12].

• Report and pay on time: Include the gain on your Company Tax Return[18]. File and pay Corporation Tax by the usual deadlines (CT by 9 months+1 day after year-end[20]). Keep all invoices and calculations for at least five years[19].

• Mind the rate: Corporation Tax on the gain is charged at 19% (small profits) or 25% (larger profits)[21]. Plan ahead: a bigger gain will increase your tax bill.

• Watch out for double tax: If you’re selling company assets, remember the company pays CT on the gain, and you may pay more tax when taking profits. In some cases, selling the company’s shares instead can be more tax-efficient[22] (though it depends on the deal).

• Get advice when needed: If an asset sale seems complicated (especially for intangible assets or big sums), talk to an accountant or tax adviser. For complex valuations you can even ask HMRC for a post-transaction check.

Selling a business asset at a profit feels great – until you remember HMRC wants its share! By understanding how to compute the gain and meeting your reporting obligations, you can avoid nasty surprises. In my experience, being organized (good records and clear calculations) makes this process much smoother. And if you ever feel unsure, a quick chat with your accountant can keep everything above board and stress-free.

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