Tax on a company in the UK

[Matthew]

Hi.

If I set up a parent Limited company here in the UK, buy a site for say £50,000 and sell it for £100,000, that would be a £50,000 profit for the Limited company.

Would I get capital gains tax on this, or would it just be company income and be subject to corp. tax at the end of the tax year etc? If this is the case, I could avoid tax altogether by simply reinvesting that £50,000 profit, right?

So instead of me, a sole trader, buying and selling sites, it'd be NAME Ltd. buying and selling sites.

Questions on the side:
1. Would this also work with offline businesses (so I could use the parent company to buy businesses online and offline)?
2. Would I be able to buy businesses in other countries such as the US? In this case, would the owner of the parent company be allowed to be in the US for as long as he/she wanted since they would have business out there (if offline)? And would the UK Ltd. company be able to hold those US businesses itself? The tax system is different out there so not sure how it would work?

I wish things were simple.

[akirk]

I would suggest you get advice from an accountant - there are some complex questions in there - from how you put things through your books to types of tax which are better for you - and then into international tax / work rules - wow - interesting, but v. complex...

sorry, but too difficult to give accurate advice...

the one thing I will say is that being websites / online / offline is irrelevant...

Alasdair

[Melissa]

Matthew, if your business isn't about buying and selling sites then the £50K you've spent is spent on buying an asset. When selling that asset you'll need to pay CGT on it. Bear in mind that if you apply amortization to the asset you are lowering the book value and that reduces your taxable profit for the year but it has the downside of making the eventual sale show a higher gain that's subject to CGT.

Should buying and selling of websites be your core business, you'll treat a bought website as stock and when you sell it for a higher price you've made a profit. Profit is a little easier to cope with than CG as you can apply various deductions and costs to reduce the profit liable to corporation tax.

A UK company is allowed to buy assets and other businesses even if those are based in the US.

[Matthew]

Hmm, complicated.

Can I not avoid CGT altogether if I buy/sell businesses under a Limited holding company?

[akirk]

you need to ask whether assets / CGT is good or bad...

CGT: http://www.hmrc.gov.uk/rates/cgt.htm#2
CGT is generally 18% - 28% depending on your income level
but it is only 10% if you qualify for entrepreneurs relief:

Entrepreneurs' Relief allows individuals and some trustees to claim relief on qualifying gains made on the disposal of any of the following:

• all or part of a business
• the assets of a business after it has stopped trading
• shares in a company

offset asset loses

Corporation Tax: http://www.hmrc.gov.uk/rates/corp.htm
business tax will be vary but from 20% up...
offset expenses & losses

so corporation tax is a higher starting point, but lower top end
CGT has a higher personal allowance (corp. tax you pay yourself the tax free salary and take the rest as dividends)
CGT allows entrepreneur's relief at 10% (lowest tax you can get)

so it is not all that simple...
you may be best setting up a new company for every website and then using entrepreneur's relief...
hence the need to talk to an accountant - as they will also consider your personal circumstances / any spouse you might have!

Alasdair

[Matthew]

I'll have to look into it more and hopefully get an accountant. Thanks.

Do you people not find the tax a little discouraging, when using this buying and selling strategy?

[ScottJ]

Do you people not find the tax a little discouraging, when using this buying and selling strategy?

Not as long as you are making a profit and factor it in, as others have said though if the business is seen to be trading websites like stock then you would get taxed at corporation tax levels not CGT.

To answer your question

Can I not avoid CGT altogether

Yes in a small scale, if you do not go Ltd and act as a sole trader or better still partnership with wife in a business and buying/selling sites isn't your core business then you could buy an asset/website, sell it later and not pay tax due to the CGT relief/allowance.

You and your partner/wife if you had one in a partnership are allowed to make £10600 profit each per year http://www.hmrc.gov.uk/rates/cgt.htm#1 so that's £21200 profit without paying any tax.

[ScottJ]

Also the £50k profit in your example;

If you buy/sell sites in a ltd company as stock then buying more sites would negate your tax bill, I think.
If you have a business not solely based on trading sites and it was treated as an asset and CGT then spending £50k on another site would go on your balance sheet and not reduce your tax liability so you would still need to pay tax on the £50k profit even if you bought another £50k site.

[Matthew]

Thank you.

I spoke to an accountant online earlier and they said that if I had a limited company and sold a business, if I had held the business (I think at least over 10% of shares, in my case it'd be 100% anyway) for at least 12 months I could sell the business and not get any CGT at all due to the substantial shareholders exemption.

So my Ltd holding company could take in £50,000 profit and reinvest that into another business and I would have no tax to pay whatsoever. If I didn't reinvest, I could always take the personal allowance and maybe £10,000 of the profits through dividends at the 10% rate, which would give me a comfortable income and very little tax (I'd reinvest the rest to avoid tax)!

EDIT
Of course I would need to hold a business for 12 months though, before selling it.

Sorry I forgot, regarding dividends, I would also have to pay corporation tax on the company profits before I got the dividends. Everything else is correct though, right?

[akirk]

that is a very simplistic view the substantial shareholders exemption allows in some scenarios to have no CGT when decoupling companies - i.e. company A owns company B in a group format and sells it off... but Company B needs to have been a trading company - and other conditions...

dividends are slightly different to that - corporation tax is paid first - then you pay the dividends to yourself (out of profit only) and you then owe 10% tax - but it is deemed to be paid - so you don't actually have to pay it - so in effect it is just corporation tax...

but as you are talking about companies in the UK / abroad / etc. I would seriously get an accountant to meet up in person - not just online - there are so many small details in all of this

Alasdair