If your company sells or disposes of an asset for more than it cost, it may have to pay tax on the gain.
Assets are things your company owns, eg:
- land and property
- equipment and machinery
You may have to treat gains on intangible assets (eg intellectual property) as business income if your company acquired them or they came into existence after 1 April 2002.
Working out the gain
- Work out the asset’s value when it was sold – either the amount of money your company received or the market value of the asset (if it was given away or sold for more or less than it was worth).
- Take away the amount your company paid for the asset – if it was not acquired in a normal commercial transaction then you may need to use the market value at the time.
- Take away any money your company spent buying, selling or improving the asset, eg solicitors fees and Stamp Duty. You can’t claim maintenance costs.
- Work out the value of the asset at today’s prices by using HM Revenue and Customs (HMRC) Indexation Allowance. Download the Indexation Allowance table for the month when your company sold the asset and then use the figure for the month when the asset was bought. If any improvements were made, work out the effects of inflation in the same way.
Indexation can’t create or increase a loss.
You can check whether your valuation of an asset is correct by filling in a valuation form (PDF, 200KB) and sending it to your Corporation Tax office.
Example – working out the gain
|1. How much your company got for the asset in May 2011||£200,000|
|2. Subtract the amount your company bought it for in November 1997 (£120,000)||£200,000 – £120,000 = £80,000|
|3. Subtract any fees (expenses on improving the asset in June 2006 were £10,000)||£80,000 – £10,000 = £70,000|
|4. Find the inflation factor for the month it was bought in||0.474|
|5. Calculate the indexation allowance – multiply the amount it was bought for by the inflation factor||£120,000 x 0.474 = £56,880|
|6. Take away the indexation allowance from the profit||£70,000 – £56,880 = £13,120|
|7. Find the inflation factor for the expenses||0.185|
|8. Calculate the indexation allowance for the expenses||£10,000 x 0.185 = £1,850|
|9. Deduct the indexation allowance for the expenses||£13,120 – £1,850 = £11,270|
The Indexation Allowance means that there’ll be no gain unless the value of an asset has gone up by more than the inflation rate.
You may have to pay Capital Gains Tax if you make a gain when you personally sell or dispose of assets you’ve taken out of a company.
Your company may have to pay Corporation Tax if it sells an asset for more than it paid. The profit is known as a ‘chargeable gain’