Capital Gains Tax for SMEs – Recent trends and compliance

Collections of Capital Gains Tax (CGT) reached a record £16.7 billion in the last tax year, a notable increase from the preceding year’s £14.3 billion.

CGT has always been a significant consideration for small and medium-sized enterprises (SMEs) who should note the increased amount of collections.

One of the contributing factors has been the changes made to the business asset disposal relief (BADR).

The change lowered the £10 million lifetime limit for gains to £1 million, resulting in 47,000 taxpayers staking a claim to this relief, amounting to £12.6 billion.

The resulting tax charge stood at a hefty £1.2 billion.

CGT for SMEs

CGT is a tax levied on the profit or gain made when an asset, which has appreciated in value, is sold or otherwise disposed of.

For SMEs, this tax becomes relevant under several circumstances. When they sell or dispose of business assets, such as land, buildings, or machinery, CGT comes into play.

Similarly, the sale of shares, securities, or intellectual property also attracts this tax.

However, CGT isn’t applied to the entire asset sale price. Instead, it focuses on the gain, which is essentially the difference between the asset’s selling price and its original cost to purchase.

One of the most significant shifts on the horizon is the reduction of the annual exemption to £6,000, with plans to halve it further to £3,000 by the 2024/2025 tax year.

Such modifications are expected to bring more businesses under the scope of CGT. While no immediate changes to the CGT rate have been proposed, the future remains uncertain.

Deadlines and compliance

CGT payment deadlines are strict, so it is important for SMEs to ensure they always meet these.

When it comes to the sale of properties except for your own primary residence, the CGT incurred must be reported and subsequently paid within a 60-day window after the sale.

However, for other assets, the process is slightly different. Here, the CGT should be reported and paid as an integral part of the Self-Assessment tax return.

This means that businesses have until 31 January, following the tax year in which the asset disposal took place, to settle their CGT responsibilities online.

The repercussions of non-compliance

HM Revenue & Customs (HMRC) has tough measures in place for those who delay or default on their CGT payments.

Initially, a penalty of £100 is incurred. If the payment continues to be delayed, daily penalties of £10 are imposed, which can accumulate for up to 90 days.

If the tax remains unpaid after six months, an additional penalty, which is either the greater of 5 per cent of the tax due or £300, is charged.

This penalty is again applied if the tax is still unpaid after 12 months, making it essential for SMEs to prioritise their CGT payments.

As the CGT tax framework continues to change, businesses must engage in proactive financial planning and stay updated on the latest developments.

If your business would like more advice about CGT, please get in touch with us today.