Selling a business

Small Business Owner Or WorkerSelling a business is an exciting prospect for any person. A complicated legal area in itself, this guide aims to prepare you to know what to expect. What is involved will depend on whether you are:

  • a self-employed sole trader
  • in a business partnership
  • a shareholder of a limited company

Confidentiality agreement

You will have to disclose to a prospective buyer sensitive information about the business, such as client and customer lists, product and service pricing and trade information. Before doing so, you can ask the buyer to sign a confidentiality agreement to prevent them from revealing the information to other people or using the information themselves if they do not buy the business.

Telling staff about the sale

It is your responsibility to tell your staff as soon as possible that there is going to be a change in ownership. You must fully inform them of:

  • when and why you are selling the business
  • redundancy terms or relocation packages, if necessary

Protection under TUPE

The sale of any business, or part of a business, in the UK is subject to the Transfer of Undertakings (Protection of Employment) regulations (TUPE). This applies even if the head office is in another country. The size of the business is irrelevant.

Under TUPE,employees’ jobs transfer to the buyer with the same employment terms and conditions, unless they are made redundant. There is no break in employment.

More information about TUPE is available from the Advisory, Conciliation and Arbitration Service or Citizens Advice.

Heads of agreement

The purpose of heads of agreement is to prevent misunderstandings between you and the buyer when it comes to completing a deal. It outlines how the sale will take place. It is not the contract of sale. It is agreed by both of you and the buyer and may include:

  • a period of exclusivity to prevent you from talking to another prospective buyer
  • confidentiality terms
  • a clause to allow the buyer to recover costs should you pull out of the deal

Some of the information in the heads of agreement, such as sale price, the completion date or whether you actually have to complete the deal are not legally binding as you can insert clauses into the agreement regarding these elements. You can still choose to not continue with the deal, even if you have signed the heads of agreement.

Transfer of leases

If you decide to transfer the lease for the property from which the business operates at the time of sale of the business, you will need to obtain the permission of the landlord (known as landlord’s consent). A landlord must consider a request for consent to the transfer of the lease (lease assignment) and cannot refuse to give it unless it is reasonable to do so. The landlord can impose a number of conditions in writing which have to be met before consent is given.

Finalising your sale

You should have filed copies of any important document, including:

  • customer or client details
  • contracts, including employee contracts
  • details of any suppliers
  • licenses
  • accreditations
  • intellectual property, such as patents and copyrights
  • loan agreements
  • equipment leases

Partnerships

If the business is a partnership, you should check your partnership agreement as it may have restrictions and conditions on its sale.

Limited companies

If you are selling a limited company, you should appoint new directors before you resign as a director yourself, using Companies House WebFiling service

If you have secured finance for the company against your personal property, for example a mortgage on your house to secure a business loan, you must let the lender know about the sale within 21 days of the sale.

Tax

Tax returns

You must send a Self Assessment tax return by the deadline. You will need to put the date you stopped trading on the return. Failure to do this can cause penalties and delays in the transfer of the business.

If a whole partnership is being sold, the ‘nominated partner’ must send a Partnership Tax Return by the deadline.

National Insurance contributions

If you are a sole trader, you must tell HMRC that you have sold your business and are no longer self employed. It covers both Self Assessment and National Insurance.

If you are a sole trader or a partner, you can also call HMRC’s National Insurance helpline to cancel your Class 2 National Insurance contributions.

VAT registration

If you are registered for VAT, you may be able to transfer the VAT registration number to the new owner.

You can transfer a VAT registration from one business to another if your buyer wants to carry on using the same VAT account. This can be done either online or by post.

Both you and the buyer need to notify HMRC. You should cancel any Direct Debits on your VAT online account, and the buyer should set up new ones. It usually takes three weeks for HMRC to confirm the transfer.

Capital Gains Tax relief

You may have made profit when selling your business, such as the money you receive from the sale or any assets from the business that you keep. This is known as a Capital Gain and you may need to pay Capital Gains Tax.

Entrepreneurs' Relief

You may be able to claim Entrepreneurs’ Relief, which means that you only pay 10% Capital Gains Tax on any qualifying profits.

There is no limit to how many times you can claim Entrepreneurs’ Relief, and you can claim up to £10 million of relief in total during your lifetime.

In order to claim Entrepreneurs’ Relief, you must have been trading for at least a year and meet one of the following criteria:

  • own at least 5% of the business for a year
  • be a director, partner or employee of the business
  • be a sole trader

You can claim by either:

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