Capital gains tax for companies (ie incorporated businesses) is dealt with through corporation tax. Corporation tax is payable on the chargeable gain rather than a separate company capital gains tax.
Company capital gains tax can be reduced, deferred or eliminated altogether by making use of available allowances, reliefs and exemptions.
A company makes a chargeable gain if it disposes of an asset for more than it paid for it. Disposal can include selling the asset, exchanging it, giving it away or even receiving compensation for damage or destruction.
Common sources of capital gains are sales of premises, land or investments. Typically, other assets will be worth less than you paid for them. Disposals of intangible assets (such as intellectual property) are normally treated as income rather than company capital gains, though different rules apply for older assets created or acquired before April 2002.
Company capital gains are based on the difference between the disposal value and the purchase cost. The disposal value might normally be the sale price, but if an asset is not sold at arm’s length (eg if you give it away), the disposal value is the market value. Likewise, the cost is normally the purchase price or market value when you acquired the asset, though special rules apply in some circumstances.
You can deduct any expenses of buying, improving and selling the asset when working out capital gains. You also use an HM Revenue & Customs indexation allowance, which reduces the gain by taking inflation into account.
Your total chargeable gains are included in the corporation tax return and taxed along with your business profits, using the same tax rate.
You can reduce your chargeable gains by offsetting any capital losses (ie where assets have been sold for less than their cost). However, where assets have qualified for capital allowances (ie the annual writing-down allowance that can be set against corporation tax), the loss you can claim is reduced by the value of these allowances.
For example, if you bought an asset for £10,000, received capital allowances totalling £3,000 over the next few years and finally sold it for £5,000, the capital loss would only be £2,000 — the loss of £5,000 reduced by the £3,000 capital allowances.
In addition, the indexation allowance can only be used to reduce a capital gain, not to increase a loss.
Where you have capital losses, these can be deducted from any company capital gains to work out the net chargeable gains that are taxable. If the losses exceed the gains, the balance can be carried forward to set against future company capital gains.
The tax on company capital gains can be deferred if the disposal proceeds are reinvested in qualifying business assets, for example, if you sell your business premises and buy new premises. This business roll-over relief typically works by deducting the chargeable gain from the cost of the new asset — so that when you later sell this new asset, the gains are correspondingly higher.
Additional company capital gains reliefs can be available if you reinvest all or part of your gains into qualifying Seed Enterprise Investment scheme shares or Enterprise Investment scheme shares. Capital gains tax disposal relief is also available on profits made when shares obtained through an Enterprise Invest Scheme or SEED investment are sold proving they meet the qualifying criteria and have been held for the requisit time. Relief may also be available if you sell shares in a company where you own a substantial shareholding or where assets are transferred between companies in the same group.
Finally, any trading losses you have made can be set against company capital gains when calculating your corporation tax liability.