Transfer a business out of a company
Find out what you need to do to disincorporate a company and start running it yourself.
You can disincorporate a company by transferring its business and assets to the people who own it (for example its shareholders). They will continue to run the business directly, for example as a sole trader or partnership.
This also applies if you are using a company for charitable or other not-for-profit purposes.
Once the business is no longer run by the company, this means either:
- closing the company (for example, through striking off or members’ voluntary liquidation)
- keeping the company and either making it dormant or using it for other purposes
The company and its owners are separate legal people. Transferring the business and assets is likely to have tax implications for both the company and its shareholders. You should consider getting professional advice on this especially if the company has a lot of assets, or is registered for VAT or PAYE.
Tax considerations for the company
Corporation Tax
Closing or keeping the company affects how Corporation Tax applies.
If you keep the company, you may still need to file a Corporation Tax return. If the company is dormant HMRC may still ask you to file a Corporation Tax return. Companies House will always need you to send accounts even if the company is dormant.
If you close the company it will no longer exist as a legal entity. Before closing the company you should make sure it meets all its Corporation Tax obligations.
Transfer of assets
When you disincorporate a company, you’ll need to transfer its assets to yourself and other shareholders. Assets can include:
- stock
- land and property
- vehicles
- goodwill
- debtors
To work out if any Corporation Tax is due on a transfer of assets you will need to know how much the assets are worth when they are transferred. You may need professional help valuing them. Companies pay Corporation Tax on their gains rather than Capital Gains Tax.
Normally, the amount you use as the value of an asset when calculating a gain is what the company gets for selling it. However, if a company transfers assets to you or other shareholders it must treat the transfer as if it was made at market value on the date of transfer.
The market value is what the company would get if it sold the asset to an unconnected person.
For example, if the company gives an asset with a market value of £1,000 to its shareholder for free, the company would need to calculate its gain as if it had disposed of the asset for £1,000.
Trading losses
Corporation Tax losses (from the trade, or other types of losses) cannot be transferred to the individuals taking over the business, as they will be paying Income Tax. Any losses the company cannot use will be lost upon transfer of the business.
A company may be able to claim Terminal Loss Relief. This allows a company to carry back any trading losses that occur in the final 12 months of trading. These can be off-set against profits made in any or all of the 3 years up to the period when it made the loss.
PAYE
If a company is registered for PAYE find out what to do if your business merges or changes.
VAT
This section only applies if a company is registered for VAT.
VAT is not chargeable when a business is transferred as a going concern. For the transfer of a business as a going concern rules to apply, certain conditions must be met.
A business moving from a limited company to a sole trader or partnership may need to transfer its VAT registration due to the change in legal status of the business. Alternatively you can cancel the existing VAT registration and register for VAT again.
Tax considerations for the shareholders
Income Tax or Capital Gains Tax
You may be liable to Income Tax or Capital Gains Tax on distributions paid to you by the company. In general, a distribution (for example, a dividend) is a payment made by a company to its shareholders, or to someone connected to them such as a family member. Another example is a company giving an asset to a shareholder or a shareholder’s relative. Whether you are liable to Income Tax or Capital Gains Tax on the distribution of a company’s assets depends on if and how the company is closed.
If the company is not closed, (for example, if it is kept dormant or used for other purposes) distributions you receive will normally be treated as income. You’ll pay Income Tax on these distributions.
If the company is closed the tax treatment will depend on how the company is closed. There are 2 main ways to close a company.
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A members’ voluntary liquidation which is a formal process where a licensed insolvency practitioner winds up the company and distributes its assets. Distributions you receive during this process will normally be treated as capital distributions and you’ll pay Capital Gains Tax on these.
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A voluntary striking off from the Companies register which is where you close a company by getting it ‘struck off’ the Companies Register. Distributions you receive before the company is struck off will normally be treated as income and you’ll pay Income Tax on these.
Special Rules and anti-avoidance provisions
There are special rules that may apply where a company is being wound up or enters into transactions with a main purpose of reducing a person’s Income Tax liability.
These include:
- anti-avoidance rules for a company winding up that apply to distributions made during a member’s voluntary liquidation, where the individual receiving the distribution continues to carry on the same or similar trade
- anti-avoidance rules for striking off that apply to distributions made before a company is struck off the Companies Register
- transactions in securities legislation that apply in both situations
If any of these apply, distributions may be treated as income for Income Tax purposes.
You can make a statutory clearance application for the transaction if you are not sure whether the transaction in securities legislation applies.
Stamp Duty Land Tax, Stamp Duty and Stamp Duty Reserve Tax
When a company transfers land to its shareholders, Stamp Duty Land Tax (SDLT) may be payable by its shareholders on the chargeable consideration given by its shareholders.
When a company transfers shares that it holds in other companies to its shareholders, Stamp Duty or Stamp Duty Reserve Tax (SDRT) may be payable by its shareholders. They do not need to pay Stamp Duty or SDRT on shares given to them for nothing unless the shares are listed and the market value rule applies.
Get help with tax
Depending on your circumstances there may be other tax implications of disincorporation. You should consider getting help with your tax affairs if you’re unsure how the rules apply to your specific situation.