There are a number of issues to consider if you are thinking of selling your business. One factor which will interest most Sellers is their potential tax liability on a sale.

Entrepreneurs relief was introduced two years ago and enables individuals who are selling their business or company to benefit from an effective capital gains tax rate of 10% on gains up to £2 million per individual (increased from £1 million in this year’s Budget). This is a useful relief and it is worthwhile checking whether the relevant conditions will be applicable to your situation.

Broadly entrepreneurs relief is available in respect of the sale of an unincorporated business (e.g. by a sole trader or partners in a partnership), provided the business is a trading business which has been owned for 12 months and the assets sold are not investments. Alternatively it is also available in respect of the sale of the shares in a trading company or group, where the Seller has for the previous twelve months held 5% of the shares and voting rights in the company and been an officer (namely a Director or Secretary) or employee of the company. There is no limit on the number of individuals who can qualify for entrepreneurs relief, provided that each satisfies the necessary conditions. Thus, a husband and wife can each be entitled to entrepreneurs relief in respect of their own shares or interest in the business being sold.

Of course tax issues are not the only issues to consider. It is also worthwhile, prior to a proposed sale, checking that the business or the company is in a suitable condition for a sale. For example the relevant customer contracts are in force and up to date, the employees all have Employment Contracts or Terms of Employment issued to them, there is no significant litigation and the existing contractual arrangements would not be terminated in the event of a sale and all appropriate consents and licences are in place for the business and are not subject to revocation.

We would recommend that professional advice is taken on these matters before a business is put up for sale and also before any Heads of Terms for the sale of the business are signed. It is also recommended, before any confidential information in relation to the business is given out to a proposed Buyer, that he signs a Confidentiality Agreement with the Sellers undertaking not to use this information for the purposes of his own business.

If you require any further advice or assistance please contact Nick Traill or a member of the Commercial team at Wortley Byers on 01277 268301 or ntraill@wortleybyers.co.uk.

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