Financial reporting duties, tax obligations and employee rights when selling a company
When selling a business, you will need to conduct general housekeeping tasks to prepare your business for the transfer in ownership and fulfil your legal duties. These will vary depending on whether you are operating as a limited company, business partnership or sole trader, you employ staff and if you are selling part of a business or whole.
Appointing a business broker or local business transfer agent to lead the business sale process can streamline your journey to finding a buyer and completing the sale. At Selling My Business, your local business broker will liaise with both parties to ensure your affairs are in order by guiding you through the selling a business checklist.
We run through the legal responsibilities of business owners when selling a business and briefly touch upon the tax considerations.
Accounting duties and tax obligations when selling a business
When selling a business, you will need to inform HMRC and prepare financial reports as explained below to bring your tax and financial reporting duties to an end.
Self-Employed Sole Trader
- Notify HMRC - Use the online form to tell HMRC that you are selling your business, this will also take care of your Self-Assessment and National Insurance obligations. Call HMRC’s National Insurance helpline to cancel Class 2 National Insurance contributions
- VAT registration – If you’re VAT registered, transfer the VAT registration number to the new owner
- Tax reporting and relief – Submit your Self Assessment tax return by the deadline and note the date you ceased trading. If you made a gain when selling your business or business assets, you may be able to claim tax relief on Capital Gains Tax, such as Business Asset Disposal Relief, formerly Entrepreneurs’ Relief
- Notify HMRC - If wish to stop self-employment following the sale of your business partnership, inform HMRC to cancel your Class 2 National Insurance contributions
- VAT registration - If your business partnership is VAT registered, transfer the VAT registration number to the new owner
- Tax reporting and relief - If you’re selling your partnership share, submit a Self Assessment tax return by the deadline and if you’re selling the whole partnership, the nominated partner must submit a Partnership Tax Return by the deadline. You must also submit your personal Self Assessment tax return.
If you made a gain when selling your partnership or partnership assets, you may qualify for tax relief on Capital Gains Tax, such as Business Asset Disposal Relief,
- Notify Companies House - Appoint new directors or company secretaries before you resign as a company director and inform HMRC of these changes
- VAT registration - If your limited company is VAT registered, transfer the VAT registration number to the new owner
- Tax reporting and relief - If you made a gain when selling your partnership or partnership assets, you may qualify for tax relief on Capital Gains Tax, such as Business Asset Disposal Relief
- Finance – If you secured company finance against personal assets, inform the lender within 21 days of the sale
- Previous sales and acquisitions experience
- Sector specialisms and average success rate
- Sales value expectations and growth potential
Your responsibilities to staff when selling a business
A commonly asked question by business seller is - If a business is sold, what are employees’ rights? When selling a business as a going concern, you should strategically structure your exit to enable a seamless transition.
If you are operating as a limited company, business partnership or self-employed sole trader, you are legally required to inform employees that are likely to be affected by the sale, or partial sale and you must share the following information:
- Date of company sale
- Reason for company sale
- Details of changes, such as site relocation, if applicable
- Details of redundancy terms, if applicable
You will need to present a notice to employees when selling a business informing them of the change in ownership and the subsequent next steps. When selling a business, it is instrumental to protect employee rights and abide by the Transfer of Undertakings (Protection of Employment) regulations, (TUPE), if applicable.
As the exiting business owner, you may feel it your moral duty and for the sake of business continuity to invite an open discussion with employees. As part of your handover when selling a business, you may also introduce the incoming owner to staff and share the finer details behind the sale, such as owner retirement to remove uncertainty and provide reassurances concerning the financial health of the business.
Communicating in a transparent manner throughout the exit process can minimise disruption and potential damage to employee retention. At Selling My Business, we have a strong network of professional and highly qualified business brokers that operate across the UK. For more information on how to sell a business, how to value a business or how to find a suitable buyer, contact a business broker near you today.