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bigduckontax, Accountant
Category: Tax
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I am a sole trader and sold my business in July 2014 for £16,000.

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I am a sole trader and sold my business in July 2014 for £16,000. I received £10,000 up front for the business and will receive two further instalments of £3000 in July 2015 and December 2015, dependent on turnover. If the turnover is less than expected, there is a clawback clause whereby the 2nd and third instalments will be reduced. Am I correct in thinking that I have to pay CGT on the whole amount of the sale proceeds in tax year 2014-15 and if the clawback kicks in, I can reclaim the tax in future returns?
Hello, I'm Keith and happy to help you with your question. I suspect I bring rather better news than you anticipated.
Your business will be deemed to have been disposed of in July 2014, the 14/15 tax year, for 16K. The gain you made on the sale of business, not the sale price, will be subject to CGT. You have an Annual Exempt Amount of 11K to offset any gain and this may well eliminate CGT liability altogether. If there is any gain remaining to be taxed you will be entitled to Entrepreneurs' Relief which limits the tax rate to 10% as opposed to the normal 18% or 28%.
At this stage you must ascertain the original price of your business to determine the gain as only the gain is taxable. You can then declare the gain as estimated figures and, if the final sale figure is under the 16K, then you can amend your 14/15 tax return which does not need to be rendered in any event until 31 January 2016 if you do it on line. Rather earlier if you do it on paper, a procedure I personally prefer. By the time you make your annual self assessment you may well have all your installments known and not make an estimated return at all, but have an accurate figure to declare.
I do hope I have helped you and shown you the way forward with your sale and the taxation thereof. It's actually very simple, only the gain is taxed and that at 10%.
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