There are plenty of reasons to sell your business assets. Maybe you need some quick cash, maybe it’s time to upgrade some equipment, or maybe you just don’t need them anymore. 

Whatever the reason, there are some things you should know about how to sell business assets, including:

  • What are business assets?
  • How do I record the sale of business assets?
  • What taxes do I have to pay for selling assets?
  • What if I make a loss from selling an asset? 

For more information about business assets in general, check out our article, “What are assets in business?

What are business assets?

Broadly speaking, an asset is anything that can generate income or be sold. Because of this, assets are measured in cash value when figuring out the value of a business. 

Assets can be separated into different categories, such as: 

  • Tangible assets, like property and equipment. 
  • Intangible assets, like intellectual property.
  • Liquid assets (anything that can be converted into cash quickly).
  • Fixed assets (an asset bought for long-term business use).

A business asset, in particular, is just an asset that was bought to carry out business operations. 

How do I record the sale of business assets?

When it comes to recording the sale of an asset, you need to keep accurate accounting records. First of all, you’ll need records of the initial purchase, including:

  • The initial cost of the asset, including sales tax, shipping charges, setup, accessories, and training.
  • A description of the asset
  • The date you bought it for the business.

Then, when selling the asset, your records should include:

  • A description of the asset.
  • The date it was sold.
  • The amount you sold it for. 
  • Selling fees, including broker fees or advertising expenses.
  • The amount the asset has depreciated in value since you first bought it. 

Keeping these records is important for two main reasons:

  1. It gives you a true picture of your business’ financial situation after the sale, allowing you to make better financial decisions.  
  2. It allows you to figure out how much tax you’ll have to pay for the income made from that sale. 

How much tax do I pay for selling assets?

When selling an asset for a profit, businesses have to pay capital gains tax on the profits from the sale. 

When doing your taxes, you report the profits as “chargeable gains”. The gains should be reported to HMRC when you submit your taxes. 

If you’re a higher (40%) or additional rate (45%) taxpayer, you’ll pay:

  • 28% on your gains from residential property.
  • 20% on your gains from other chargeable assets.

If you’re a basic rate taxpayer (20%), your capital gains rate depends on how much profit you make, your taxable income, and the type of asset you sold. 

For a full description of how to work this out, check out our article on capital gains tax

How do I calculate chargeable gains?

Normally, it’s just the difference between what you paid for it and what you sold it for, but you can deduct any costs you had to pay in order to sell it, like solicitor’s fees. 

You can also deduct any money you spent improving the asset and adjust for inflation if you had the asset before December 2017.

For example, if you bought an asset in March 2001 for £100,000, improved it in June 2010 for £10,000, then sold in November 2015 for £200,000, you need to:

  1. Work out the asset’s value.
  2. Deduct what you paid for it.
  3. Deduct money for improvements.
  4. Adjust for inflation. 

Let’s work through the example step by step.

1. Work out the asset’s value

This is usually just the amount you sold it for. In this case, £200,000.

2. Deduct what you paid for it

In this case, £100,000. So deduct it from £200,000 to leave you with £100,000. If you didn’t get it through a commercial transaction, you need to use the market value at the time you received it.

3. Deduct money for improvements

In this case, £10,000 in June 2010. So, £100,000 minus £10,000 leaves you with £90,000 profits. 

4. Adjust for inflation

Use the HMRC Indexation Allowance to find inflation rates on:

  • The amount you bought it for in March 2001 (0.509), then multiply it by what you paid for it (£100,000 x 0.509 = £50,900).
  • The amount you paid for improvements in June 2010 (0.159), then multiply it by what you paid for improvements (£10,000 x 0.159 = £1590).

Then, take both these figures away from the profit you made from the sale. 

£90,000 – £50,900 – £1590 = £37,510. 

That £37,510 is your chargeable gain from the sale of the asset and will count towards your capital gains tax.

The inflation index allowance only goes up to December 2017. So, for any asset you sell after that, act as though you sold it in December 2017. 

What if I make a loss from selling business assets?

Sometimes when you sell your business assets, you’ll get less than you paid for it. When this happens, you can declare the loss to HMRC, reducing the amount of capital gains tax you have to pay.

For example, if you’ve sold a piece of machinery for £10,000, but the market value is £20,000, then you can deduct the loss (£10,000) from your chargeable gains.

You can only deduct the loss from your chargeable gains, not your total taxable profits. And the loss you claim is reduced by any capital allowances you’ve already claimed.

For example, if you’ve already claimed the cost of machinery (£20,000) as a capital allowance, and then sell it at a loss (£10,000), you can’t claim the loss (£10,000) from your taxable income. 

Manage your liquid assets

It can sometimes be difficult to understand the value of some business assets, but liquid assets like money are easier to manage with the right accounting software. 

Built for business owners, Countingup is the business current account with built-in accounting software that allows you to manage all your financial data in one place. With features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 

Find out more here.