Do you pay tax when you buy a business in the UK?

Buying or selling a business can feel a bit like navigating a maze, even at the best of times. There are so many different moving parts to take into consideration, from conducting due diligence on the business you’re buying to working out whether it’s a challenge you’re ready to take on.

An important part of that puzzle consists of working out what your tax obligations will be if you choose to buy the business in question. It will have an impact on how much the business costs, and might be a deciding factor over whether you choose to proceed with the purchase or not.

Tax implications of buying a business

While there isn’t a single, specifically designed ‘business tax’ that you’ll need to pay, there will likely be a range of other taxes that you’ll need to consider. 

It’s important to work directly with a business broker when navigating these taxes, but below are some of the main ones to be aware of.

Value Added Tax

If you’re considering buying a Value Added Tax (VAT) registered business, then the tax implications aren’t totally straightforward. It’s possible that you’ll be eligible for VAT tax relief in the tax year that you buy the business, but only if you meet a range of specific conditions. 

These might typically include the continuing operation of the business, and an agreement that will need to be made between both the buyer and the seller. 

Stamp Duty Land tax

While Stamp Duty Land Tax (SDLT) is normally associated with the buying and selling of real estate, it can also be applicable in the context of business transfers.

If the business in question includes physical premises, such as offices or another kind of permanent facility, then SDLT could very well be triggered. 

Whether or not it’s due may depend on whether the business owns or rents these properties, and the rate that you’re obliged to pay will also differ based on the value and status of the properties in question.

Capital Gains Tax

While not always an immediate tax that’s liable, Capital Gains Tax (CGT) may be owed on certain assets that increase in value, an increase that might become visible during a sale.

Whether or not the buyer is immediately liable for the payment of CGT might depend on whether the sale is structured through the transfer of assets or shares. 

With an asset transfer, the seller will generally be liable, with the buyer taking on future CGT responsibilities, whereas in the case of a share transfer, the buyer may be liable. 

These are by no means the only tax-related implications associated with buying a business, but even with these three examples, you’ll likely have gained a basic understanding of how complicated things can become.

In most situations, you’ll want to make sure that you fully understand all of your tax-related duties associated with the sale before you move forward. You don’t want to be hit with unexpected debts to HMRC, especially if you’re not in a position to pay them.