Sale of Assets

[Paullamanga]

I will shortly be selling assets in my Ltd company totalling £70k. My company will then be purchasing another existing business for £45k. In addition, I will be reinvesting a further £12k of the proceeds back into my existing business.
Firstly, I understand that both these amounts can have the Comany CGT "rolled over".
However, I believe that the proceeds of £70 should be shown as income on my P&L, in which case can I quite properly withdraw dividends from the remaining £13k(after allowing for 20% corp tax of £2600).
The key part of my question is whether I can access the £13k or part thereof by way of dividends.

[northernladuk]

Looking at that surely you have an accountant?!?!

[Paullamanga]

Yes, but I'd like to have an expert 2nd opinion prior to my meeting with my accountant in 2 weeks time, and there does appear to be some grey areas?

[Paullamanga]

Looking at that surely you have an accountant?!?!

Yes but there appear to be differing opinions on whether I can draw a dividend from the remaining £13k.

[ASB]

I don't think the sale of the assets would make any difference to the shareholders funds - it just converts them from one form to another - though there could be a revaluation producing a profit or loss which would effect shareholders funds.

The 70k doesn't find it's way onto the P+L. The difference between the sale price and the book value should.

The question is then whether that forms part of the distributable reserves. I believe it would. But that does depend upon how the purchase of those assets was financed. Were they financed from ongoing retained profits over time, or were they financed by some sort of capital raise from shareholders? Yo can't pay the divis from equity.

If the case was something like:-

Start Trading,
Retain 20k, [This would be you distributable reserve]
Buy asset with the retained funds,
Flog asset for 30k

Then you should be OK.

If however it was a capital injection of some description then this portion is not distributable since it is capital not accrued revenue.

If you do not have enough accrued revenue to declare the 13k in dividend then you could consider a capital reorganisation and get at it that way.

This might help you consider you specific position and history.

Practical Law

[VectraMan]

What's the value of the asset on the balance sheet? If you just purchased it for £70K, and then you sell for £70K, then nothing's changed, you've made no profit. If you purchased it for say £100K, and have written it down to being worth £50K over 2 years, then you've made £20K profit on the sale in this year.

That's my understanding. You haven't given us the most important bit of information.

[TheCyclingProgrammer]

There's two sides to this: the first is dealing with the sale in your books and how it affects your balance sheet (depends on how much it's been depreciated). The second is dealing with tax - companies don't pay CGT, they pay corporation tax on their gains and it depends on what capital allowances you've claimed on the assets.

The former can be accomplished with the correct journal entries in your accounts but dealing with the capital allowances and balancing charges and how much is chargeable to corporation tax is something you should ask your accountant to sort out for you (I could never quite get my head round this bit when I did it recently).

If you've made a profit on the sale of the asset, then after paying the appropriate amount of corporation tax, the remainder will be left in the company as distributable reserves.

Seriously...get your accountant to run through the figures because it really depends on the assets you are selling, how much they have been depreciated and what (if any) capital allowances you claimed when you bought them. Don't forget about VAT on the sale either (if you're VAT registered which I assume you are).

[ASB]

Dug this out, it might be helpful for the OP. It's a bit weighty.....

Distributable Profits Guidance

[Jessica@WhiteFieldTax]

What's the value of the asset on the balance sheet? If you just purchased it for £70K, and then you sell for £70K, then nothing's changed, you've made no profit. If you purchased it for say £100K, and have written it down to being worth £50K over 2 years, then you've made £20K profit on the sale in this year.

That's my understanding. You haven't given us the most important bit of information.

Yep thats the key and missing from OP.

I don't think there are too many grey areas here if its worked though logically, but more detail is needed, really sight of your accounts, asset register and capital allowances pool.

The "buying another business" but may need looking at, as there is more that one way to do this with pros and cons of each.

I think you need to talk to your accountant first, and come back here to second check any thing or discuss further.

[ASB]

If you've made a profit on the sale of the asset, then after paying the appropriate amount of corporation tax, the remainder will be left in the company as distributable reserves.

But wouldn't the (value of the) asset itself form part of the distributable reserves - assuming it was purchased from realised profits?