money4dentists MD Richard T Lishman says, “Selling your dental practice? Here’s what you need to know…”
If you’ve made the decision to sell your practice there are a number of considerations you will need to take into account. Your business structure is one of them, as it will affect both the way you can sell and the way you’ll get taxed.
If you were to sell an unincorporated practice as a sole trader or business partner, for instance, you would be able to use Entrepreneurs’ Relief (ER) to pay less Capital Gains Tax (a tax on the profit of an asset). As long as you have owned the business for longer than a year, which is the prerequisite for ER qualification, you would only need to pay 10% on all gains made from the sale of the business.
An incorporated practice, on the other hand, isn’t eligible for this generous relief if it is the limited company that is selling the practice. Instead, a 19% Corporation Tax must be paid on all profits, as well as an additional Income/Capital Gains Tax charge on sale proceeds. Saying that, the extraction of funds from the business can be reduced with careful financial planning. The use of Substantial Shareholding Exemption (SSE) is one possible way to cut costs, as the business would only incur tax when funds are extracted from the company rather than paying tax on the entire sale of the practice.
Then again, if you choose to go down the route of disposing your shares in the limited company as a way of selling your practice, ER would still be available to you, as long as you own/control more than 5% of the business and are an official employee of the company. It is important to note, however, that where a company holds significant cash balances or investment assets it would be classed as ‘non-trading’, meaning ER would no longer be applicable.
As such, you would need to ensure that your company qualifies as a trading business, if this is the exit strategy you want to take. However you choose to execute your exit strategy, timing and advanced planning is key – especially if you plan to restructure your practice beforehand.
The same goes for due diligence. When you eventually sell, a buyer and their legal team will need to carry out a comprehensive appraisal to evaluate your business’s commercial potential. For you as the vendor, that means answering a number of enquiries and providing the relevant documentation to confirm that the various statements about the practice are correct.
In order to do this efficiently, and in a timely manner once the process begins, you must ensure that all the agreements are in place and valid, registrations, permits and certificates are up-to-date, and all equipment is in good working order. Naturally, collating everything together takes time – especially if a document has been misplaced or is invalid – so be sure to start early if you want to minimise the risk of delays.
Altogether, there’s a lot involved with selling a business, but with help from an expert team such as the 4dentists group, you can rest assured that the process will go smoothly.