Capital Gains or Income Tax ?

[toneharb]

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In Dec 2006 I sold one of my websites (cashback directory) , is the income from the sale of the website taxed as income tax or should i declare it as capital gains tax on the self assessment form ? (I'm in UK)

(The latter would be better as i think there is an CGT allowance - is this allowance in addition to personal income tax allowance , and how much ?)

Anyone know ? Help would be appreciated

THanks

Tony

[DioBach]

I was wondering the same, I've never sold a site, but for future reference it would be good to know. I've always thought it would be Income Tax, but only if you're developed it to sell as part of your self-employment. I dunno.

[hrbs]

In Dec 2006 I sold one of my websites (cashback directory) , is the income from the sale of the website taxed as income tax or should i declare it as capital gains tax on the self assessment form ? (I'm in UK)

Hi

HMRC are likely to ask questions along the lines of...
How many sites do you operate?
Did the sale of that website mean that you ceased activity in that sector?
How much was it sold for?
What was the turnover/costs (ie profit) attributable to that particular business? ie measuring %age of overall profit
Are all your sites operated as separate businesses (eg could you easily prepare accounts for each separate part of the business).

However, its highly likely that HMRC will attempt to treat it as income and that the design, development and sale of websites is actually part of your business model.

If you sold all your websites and ceased trading then you would go down the CGT route as it would be the sale of your business.

If the potential tax saving is large enough to easily cover the costs of professional advice then I would suggest that you take such advice.

Hope this helps.

Regards

Keith
Fixed Fee Accountants and Small Business Specialists - High Royd Business Services Limited
Small business and affiliate marketing specialists

[toneharb]

Hi Keith,

I only made profits on the site i sold , so i effectively sold the complete business. Although i did not deregister as there has been some "latent" income from the site that was sold - not much but still income - The remainder domains made nothing so i will just say that to the IR , the other domains are making a small amount now as i have since done some work on them since selling the site, but it pales into insignificance at the moment. I will have to say this in the letter to the IR, and ask them to amend my self assessment which was incorrectly treated as income. (Will also have to ask them to reduce payments on account to almost nothing too).

[dougs]

Sounds like CGT to me...if held in a company and the shares were sold and the company was over 2 years old you get taxed at 10% of rpofit......18% after April 1 2008

Doug

[toneharb]

Thanks Doug i'm not a LTD co - just little ole me - sole trader (just hanging on by a thread). So i think i might be able to get exemption (hoping). In which case i can afford that new tyros 3 super duper keyboard when it comes out.

[hrbs]

Sounds like CGT to me...if held in a company and the shares were sold and the company was over 2 years old you get taxed at 10% of rpofit......18% after April 1 2008

Doug

Totally different rules unfortunately, as the sale of the shares by the owner in their business could not be classed as trading in shares if the 2 year rule is met, whereas HMRC could potentially argue that part of T's trade is actually selling websites.

Rather than having sold the cashback site and focussing on a different sector, to the casual visitor T continues to operate in the cashback field (see ad9.co.uk - his sig website). Hence HMRC ** may ** argue that his general trade is the design, development and sale of developed/performing websites. ie the sale of the website was trading income rather than a capital disposal of his business (or part thereof).

To summarise a message to sent to T, which may be of general interest to others in a similar situation ...

T's website in his sig (ad9.co.uk) is also cashback oriented which unfortunately may strengthen HMRC's assertion that the design, development and sale of websites is "the business". Therefore the sale of the earlier website is trading rather than capital, even though it may have been the first website sale (and only website sale to date?), HMRC may argue that it was the first of many potential sales.

Depending upon the sums involved the HMRC Inspector may consider it worthwhile to argue that it is income (ie potentially 40% + Class 4 NIC of the sale proceeds) rather than capital (ie 10% of the balance after the annual CGT allowance, assuming owned and trading for at least 2 years) especially as in T's tax return he originally treated it as income and now has to convince them that it is in fact capital. The onus is now on T to prove it to HMRC rather than the other way round, given that the sale was 10 months ago.

I am sure we all wish him good luck.

Keith

[toneharb]

Hi Keith

Thanks for taking time to provide informative replies and offer of free help too.

NB: The ad9 site was an ecommerce shop selling puckator / atsdistribution stuff until 2 weeks ago ! but didn't make much at all <£200 in 6 months , so all i'm trying to do is to find something to do with it , rather than drop it so trying cashback yes , but as a "broker" for other cashback sites (certainly not doing cashback myself ever again - way too much work/responsibility!). In any case all (meagre) income from this and the other domains has been since April 2007 So was effectively out of business but since April 07 , nothing prior , have effectively started again from scratch, based on what's been said i just have to clarify that the site sold was the only source of income.

Cheers

Tony