Stamp Duty - Small Business Guide

If you have ever bought a house, you will have grudgingly given a wedge of your hard earned cash to the government, just for the privilege of having somewhere to live!

Every house sale worth more than £125,000 attracts Stamp duty in the UK. There are three levels of the tax depending on the value of the house and whether it is classed as being in a “disadvantaged” area.

It’s certainly a nice little earner for the Treasury. It’s reckoned government profits from the tax will rise a third in 2007-2008, to £14.3 billion. That’s £3.4 billion more than we paid last year.

Stamp Duty and your business

Did you know that businesses are also liable to paying Stamp duty?

You may have to pay Stamp duty for transactions on the transfer of land or interests in land; grants or assignments of leases; and transfers of chargeable securities such as shares in companies.

These are split into two different types of Stamp duty. The first, Stamp duty land tax is applicable if you rent or buy premises, and can catch small businesses out when they are first establishing roots.

The second, Stamp duty reserve tax, may apply when you purchase shares or other securities.

This guide looks at the potential impact of the tax on your business.

Business Property

The first, which relates to property, is the one you will be familiar with when you purchase residential property.

The same rules apply to buying non-residential property, although the rates of Stamp duty you will pay are slightly different. If the value of the building is up to £150,000 you won’t pay anything. Between £150,000 and £250,000 the rate is one per cent of the purchase price. From £250,000 to half a million it is 3 per cent, and over half a million it is 4 per cent.

Even if you aren’t liable to pay Stamp duty on your business premises, you have to declare all purchases of freehold property, or leasehold property where the lease was seven years or over, to Her Majesty’s Revenue and Customs (HMRC).

Many small businesses rent premises when they first set up. And the Stamp duty laws apply to leases. You don’t pay on the rent itself, but on the premium of the lease. It’s a complicated subject and you should seek professional advice from a solicitor to understand what financial impact it may have on your business when you take on premises.

As the buyer or tenant, it is you who is responsible for declaring your transaction and paying the tax due. Most businesses use a conveyancer or solicitor to do this for them.

The form you need is known as a SDLT1 and you can get it from HMRC. They have a series of sample forms and guidance notes here.Once HMRC has received your form and payment, they will electronically issue a certificate. This must be sent to the appropriate land registry – again, your solicitor will help you sort this out.

As with many government services, you can of course do all of this online.And if you want to work out the impact on your business, HMRC has a series of handy calculators here.

Reserve Tax

Finally, looking at the other kind of Stamp duty, the reserve tax. This is where you pay half a per cent tax on the purchase or transfer of shares. Again this is a complicated subject, and the responsibility for paying any tax due lies with the share broker, who will be able to advise you on any potential impact on your business.

Remember to get professional advice from a qualified person before taking any action. Don’t rely purely on information contained in this article.