Asset Purchase Agreements Explained for UK Business Owners

When a business changes hands or restructures, assets need to be transferred correctly to avoid legal and financial complications. An Asset Purchase Agreement (APA), sometimes called a Business Purchase Agreement, sets out the terms of this process. Whether you’re selling or buying, having a well-drafted agreement ensures clarity on what is included in the transfer, how liabilities are handled and any obligations related to employees.

What Does an Asset Purchase Agreement Cover?

An Asset Purchase Agreement is a legal document that outlines which assets are being transferred, the agreed price, and any conditions tied to the transaction. Unlike a share sale, where company ownership changes but everything within the business remains intact, an APA allows specific assets and liabilities to be selected or left out of the deal. This makes it a common choice for businesses selling part of their operations or undergoing restructuring.

Assets covered in an APA may include:

• Equipment and machinery
• Intellectual property, such as trademarks and patents
• Contracts with suppliers and customers
• Premises and leases
• Stock and inventory

Clearly defining what is included avoids disputes later. Any assets not listed will remain with the seller, so both parties need to be specific when drafting the agreement.

Employee Transfers and Legal Considerations

When a business is sold or acquired, its employees may also be affected. Under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), employees assigned to the part of the business being transferred will usually move to the new owner on the same terms and conditions.

This can create legal and financial obligations for both buyer and seller. The APA should outline how employee liabilities are shared, including wages, pensions, and National Insurance Contributions (NICs). Failure to comply with TUPE can lead to disputes or legal claims, so businesses need to factor this into the agreement from the outset.

TUPE is only triggered on an asset purchase/transfer and not a share purchase/transfer.

Tax Considerations in Business Sales

Selling or buying a business through an asset purchase can have tax implications for both parties. Different types of assets attract different tax treatments, so the agreement should allocate the purchase price carefully.

Key tax considerations include:

• Capital Gains Tax (CGT): The seller may need to pay CGT on any profit from selling the assets
• Capital Allowances: The buyer may be able to claim tax relief on certain assets, such as machinery
• Stamp Duty Land Tax (SDLT): If property is part of the transfer, SDLT may apply

Getting professional advice on tax structuring before finalising the agreement helps avoid unexpected costs and ensures compliance with HMRC requirements.

Making the Transfer Process Smoother

A well-prepared APA protects both sides by making sure expectations are clear. Businesses involved in buying or selling as a going concern should:

• Carry out due diligence to check for any outstanding liabilities attached to the assets
• Ensure key contracts, such as supplier agreements, can be transferred. Some may need consent from third parties
• Work with legal and tax specialists to structure the agreement correctly

mlplaw advises businesses on asset purchases, ensuring agreements are legally sound and commercially practical. If you’re buying or selling business assets and need support, get in touch with our Corporate Team on 0161 926 9969 or email us at corporate@mlplaw.co.uk.