Goodwill on incorporation

whiterose

Have just taken on a client who incorporated last autumn from being a sole trader. He has not had an accountant before. He is an engineering consultant, one-man band, high earner. Can I include some goodwill on incorporation or was there really no market value to the business that the limited company purchased? Would like to be able to credit something to his DLA for him. He had no other assets to sell to the Ltd Co. Any thoughts appreciated.

whiterose

Have decided cannot put any through as mostly personal goodwill and not truly transferrable. Pity.

DebbieM

Hi

My partner traded as a sole trader for one year and then changed to a limited company last March. I came up with numbers for goodwill (which happened to keep him under the CGT limit) and applied for a post transaction valuation to HMRC. They asked a few questions which I answered and they then approved the valuation. About 90% of the customers were personal goodwill which he had brought to the sole trader business.

Maybe its worth a try.

Debbie

Poodle

Out of interest,

How many years are you amortising this over and are you writing this off as a business expense on CT?

P

rjww85

Poodle wrote: »

Out of interest,

How many years are you amortising this over and are you writing this off as a business expense on CT?

P

It is an allowable expense in the company accounts but it must be disallowed on the CT comp as it is not goodwill which was aquired on the purchase of a business.

deanshepherd

rjww85 wrote: »

It is an allowable expense in the company accounts but it must be disallowed on the CT comp as it is not goodwill which was aquired on the purchase of a business.

I disagree.

The incorporation of a sole-trade to a company IS the purchase of a business. The only question you need to ask, assuming there is no contention over the valuation, is did the goodwill exist before or after 1st April 2002?

If before, amortise in accounts but add back in tax comp.
If after, amortise in accounts and don't add back.

There is no consequence of the transferor being a related party, except in relation to valuation, unless holdover relief was claimed on the transfer.

Poodle

Dean

You beat me to it!

You are right with the date. However I would add that you will only be able to claim as an expense for CT purposes if it is 'free goodwill'

You would obtain a market valuation ( and I would take the CG34 route), credit to the Directors loan,reviewing anually and amortising appropriately claiming the amorsised amount as the expense.

If it is not free then the good will is credited to a 'good will non distributable reserve'.

I think HMR&C talk about 'cats, dogs and rabits' for this

I had exactly this situation with my own goodwill when I went from a sole trader to a company. It also only applies with the sale of the business to the company not to a transfer. Section 162 then I think?

Poodle

deanshepherd

On the subject of goodwill..

Does anyone know if at any point fully amortised goodwill can be removed from the accounts?

Or does it have to remain forever more at a nil NBV?

Or, thirdly, would anyone care if it was removed?!

Poodle

Dean

From my 2.5 ACCA days.. (head scratching here):001_unsure:

FRS 10 states that purchased, positive good will should be capitalised and amortised over it's useful economic life.

Once fully amortised the purchased goodwill no longer exists, it cannot be revalued due to the method of creation (i.e surplus over the fair value consideration on purchase). It would probably be replaced by inherent goodwill but that would only be recognised when the business is sold on again.

I have not had to do this , yet but I would remove it

Poodle