Purchased Goodwill

Gianni

A friend of mine is considering setting up his own consultantancy business. He's had advice from an accountant to setup a limited company and then sell his 'intellectual property' to the business and essentially write off (what I presume to be goodwill) over a period of time to reduce his tax and national insurance bill. Another consideration is what is being sold, it's only just being setup, he's making his decision to setup a sole trader or limited company now so the company is in fact buying nothing.

I cannot fathom how this is possible; are you able to write off purchased 'goodwill' and claim capital gains tax?

deanshepherd

Only if there is goodwill to be purchased separable from that of the individual.

In the situation you describe there is no goodwill yet.

Gianni

Do you have any examples of that? The way it has been angled is the individual is bringing contacts, skills and the 'idea' to the organisation and that is the basis of the goodwill but any employee of the company could bring that information, it doesn't mean you'd generate goodwill!

From what I'm hearing is as long it's a 'small amount' they think it'll go unnoticed and hence be fine (probably around the capital gains limit) which isn't strictly correct of course but that's their advice!

groundy

This is a practice normally used when someone has traded as a sole trader for a year or two then transferred to Limited. You then have evidence of goodwill in that the company is buying an existing trade.

I think you would be hard pushed to prove goodwill were there is no previous trade.

Monsoon

Good will on incorporation has to be 'free' goodwill.
Eg, Joe Bloggs sells his personal services as a consultant. He gets client by virtue of his personal reputation. If he leaves, the business fails, and so he has no free goodwill to sell to anyone, including his own new limited co if he incorporates from a sole trader.

Joe Bloggs has an internet website called Great Business. It also has a great reputation, and his clients don't really know who provides the things they buy. He has free goodwill to sell.

Thats a really bad explanation but hopefully you get the jist...