Goodwill query

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marine
marine Registered Posts: 31 Regular contributor ⭐
Hi guys

A client of mine last year changed from a sole trader to a ltd co, its a training company and they would like to bring some goodwill into the company.

The figures they have suggested would be £40k to be amortised over 10 years, am i right in thinkin that they dont have to have an independent valuer? if not do i show the goodwil amortised on the pandl but add back on the tax comp?

Do i show the £40k as a other creditor on the balance sheet?

Please advise, as im a little confused.

Thanks

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  • Gem7321
    Gem7321 Registered Posts: 1,438 Beyond epic contributor 🧙‍♂️
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    I think the amortisation is allowable for tax as it was acquired after April 2002.

    You don't have to have an independent valuer but be prepared for HMRC to challenge the valuation.

    The other £40k would go to Directors Loan Account.

    Someone please correct me if I'm wrong!
  • Monsoon
    Monsoon Registered Posts: 4,071 Beyond epic contributor 🧙‍♂️
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    When you incorporate an existing business, the double entry is DR Goodwill Asset, CR DLA (this is money the directors can take tax free out of the business, so it's really good if you can do it).

    HOWEVER it needs to be FREE goodwill. If they could sell this business to a stranger on the open market for the same price, it's free goodwill. If the goodwill is contingent on the owners of the business (eg they are well respected and get business based on the personal services of the owners) then you can't transfer goodwill in this way.

    As to valuing it... hard one. In the back of my mind you I think you might have to ok the value with HMRC first, but do double check (no point talking to them if you don't have to!). You will need to be able to justify the value of the good will if they were to ask.

    Don't forget CGT on the seller of the goodwill.
  • Poodle
    Poodle Registered Posts: 711 Epic contributor 🐘
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    Marine

    You may like to review here and then submit a form CG34

    http://www.hmrc.gov.uk/shareschemes/shares-valuation.htm

    Timing is important with the submission of a CG34 and the taxpayer can only apply for a PTVC:

    • after the date of the disposal relevant to capital gains tax (or for companies, to corporation tax); and
    • before the date by which the taxpayer has to complete the self assessment tax return.

    Once you have the valuation approved then this will be acceptable for all tax computations
  • Monsoon
    Monsoon Registered Posts: 4,071 Beyond epic contributor 🧙‍♂️
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    Poodle wrote: »
    Marine

    You may like to review here and then submit a form CG34

    http://www.hmrc.gov.uk/shareschemes/shares-valuation.htm

    Timing is important with the submission of a CG34 and the taxpayer can only apply for a PTVC:

    • after the date of the disposal relevant to capital gains tax (or for companies, to corporation tax); and
    • before the date by which the taxpayer has to complete the self assessment tax return.

    Once you have the valuation approved then this will be acceptable for all tax computations

    Thanks for the link Poodle!! :)
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