Sale of sole trader business

George
George Registered Posts: 43 ? ? ?
Hi

My question is in two parts.

I have a sole trader client who wants to sell her beauty salon business. She has been approached by one of her wealthier clients who has seen the last three years accounts and, to my client's delight, offered her £80,000 for the business.

My client has

a) £18,000 in tangible fixed assets and
b) £5,000 in stock

Is my understanding right that, on sale,

a) £18,000 will be deducted from the capital allowances pool, setting off a balancing allowance or balancing charge
b) £5,000 will be added to the cessation trading account and taxed as income

and the £57,000 balance will be treated as goodwill and subject to the rules of CGT?

Thank you for any help and advice on this part.
:001_smile:

Comments

  • groundy
    groundy Registered Posts: 495
    Thats pretty much it, however you can decide what the value of assets is if its not really worth £18000 which could be more tax beneficial. You will need to look at the calcs.
  • George
    George Registered Posts: 43 ? ? ?
    Thanks, Groundy!

    The other part is this.

    I also understand that the seller would engage a solicitor to draw up a sales agreement to include, amongst other things, the sale price split between assets and goodwill. Is there anything that needs to be reported separately to HMRC?

    And this next bit is the part I'm uncertain about.

    The prospective purchaser would like to pay £40,000 now, and have my client show her the ropes for 12 months, and then pay her the other £40,000 after a year. Alternatively, she has offered that my client can own 50% of the business after a year and not receive the other £40,000.

    How would this work from an accountant's viewpoint?

    Thanks for your help and comments.
    :001_smile:
  • groundy
    groundy Registered Posts: 495
    Nothing needs reporting to HMRC, other than declaring the CGT and final accounts on the relevant Tax return.

    With regards to splitting the sale, you would only declare the second £40k, once received or if accepting the offer to run half the business then you would need to register a partnership.

    I would be wary of the conditions of leaving the second payment till the end of the year. If the purchaser has a change of heart or discovers the business isnt a big success then your client may well lose out!
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