Regarding goodwill and entrepreneurs relief

Ryan Mundy MAAT

Hi

My client ceased trade as a sole trader in Oct 2014 and incorporated Sept 2014 (Sole director).

The ST business commenced April 2014 and made a net profit of £29k (no fixed assets).

The business could be viable (transferable) without my client running it, so I believe there is some value to goodwill.

Would it be tax efficient for the Ltd to purchase goodwill from the sole trader?

My understanding is as follows:

Ltd purchases goodwill for £x, and my client pays CGT on this amount.
As the transaction took place, prior to December 2014, my client would be able to claim Entrepreneurs relief.
CGT would be 10%
Ltd would be able to claim amortisation of goodwill as a ta deductible expense (4% pa?)

The Ltd can afford to purchase the goodwill outright.

My client is a higher rate tax payer.

Ltd is small profits rate.

Any suggestions on how to value goodwill? Does this need to be agreed by HMRC?

Many thanks.

KernowAccountant

ER will not be available by virtue of s.169I(3).

I express no opinion as to the rest of your scenario, I could write an essay!

stevo5678

I think the sole trader needed to have been around for at least 12 months to qualify. Note that the rules changed in December to remove most of the advantages of amortising goodwill/claiming ER although the client seems to fall down at the 12m hurdle anyway. However I don't see any issues in there being a good will amortisation claim for CT although it's very close to the change in rules effective from 3 December. In that case there would need to be fairly strong documentation to support the timing of everything.

https://www.accountancylive.com/entrepreneurs’-relief-er-abolished-business-incorporations