Valuation of non personal goodwill
MarieNoelle
Registered, Moderator Posts: 1,368
Hi all,
I have a sole trader, a well established interior designer, who incorporated in 2016/17. I believe most of the goodwill is personal but in the last couple of years she has used subcontractors who work under her brand name (generating over 10% of her profits). This make me think there is an element of non personal goodwill but I am struggling to find an "approved" method that would satisfy HMRC. The amount of goodwill is likely to be under the annual CGT allowance so I was going the CG34 route rather than a professional valuation.
I would welcome any pointers.
Thanks
I have a sole trader, a well established interior designer, who incorporated in 2016/17. I believe most of the goodwill is personal but in the last couple of years she has used subcontractors who work under her brand name (generating over 10% of her profits). This make me think there is an element of non personal goodwill but I am struggling to find an "approved" method that would satisfy HMRC. The amount of goodwill is likely to be under the annual CGT allowance so I was going the CG34 route rather than a professional valuation.
I would welcome any pointers.
Thanks
0
Comments
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The are many different ways to value a business, e.g. net assets on balance sheet, 1.5 x turnover, 3 - 5 x profit, etc.
Why are you valuing? To create a CR in the DLA?
If the value is greater than AE will you claim ER?
I believe the amortization of the GW is not allowable for CT.1 -
Many thanks for your answer @reader
I believe that if goodwill exists it has to be recognised. Yes ultimately if it creates a credit balance on the d'loan it is a bonus.
No ER available but I expect the value will be under the AE.
My problem is that goodwill inherent to the owner is not normally recognisable. But in this situation i think there is scope to introduce some goodwill, I am just not sure how to measure it. I was working on the basis of say 10% of average superprofits for last 3 years, which would give a value between 5 and 10k.
I know that at the end of the day it is highly subjective but I would like to present it in the best way on CG34.
Thanks again.
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why not calculate goodwill in a normal profit valuation method and use the % of externally generated profit to establish the non personal goodwill? get it approved by HMRC ahead of time and bobs your uncle?1
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Thanks @Bmer82 this is also my reasoning.
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Just out of interest, if the GW was greater than AE, why won't ER be available?MarieNoelle said:Many thanks for your answer @reader
I believe that if goodwill exists it has to be recognised. Yes ultimately if it creates a credit balance on the d'loan it is a bonus.
No ER available but I expect the value will be under the AE.
My problem is that goodwill inherent to the owner is not normally recognisable. But in this situation i think there is scope to introduce some goodwill, I am just not sure how to measure it. I was working on the basis of say 10% of average superprofits for last 3 years, which would give a value between 5 and 10k.
I know that at the end of the day it is highly subjective but I would like to present it in the best way on CG34.
Thanks again.
if not ER and above AE, how would you tax the GW? CGT 10%/20%?0 -
Hi @reader
ER is no longer available for transfer of goodwill on incorporation (TCGA 92 s169LA)
She is a HR tax payer so the rate of CGT would be 20%.
She doesn't qualify for incorporation relief as she is not transferring all her assets. I guess depending on the value agreed a claim for gift relief may be in point.0
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