Goodwill

Re:Goodwill

Have a look on HMRC website - type in REV BN 10 in the search box this details the changes that have taken place.

The Revenue have tightened up the rules because goodwill, by its very nature, can be extremely difficult to value. Some companies on incorporation were inflating the goodwill so as to be able to draw an excessive credit from their directors loan account down tax-free.

One method the Revenue use to determine the value of goodwill is referred to as the "Animals method". This method basically contains 3 elements of goodwill being personal goodwill, free goodwill and inherent goodwill. Details of these methods can be found by typing CG 68020, CG 68030 and CG 68040 in the search box.

It is worth noting that in a test case held a few years ago HMRC were heavily criticised by the special commissioners for over-use of the Animals method and have been instructed to tone their reliance on this method down.

Another point worth mentioning is the ability by comapny's to be able to write-off goodwill by claiming tax relief at 4% per annum on a straight line basis which is time-apportioned from the date the goodwill was purchased.

Kind regards
Steve

Re:Goodwill

Another point I forgot to mention is to consider the potential capital gains tax implications when introducing goodwill into a Ltd Co. upon incorporation. See a recently heard case (Colley and Hillberg -v- HMRC SpC 15.2.07).

Regards
Steve

Re:Goodwill

Hi Claudia,

It's been nagging me for ages now about where I have seen a comprehensive article on Goodwill which cites the case I have mentioned above. But I have now found what I read a few weeks ago. You can see it at:

http://www.taxationweb.co.uk/businesstax/article.php?id=318

This article is an excellent article, covering Goodwill in a good amount of detail.

Regards
Steve