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Euan's picture
By Euan MacLennan
04th Oct 2011 11:08

It depends ...

... on what they bought for their £10,000.

If some of it was stock, that is initially an asset, but would be treated as an expense when the stock is sold.

If some of it was fittings, furniture, plant or machinery, they would be fixed assets on which you would charge depreciation in the accounts, but for tax purposes, depreciation is replaced by capital allowances.  Provided they did not buy the business from a relative, they would be able to claim 100% of the cost as an expense against the profits of their first accounting period.

The rest of the £10,000 would be considered to be goodwill.  You would depreciate this in the accounts over the expected life of the goodwill - say, 5 years - and you could claim that depreciation as a deduction from profits for tax purposes.

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Replying to Kent accountant:
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By User deleted
04th Oct 2011 11:30

Are you sure, Euan?

Euan MacLennan wrote:

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The rest of the £10,000 would be considered to be goodwill.  You would depreciate this in the accounts over the expected life of the goodwill - say, 5 years - and you could claim that depreciation as a deduction from profits for tax purposes.

The OP said that the purchasers are self-employed

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Replying to Kent accountant:
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By liselites
15th Oct 2011 10:23

c

 

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Euan's picture
By Euan MacLennan
04th Oct 2011 13:00

@BKD - You are right!

So easy to overlook the question when you are deep into the answer!

As they are self-employed, although they should probably depreciate the goodwill over its expected lifetime, the depreciation will not be allowed as a deduction from profits for income tax purposes.  This treatment only applied to limited companies for corporation tax purposes.

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By blok
05th Oct 2011 12:03

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I thought you said that they bought a business?

If they have paid a lease premium then this is very different.

What type of buisness is it?

 

 

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By liselites
15th Oct 2011 10:22

b

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