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Goodwill amortizsation - tax deductible?

I’m a director of a limited company (Co1), although do not own any shares. I want to form a new ltd company (Co2) and purchase the goodwill from Co1, for say £1.5m, which will be amortized over 10 years at £150k per annum. Co1 was formed in 2009, having purchased the goodwill of one of the directors (not me) personally (which he traded as a sole trader for some 20 years before).

Am i correct in saying that the purchase will be form a connected party (due to then common directorship) but that as Co1 was formed after April 2004, Co2 can use the £150k annual amortization as a tax deductible expense (i.e reduce profit and corporation tax)?

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By BKD
03rd Feb 2013 11:23

Control

Directorship on its own does not make an individual a related party in relation ot a company, and so amortisation may be deductible (if the first-mentioned director was not a related party in connection with Co1, then Co 1 should also have been able to claim relief). How many directors in Co1? To what extent does the individual have control over Co1's affairs?

And - please - in the UK  'amortisation' is spelt with an 's'.

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03rd Feb 2013 11:27

Thank you for your reply. So if there is no related party due to common directors, the goodwill amortisation is fully tax deductible? Is there anything else that needs to be considered to ensure that HMRC do not challenge this?

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Eh?

Transfer the goodwill? On its own? Don't you mean transfer the trade including the goodwill? Or is the goodwill a basket of other (identifiable and valuable) intangibles?

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03rd Feb 2013 11:51

It is a service business and the goodwill is effectively the contact list etc. The WIP and trade will be purchased as well.

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By BKD
03rd Feb 2013 11:58

Common control ...

... or rather, absence of it, is what you need to demonstrate. Directors may control a company so, for example, if each company had the same 2 directors, with equal rights and powers as conferred by the Articles, the companies may be seen as being under common control. If there were instead 3 common directors with equal rights etc, companies probably  not seen as being under common control.

I was focussing on the technical aspects, but George makes a valid point - exactly what is being transferred?

EDIT - composed while answer above posted

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03rd Feb 2013 12:04

The whole businss will be purchased inc goodwill, wip, minimal fixtures and fittings.

Co1 has 3 directors and 1 shareholder (not me)

Co2 will have 2 directors and 1 shareholder (me)

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I can't see any problem then

Assuming that there's no connection between me and not me (other than that it's not you).

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03rd Feb 2013 12:24

sorry, the (not me) and (me) refers to the shareholding. I am currently an employed director of Co1 and will be a employed director of Co2, that is the only 'connection'.

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04th Feb 2013 08:26

Significance of "not me"

George's comment was concerned with whether "not me" referred to an individual who is connected with you, ie your spouse.

With kind regards

Clint Westwood

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04th Feb 2013 09:05

''not me'' is not connected to me personally. Thanks for the clarification.

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