I have a client who was a sole trader running a business from 1998 to 20/01/2014 at which time it was beneficial to incorporate, I have since been told that she is wanting to move away (personal reasons) (which means that she will have to sell up as her business and clients are located where she lives.)
The CG34 has not been sent to HMRC as yet, but the approach i am using to value this is taxable profits and a multiplier of 2.5.
Profits (profits + add backs - capital allowances) for the last three years are:
2011 - 37635
2012 - 43511
2013 - 51726
Average over 3 years is 44290 multiplied by the multiplier of 2.5 equals £110,727 worth of goodwill.
If this figure is agreed capital gains tax after entrepreneurs relief will be £9982.67 (110727-10900 Annual Exemption at 10%)
My concern is that do i really want the goodwill to be this high as I don't believe that my client will get anywhere close to this amount on the sale of the company and she would be paying unnesesary CGT in the event of it.
She will have losses to carry forward but will probably not use them, although having said that she has a number of properties!!!!
As she was running the company prior to April 2002, she can only get the relief on selling the business which isnt a problem providing that she can get a decent amount for it. Obviously if if the sole trader business started trading after April 2002, I would want to get as much as possible so that the client could draw on it from her DLA.
Is there anything that I have overlooked, and if you were in this position would you do anything differently?
Thanks in advance