hello there more experienced members
I have a self employed florist wanting to become LTD. it makes sense tax wise. Now with regards to incorporation is there any scope for goodwill? I have no knowledge of the area and before I asked for propfessional help in the matter I was wondering if we can even look at it.
She owns the shop and her clients are either walk in or provided via Interflora. I know there are some restrictions with regards to related parties and there might be other stuff I need to consider.
With many thanks in advance
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Quite possibly
Bound to be goodwill unless she is a very bad florist!
Really you want to do a valuation of the business at arm's length and then sell to the newCo to trigger a capital gain and hopefully claim CGT Entrepreneur's Relief, so you will pay tax at 10% but leaving the balance outstanding on a loan account which you can draw down on over the next x number of years. Alternatively you can defer a gain using hold-over relief or gift relief, however, probably more cost-effective to pay 10% upfront.
Goodwill may be tax deductible for newCo depending on when the florist was established. Probably better to keep the land and buildings in sole ownership as stamp duty etc and the risk of double taxation, need to weigh this up in terms of capital taxes - Entrepreneur's relief on eventual disposal of property or not, IHT BPR 50% or 100% - might not matter if fit and young in any case. Capital allowances may need review - you can elect to transfer at WDV, likewise with stock. No VAT as there will be a transfer of going concern, make sure you do the paperwork. No need to transfer liabilities of old business or bank account, but I always suggest that you should do what is simplest and what the client understands as the change over can be messy for bookkeeping otherwise.
Happy to assist you with calcs, or provide a second opinion with valuation or any other part.
Virtual Tax Support for accountants: www.rossmartin.co.uk
not much profit
Hi Nicola
Many thanks for your detailed reoly. Thing is there is no profit. At least on paper....
i suppose that would rule out goodwill, or am i wrong?
she set up a year ago as self employed and after discussing with her the other day there is no tax reason to incorporate now after all as she does not make much money - extracts about 500/month.
Working tax credits; "No profit"
If there is little or no profit I would expect / hope that the client is claiming Working Tax Credits (subject to other income levels of the business owner and family).
We are told that the change to a Ltd Co is being done "because it makes tax sense". I find this puzzling if there's little or no profit. The business owner needs to talk figures with an experienced tax advisor to establish if there really are tax savings to be had - I'm struggling to see any from (admittedly limited) information so far provided.
Going "Ltd" will cost money (ie. overly complicated accounts, extra tax returns, etc.) on an ongoing basis.
tax sense
Initially they said that but after I have queried their figures i pointed out that it does not make sense due to lack of profit to justify that.
They wanted to do it as all their mates are 'ltd'.
so incorporating is not an option for now but I am really grateful for the goodwill advice - it is an area I need to develop.
I will ask them about WTC.