Hi
This seems a stupid question but I have a client who incorporated as a corner shop two years ago who is soon to cease trading and while I would think that I can write off his goodwill in the final year of accounts I thought it best to check.
The goodwill was based on a multiple of profits which was fine but the landlord recently informed my client that he would only renew his lease on a 10 year basis and that he wanted a £70k up front payment as well as the normal monthly rent to which my client obviously told him to get stuffed.
My client is currently negotiating on a new shop premises but will want to call the shop/business another name and obviously the original goodwill applied to the old shop in any case and so is not valid. My view is to set up a new company if the goodwill as I expect can be written off as a tax allowable expense.
Any advice or guidance would be appreciated,
Replies (3)
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If the original amount paid by the company represented goodwill which was freely transferable then this should be able to withstand a move of premises. That is the whole point.
It seems to me that what you are saying is that the company made the payment because of the location of the shop, not becasue of any intrisict free goodwill in the trade. If this was the case then the paymnet was not really for goodwill but it could be argued that the payment was for a lease premium or something similar.
You seem to asking for the best of both.
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I am not knocking you or your perfectly legitimate question.
However, it looks like the company might have bought goodwill which belonged to the owner ("excellent rapport with customers") in which case it is not capable of being sold to the company.
Either that or the company has paid a premium which is reflective of the location of the premises.
Your argument is that it has bought the right to earn profits which you call goodwill. In that sense I agree but I do find the intangibles legislation and HMRC's comments on this legislation always very narrow for the reasons mentioned above.
I would be interested to hear some other views because I posted a question on this subject a few weeks back.