Tax allowable goodwill when company ceases trading

Tax allowable goodwill when company ceases trading

Didn't find your answer?

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)

Please login or register to join the discussion.

avatar
By blok
11th Oct 2011 09:08

.

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.

Thanks (0)
avatar
By JackJoshua
11th Oct 2011 13:49

In fairness

The client took over the shop when it was making a loss due to the previous occupier having a reputation for selling out of date goods.

By giving a much better service and having an excellent rapport with the locals he had turned it into a very profitable business and so goodwill was in my opinion rightly accounted for on incorporation.

Due to a greedy landlord my client has to set up a new business in another area where he does not presently have any goodwill in this area.

To me, the goodwill should be written off as it is no longer applicable but it is difficult to suggest goodwill should not have applied as the business was losing money before my client took it over (i.e. shop profits were not down to just location).

Thanks (0)
avatar
By blok
11th Oct 2011 14:19

.

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.

Thanks (0)