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Tax deduction for goodwill amortisation

Tax deduction for goodwill amortisation

A limited Company (oldco) was formed in 2009 to acquire the sole trader business, which has been traded for some 25 years prior. Oldco purchased the goodwill from the sole trader. Oldco has a few directors, of which I am one. There is 1 shareholder, not me. The shareholder and other directors are not related to me. I wish to form a new company (newco) to purchase the goodwill of oldco. I will be the sole director and shareholder of newco. Lets say the goodwill is purchased for £1m and amortised over 10 years at £100k per annum. Can the £100k be tax deductible and reduce profits and hence, corporation tax. There is no issue of related parties as far as I can tell. Will HMRC say that the original goodwill was created prior to April 2002 and reject the deduction, or can I argue that it was only created in 2009 when oldco was formed and purchased the business from the sole trader?

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04th Feb 2013 11:49

Fortunately for you...

... almost exactly the same question got asked over the weekend in THIS THREAD.

The question of whether the goodwill was originally created before 1 April 2002 is only an issue if the vendor and the purchasing company are related parties (which essentially means the same as connected persons elsewhere in tax).  You seem to be saying that the vendor and purchaser aren't related parties, so when the goodwill might be argued to have been created is an irrelevance.

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By anon123
04th Feb 2013 11:55

That's great. Thank you. Presumably then, being a Director of both companies is not considered a related party then?

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04th Feb 2013 12:05

That's correct

Look up the full text in S835 CTA09 before you place any bets - but essentially it's all about control (normally defined by share ownership) rather than directorship.

I'd take an informed guess that most UK companies are controlled by its directors who are also shareholders, so that confuses the roles in many people's minds.

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By anon123
04th Feb 2013 12:17

Even if dirctorship is

Even if directorship is considered to be related, the goodwill was purchased by oldco in 2009 form the sole trader. Newco is purchasing the goodwill which only existed in oldco form 2009. Is that correct, or can they go back further and say the intial goodwill of the sole trader was orginally created prior to April 2002?

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04th Feb 2013 12:05

That point...

... was dealt with in the other thread.  I think perhaps you need paid for advice to give you comfort.

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By BKD
04th Feb 2013 12:59

"Even if... "

Yes, one can look back. 'Old' goodwill will remain 'old' goodwill until acquired by an unrelated party.

So, here the goodwill is still old in the hands of oldco. If oldco and newco were related, by whatever test, then it would continue to be old goodwill in newco. From the information given, I would suggest that the companies are not related in this case. But my free suggestion based on limited information is no substitute for paid-for professional advice from someone that has full details of all relevant facts.

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