Goodwill on incorporation

Goodwill on incorporation

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If a client incorporates his business & there is goodwill involved (I am aware of the different types of goodwill - personal etc) how do you go about actually agreeing this with the Inalnd Revenue? Who do you get in touch with & what paperwork do they expect to see? At what point in the incorporation process should this be done. Any thoughts greatly appreciated.
Alison Gray

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By Alison Gray CA
05th Oct 2004 16:48

Thanks John...
...the post valuation ruling is somehting I have also heard about & will possibly just need to contact the Inland Revenue & find out what the procedure is.

Thank you very much for your previous comments, they were crystal clear & very helpful.

Alison

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By AnonymousUser
30th Sep 2004 12:22

If...
...there was no disposal of goodwill (because it was all personal) and there were no other transfers of assets, then there were no chargeble disposals and so nothing to report on the CGT pages.

In those circumstances, there has simply been a cessation of trade by the sole-trader and a commencement by the new company. Those are entirely income and corporation tax matters which will get reported to the Inland Revenue as and when the relevant IT and CT Returns are
submitted.

If there were disposals but the total chargeable gains (after taper relief) were less than the annual exempt amount, the CGT pages do not have to be completed unless the total market value of the disposals (including the goodwill) was more than £31,600 (for 2003/04).

If the total value of chargeable disposals exceeds that amount, the CGT pages must be completed.

If it is not clear whether there were any chargeable disposals (because, for example, it is not clear whether there was any transferable goodwill) you might just detail the situation in the 'white space' on the IT return and see what the Revenue say.

Alternatively, there is something called, I believe, 'a post-transaction valuation ruling' (or something to that effect) by which you can apply to the Revenue to agree a valuation for certain transactions.

I'm sorry to be vague about this but it is not something I have any experience of. Other contributors to Taxzone have recommended it in the past and one of them may be able to provide further guidance as to whether it may be useful in the circumstances you describe.

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By AnonymousUser
29th Sep 2004 13:33

The usual practice...

...is that you negotiate and agree the value of goodwill as part of the process of agreeing the sole trader's Capital Gains Tax liabilities for the year in which the incorporation took place ( ie the year the goodwill was disposed of to the company).

Notification of the disposal and its value should, of course, have been made on the sole trader's CGT return for that year.

Almost invariably, the local inspector will open a s9 aspect enquiry and refer the goodwill valuation to SVD. That is when the fun starts.

I get the impression, though, that SVD is getting rather fed up with so many referals where the value is not large (say, less than £500k)and they are not enquiring too hard into
them.

This is purely a personal impression, based on 3 or 4 one-round of correspondence agreements I've recently had for 2003/04 incorporations.

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By Alison Gray CA
30th Sep 2004 10:00

thanks John, what if...
...there was no goodwill? I think that in this case that the goodwill is personal. Additionally there are no other assets to transfer. Do I still need to complete anything on the CGT pages? Do I need to inform the Revenue in any way of the disposal of the business to the company (I am obviously doing accounts to cessation for the sole trader business)?

Additionally, what if there was a small gain but this was covered by the annual exempt amount? Would I need to mention anything?

Finally, is there any way of agreeing the valuation with the Inland Revenue before the tax return goes in. I think that what I am getting at, is that I am not 100% sure if the goodwill is all personal or not. As ever, your thoughts would be appreciated.

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