I have a small but growing practice and have recently decided to incorporate. As the practice turnover is slowly increasing, I do not want to undervalue the goodwill of the business and "shortchange" myself on it.
I have 3 charity audits approaching in April/May and have got approx. 10 other clients that have verbally agreed for me to do the accounts next year. This will bring in about £10000 additional fees. My current turnover is £35000pa and so I could argue that the goodwill of my firm is about £40-45k.
Does anyone agree with this or have any suggestions/concerns?
Many thanks
Lee
Lee Cockett
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I certainly don't agree
Goodwill is something that exists, not a potential future possibility. At this date your practice can only be valued on the basis of 7 November 2006.
You also need to consider that HMRC do not accept that goodwill can be transferred to a company in this way. It attaches to you personally.
Thanks Phil.
I partially agree, if I was to sell the practice to an unconnected third party then the potential clients wouldn't necessary go to my "old firm". So future earnings would be irrelevant without a cast iron agreement.
But surely my name is the element of the goodwill and that the new company is trading with my name thereby transferring the reputation/brand name. As I would still be running the company it would be the Ltd name in advertisements that generates business.
Certainly, the word of mouth element of the goodwill is personal ie "go to Lee he'll get it done". However, isn't it fair to say that me being a director/employee generates income for the company?
Cheers
remember Taper Relief
don't forget the the disposal of Goodwill to your Limited Company will attrach Capital Gains Tax. In order to get the full Business Taper relief, you will have had to been in practice for two complete tax years.
It may be an idea to wait a bit, partly to get full Taper relief, but also to guild up the business and have a larger goodwill value to dispose of to the company.
I take it you know the benefits of doing this. If not I'm sure there are plenty of people who'll tell you -including me if you ask.
Paul Jenkins