Practice Goodwill Disposal

Practice Goodwill Disposal

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I have recently completed a deal selling substantially all of the goodwill in my accountancy practice; GRF c. £120K. It is payable in instalments over two years with clawback arrangements, theoretically completing in August 2009. I retained a few clients who I intend to service "privately" on an indefinite basis, which effectively means in the name of my original practice. I will be aged 60 next March and this is in effect, my retirement, or at least a semi-retirement!

I have become a partner in an LLP set up to service the clients sold and am being paid a consultancy rate, which my original practice bills to the LLP, plus enhancements for new business brought in. The Goodwill was acquired by the purchaser through his original practice, which he continues to operate. In the absence of a better idea, some inter-practice billing will take place to deal with this.

My questions are:

Will I be able to claim taper relief on the Goodwill sold, computed from 1995, when I started the practice that has made the disposal? I have been paid the first tranche. I do not think that the new CGT arrangements apply (see next para) but if they did and if helpful, I could possibly bring forward the second tranche to pre-6th April 2008.

My understanding of how this would work was that I would declare a disposal in my 2007/08 return based on proceeds to date, claiming business taper relief and file amendments as further tranches are received. Are readers in agreement with this approach. Given the PBR details, it could make a difference if I have it wrong or will there be any relief for retirement situations.

Small Practitioner

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By User deleted
10th Oct 2007 17:21

Amount on Contract of Sale
I was once told by an Inspector that the total of the two tranches of proceeds would need to be added together and shown as a disposal at the date of sale and tax paid thereon.

In the following year, if the subsequent second payment was not received or a reduced amount received, that an amendment or error and mistake claim could be made to revise the previous years cgt computation and tax return entry.

Not sure if anyone has any working experience of this please?

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By bfj
10th Oct 2007 17:34

Deferring proceeds does not mean deferring the bill
I will not go into this now but one can claim to pay the CGT liabilty in "tranches" if an asset 's proceeds are being paid in instalments over a period. However, do please note that the proceeds to be included in the CGT computation must include all instalments so you can claim BATR on the lot. I suspect that here one does not have the problem of market-valuing deferred proceeds on the lines of an "earn-out" and, should there happen to be a clawback in the future which is due under the original contract, you can submit a revised calculation of the gain and claim some tax back..

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By User deleted
10th Oct 2007 17:55

Some useful points
Thank you. Some useful points.

I had thought of "building up" the disposal in successive returns but it certainly makes sense (and is obviously correct) to put the target contract figure in and then reduce it if and as necessary. As it happens, the deal could result in a greater payout as the contract states £120K but to be reviewed after one year to actual. I doubt I shall be that fortunate!

There will not be any tax to pay in practice as (sadly!) I have substantial CGT losses b/fwd but i do not want to waste them; a possible definition of "optimism"?

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