Off balance sheet goodwill in one man company

Off balance sheet goodwill in one man company

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Where goodwill is kept out of the company on incorporation (because it attaches to the individual) what happens when the trade and undertaking are eventually sold by the company? Does the goodwill element of the consideration belong to the individual to be subjected to capital gains tax at 10%? 

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By johngroganjga
06th Jun 2014 13:26

If the goodwill attaches to the individual, no sale by the company of its trade and undertaking can include it.

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By Steve Kesby
06th Jun 2014 13:32

I suspect John...

... that Phil has a client where HMRC denied goodwill on incorporation on the basis that it was personal, but the company has now found a buyer for the business willing to pay a consideration in excess of the fair value of its net assets.

So HMRC were wrong and Phil's client's company has a chargeable gain liable to corporation tax.

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By johngroganjga
06th Jun 2014 13:38

Yes of course that is probably right, but he is asking whether the individual will have a chargeable gain.  He is not asking about the company because I assume he has its tax position covered.

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By Phil Rees
06th Jun 2014 14:27

It's a question of structuring the deal

 before it happens.

Does the purchaser buy the tangible assets from the company and the goodwill from the individual and would this be enough to make the gain a personal one?

It wasn't a case of HMRC denying goodwill on incorporation. We just didn't do it on the grounds that they might.

 

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By Steve Kesby
06th Jun 2014 15:01

Phil

I'd always considered that goodwill (and the ownership of it) couldn't exist separately from the business (and the ownership of it).

On my view any goodwill element would be a pure chargeable gain for the company.

I saw the view expressed though (supported by a non-tax case that I've not looked at) in this Taxation query (see the BlueBoy response) that it is possible for the ownership of the goodwill to remain with the individual.

Whether that will work for you will depend on what you can show was agreed between the individual and the company when the business was incorporated.

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