Hi All,
I have a client who, as an individual, is buying a business and its assets as well as a separate dormant company, both from the same seller. Upon completion he'd like to transfer the business and its assets into the dormant company and comence trade through the company. He's paying £1 for the lot and I wondered if anyone had any thoughts on how to treat the transfer. My thoughts are that his new dormant company could either pay a nominal £1 to him for the business and it's assets or he could value the business and its assets at a more realistic value (say £10,600?) and the company could then write the goodwill and assets off over time, thus reducing corporation tax.
Any thoughts?
Replies (8)
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Why is it only costing a pound
For the business and assets?
Are the parties connected? What is market value? If mv is higher than £1 then why is only £1 being paid?
More info required
In that case
I would do as you suggest, sell the business at mv to the ltd company, with the corresponding credit to your directors loan account.
I would get the value of goodwill agreed with hmrc to be safe, then write it off over expected useful life.
Obviously...
... to the extent that he's acquired assets at undervalue from his former employer, it is more than likely taxable employment income (unless it only arises because of termination of employment and is less than £30K).
I would be careful here
What is stopping the vendors selling it straight to a newly formed company?
I wouldn't go down the route of taking this up with the Revenue unless you need to by law. The business transfer agreement is key and I fear that there may be further issues in such a scenario which raise alarm bells
The £30k threshold on termination payments is a totally separate matter and calls for a separate discussion
What are the assets being purchased?
ERS is also in point more so in respect of the shares in NewCo
As I say lots to consider here - what is the trade? Have you thought of EIS on any investment in NewCo if not IT relief CGT deferral relief may be useful
Write
Thanks Manchester_man. How would you go about ascertaining a mv though? And how would you go about agreeing it with HMRC?
It's a while since I've done this so the dept may have changed, but I used to write to the hmrc shares valuation office with some calculations of how I arrived at the valuation and they will either agree it or advise accordingly.
In small cases where I was confident with the valuation and that it was a reasonable valuation, I wouldn't bother agreeing with shares valuation office.
Regarding how to ascertain mv, what would a non-connected party be prepared to pay for the business? Very difficult to ascertain!! Can you research what similar IT equipment' is selling for ?