Capital Gains Tax

Capital Gains Tax

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Hello

My client sold his Events advertising business as a going concern at the end of April. There are no assets, just the goodwill element. How should this be treated for CGT purposes or would it be liable for Corporation Tax? 

The proceeds are £12,500.

Not had to deal with this before so apologies for my lack of knowledge.

Thanks for your help.

Replies (10)

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By User deleted
10th Oct 2012 09:32

If you want a meaningful answer to your question ...

... you need to provide a lot more information. Just for starters, does/did the client trade through a limited company? When did it begin trading? Was the business purchased or started from scratch?

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By hannahaston
10th Oct 2012 13:56

Further info.............

 

My client started his business from scratch and set up a Ltd Company in Nov 2007. He sold this business to a friend at the end of April 2012. We transferred ownership of said company to new guy as we are also acting as his Accountant.

My Client who sold the business is now running a website only advertising business under a previously dormant company which he owned. So therefore the money received from sale of goodwill will be ploughed into the new Ltd company. 

Does this help?

Thanks.

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By User deleted
10th Oct 2012 14:11

So ....

... to clarify exactly what was sold:

(a) the goodwill was sold by the company and then

(b) the company, now nothing more than a shell, was transferred to the same purchaser?

If that is the case, how did the proceeds from sale of goodwill find thier way into the (first) client's hands?

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By hannahaston
10th Oct 2012 14:39

Ermmmm.......

I'm not sure I understand what you are asking me.

 

Client A sold his Company which is purely goodwill as no assets to Client B. We transferred ownership of company from Client A to Client B. Client B paid Client A £12500 from personal funds.

 

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By User deleted
10th Oct 2012 15:10

Ermmmmm...

....when you say 'your client', I  assume that you are not an accountant or tax adviser? Otherwise, you really ought to know the difference between selling the shares in a company and a company selling its own assets.

If all that has happened is that A has sold his shares in the company then any gain will be liable to capital gains tax. I would mention Entrepreneur's Relief, but I suspect that would only casue further confusion.

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By hannahaston
10th Oct 2012 15:22

Why bother............

When all I get is a pedantic response from someone who 'obviously' knows it all!!

Excuse me for thinking this was a place to seek help and advice from and not to be shot down in flames. 

I am P/Q and deal with more sole traders/partnerships than I do Ltd Co's however If I never do them then how will I learn?! 

 

 

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Replying to marvells:
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By User deleted
10th Oct 2012 16:45

Shot down in flames? No. A dose of reality? Yes

But if you think that making a distinction between a sale of company shares and a sale of the company's assets is being pedantic you've got a lot of learning to do still.

And to Paul - yes, the dialogue could have been avoided, but my experience is that it is often more helpful not to provide the OP with a conclusive answer, but to tease the facts out of them and help them to think for themselves. With any luck, my 'pedantic' ramblings will have helped cement the understanding that share sales and asset sales are quite separate beasts.

EDIT - corrected for the other pedants around here :) :)

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By Paul Soper
10th Oct 2012 15:42

Well now...

A bit more info might have helped but this is a fairly simple query which didn't deserve stretching out.

If the company sold the goodwill and he still has the company with £12,500 in it it will be charged to CT at 20% inside the company.

If he sold the shares in the company which owned the goodwill he has a gain which is chargeable to CGT - the gain is difference between what he paid for the company and what he got for the sale.  Incidental costs, legal, transfer fees etc can also be deducted.  Assuming he had no other gains in the same year the first £10,600 is tax free and the remainder is charged to CGT at the entrepreneurs' rate of 10%.  So, if the incidental costs were (say) £200 and the cost of the company was £100 the gain would be £12,200, the first £10,600 is exempt, £1,600 is chargeable at 10% for a liability of £160 - simples.

 

Now that wasn't too painful, was it?

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By hannahaston
10th Oct 2012 16:04

Paulsoper

Thanks, yes this has explained to me what I need to know.

And yes, my first post was a bit scant so apologies for that.

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Euan's picture
By Euan MacLennan
10th Oct 2012 16:36

To be pedantic ...

BKD - your ramblings should not have been 'pendantic'!  But I do agree with you - Hannah's summary for her question was "Treatment of proceeds from sale of goodwill", which is not just "a bit scant", but completely misleading.

Hannah - if you are part qualified, I assume that you must be on a training contract.  Why didn't you just ask a more senior person in your firm, rather than posting on this forum?

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