I have a client who incorporated his sole trader consultancy business in May 2014, I'm looking at making an adjustment for goodwill of around £26k, but first wanted to check the following is correct;
The transfer was before 3rd Dec 2014, so still okay to claim entrepreneur's relief against the capital gain?
The goodwill can be amortised over 5 years, gaining CT relief on the amount each year?
With all the changes made recently I'd just like to know if I've missed anything.
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Yes, as long as the 'transfer' was before 3rd Dec 2014 you can claim ER on any gain arising from the disposal of good will.
You can also claim the CT deduction for amortisation.
Rate to Amortise
Yes, I am currently working on one of these myself. However, with regards to the amortisation, which amounts to 20% per annum, doesn't this conflict with the current rate of 18%? hoping someone can enlighten me.
18%?
Yes, I am currently working on one of these myself. However, with regards to the amortisation, which amounts to 20% per annum, doesn't this conflict with the current rate of 18%? hoping someone can enlighten me.
Are you confusing amortisation with capital allowances?
Capital allowances
Ok, I'll rephrase that. Goodwill amortisation is written back and capital allowance applied at 18% so you only received corporation tax relief at 18%
??
Ok, I'll rephrase that. Goodwill amortisation is written back and capital allowance applied at 18% so you only received corporation tax relief at 18%
Still don't follow, whats the capital allowance got to do with goodwill?
Advice from chartered Accountant
Duhamel, I was advised by a chartered accountant that I could only claim allowances at 18% and to write back the remaining 2% to the accounts therefore only receiving relief against corporation tax at 18% In the same way as depreciation.
Great thanks, and there are no foreseeable changes to the relief on the amortisation?
Makes sense to proceed then, with the new dividend tax coming in, potentially another saving made here.
Just done a bit more reading through HMRC's confusing remarks, and the CT relief on the amortisation is no longer allowed, but is this only for transactions after 3rd Dec 2014?
If we write off the goodwill over the coming 5 years, will the relief be allowed in each year?
When did the business start?
Just done a bit more reading through HMRC's confusing remarks, and the CT relief on the amortisation is no longer allowed, but is this only for transactions after 3rd Dec 2014?
If we write off the goodwill over the coming 5 years, will the relief be allowed in each year?
When did the business first start?
Hi sorry back to the original issue, nothing to do with capital allowances. The sole trader business started in 2012, company formed May 2014.
It's really the issue of continuing to claim the CT relief on the amortisation that is troubling me, I don't want to advise the client of one thing, only for it to have to change next year.
Thanks for all help offered so far
Deductible
Hi sorry back to the original issue, nothing to do with capital allowances. The sole trader business started in 2012, company formed May 2014.
It's really the issue of continuing to claim the CT relief on the amortisation that is troubling me, I don't want to advise the client of one thing, only for it to have to change next year.
Thanks for all help offered so far
Yes the amortisation is deductible. The accounting calculation I leave to others.
Not to be pedantic
But its actually only if the business started or independently acquired from an unrelated party after 1 April 2002 AND the goodwill was transferred on incorporation before 3 December 2014.
The capital allowance issue I have never seen before and I'm not convinced that it is correct, but there may be some detail I am missing.
Amortisation
1. The amount of the debit recognised for tax purposes is the same as that recognised for accounting purposes. (s.728(2) CTA/09)
2.Recognised for accounting purposes means 'GAAP' compliant accounts (s.716)
3. GAAP means means UK GAAP (s.1127 CTA/10) and that means FRS 10 or FRS 102 for accounting periods beginning on or after 01 January 2015.
4. If you apply FRS10 goodwill will be written off in 20 years or less. If FRS 102 is applied goodwill will be written off in 5 years (Para 19(23)(a).
So applying FRS 102, goodwill of £26k will be written off in five years @ £5,200 p.a. And that's allowable for tax purposes as well. HMRC example here
I can't find any connection with capital allowance here
Yes indeed, I should have added, of course goodwill was only allowable for businesses that commenced after 1/4/02 when Gordon Brown introduced new rules.
Many thanks for all the comments, just to be clear though, it's still allowable on the incorporation of your own business, ie not acquired from an unrelated party?
To be fair
Many thanks for all the comments, just to be clear though, it's still allowable on the incorporation of your own business, ie not acquired from an unrelated party?
The rules have been made very clear.