Goodwill on Incorporation

Goodwill on Incorporation

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Situation:

Small partnership with 2 partners (A+B).

In 2010 A purchased B's share of the business for £100,000

In 2012 A incorporated the business. Now a small limited company with one director (A). B has no involvement with the new limited company in any capacity.

On Incorporation A recognised the £100,000 paid to B as part of the goodwill on the companies balance sheet.

A wishes to recognise the £100,000 as allowable for Corporation Tax purposes written off over 20 years.

I am aware that on incorporation only goodwill generated post 2002 and from unconnected parties can be recognised for Corporation Tax purposes.

Is it that the £100,000 was acquired from an unconnected party (As B is not connected to the limited company)?

If it is disallowable (as i suspect) is there any other form tax relief on the £100,000 payment for A?

Thanks in advance.

Replies (3)

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By blok
07th Jan 2014 16:04

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when did the business commence trading?

if pre 3/02 then there will be no deduction for the amortisation.  if after 3/02 there may be.

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By Wrighty
07th Jan 2014 16:43

Business started trading pre 2002. As suspected no deductions and I assume the £100,000 will be dealt with for CGT purposes in the future?

Thanks!

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By blok
07th Jan 2014 16:53

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the company pourchased "old" goodwill from a connected person so it will always be subject to capital gains rules within the company.

the individual sold an asset and broke even. 

the upside is that the individual can get his cash back tax free which would not have been possible without incorporation.

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