I have a client who sold the trade and assets of their sole trader business in November 2011. I have prepared the accounts to 30 November 2011. I understand that I include the loss to that date in her self assessment tax return and that the capital gain on the sale of the business is eligible for Entrepeneurs Relief.
My question is how to calculate the gain. I have the sale proceeds less associated cost os disposal. The proceeds have been allocated against goodwill and assets as per the solicitor (I was not the accountant at the time). Is the base cost the net book value of goodwill and assets in the balance sheet? Or the original cost? Or some other figure?
Any help would be appreciated.
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Er...!
Have you not done this before?
The treatment of the sale of assets depends on the type of asset. If it was stock, the proceeds would go into the cessation P&L as turnover and be taxed as income. If they were tangible fixed assets, the profit over the net book value in the accounts would be included in the cessation P&L, but taken out in the tax computation. For tax purposes, the proceeds would be deducted from the capital allowance pool brought forward; if the resulting balance is negative, the balancing charge is liable to income tax, but if it remains positive, the balancing allowance is deducted from the taxable profits.
Only the goodwill is subject to capital gains tax. The gain is the proceeds less the cost (not the net book value if the goodwill has been depreciated) and as you say, would probably be taxable at the entrepreneur's relief rate of 10% of the gain after deducting the annual exemption.
With regard to income tax, the taxable profits/loss for 2011/12 are those from all accounting periods ending in 2011/12 less any overlap relief brought forward. If you end up with a loss, you can relieve it, in the first instance, against other income of the year including the capital gain on the goodwill.
It's about time that you understood that it is very bad form, and will win you very few friends, to resurrect dead threads.
What a great answer
Although I didn't ask the question but I appreciate the information to store in my memory banks for future use! Thanks Euan!
I have done quite a few of these sole trader/ partnership cessations - 3 were retail butchers. One old butcher disappeared on cessation and I had to find him at his flat to procure my fee. He was drunk but very affable and he wrote me a cheque.
Advise please, Euan
I am working on a client who sold his business Feb 12. He paid £25000 for the goodwill and £20 for stock.
During his trading period, he purchased few equipments worth £5k.
He sold his business for £45k including all assets and stock for £23k.
for CGT - Is it purely the Goodwill? ie £45k- 5k (equipment) - £25k (original price)- Legal charges etc..
Or, his goodwill is £45 - £25k and he has to claim balancing allowances assuming the equipment was disposed for zero value?
Also the stock - there is a income (sales) of £2k ? (£22k - £2k).
The lawyer should contact the accounting agent vis a vis the appropriation of the consideration as the agent is aware of the capital allowance b/fwd balance. We must try to avoid a balancing charge so a prudent allocation of goodwill plant and stock is of the essence.