Another disastrous goodwill incorporation case

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And taxpayer badly represented again ("one arm tied behind his back" and "hopeless" per para 30) with masses of tax at stake (c£250k)!

http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j11639/TC0...

There's an interesting dissenting judgment (at least these judges didn't decide it was PAYEable). Paras 48 & 49 are helpful in showing a price adjuster clause may work to avoid this problem (so possibly the adviser can be sued).

See previous recent other similar case here: https://www.accountingweb.co.uk/any-answers/disastrous-er-goodwill-sale-...

The non-receipt of the "distribution" is a bit like that old debate we had here re non-receipt of dividends from a bust company, except here there was a credit to a DLA, so my points there are not relevant: https://www.accountingweb.co.uk/any-answers/can-you-declare-dividends-an...

Possibly on appeal the taxpayer can argue that if it's a distribution it's illegal & therefore void and not taxable like here: https://www.accountingweb.co.uk/any-answers/s455-charge-on-excess-divide...

The non-cash receipt argument is a bit like the non-cash expense argument here in reverse (except GAAP does not apply of course in this case re the taxpayer): https://www.bailii.org/ew/cases/EWCA/Civ/2020/663.html

Presumably if the sale had been instead for a (part) share issue all would have been well, as the value of the shares would automatically adjust downwards for the actual lower goodwill value and presumably that is outside ITEPA 2003 and the distributions legislation anyway if the nominal (and premium) share value exceeds the sale market value.

Why can't the parties simply agree to adjust the price lower after the event and (assuming that does not create a new contract*) why shouldn't that lower price take effect re the taxation of the original sale? No doubt the UT will enlighten us all re all these interesting issues in due course.

*Like para 254 here: http://financeandtax.decisions.tribunals.gov.uk//judgmentfiles/j11651/TC...

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By Justin Bryant
27th Aug 2020 16:31

Even more interesting I note this decision has been remade (due to an error of law), but with the same outcome. https://www.bailii.org/uk/cases/UKFTT/TC/2020/TC07681_2.html
http://financeandtax.decisions.tribunals.gov.uk//judgmentfiles/j11639/Su...

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By Justin Bryant
09th Feb 2022 14:32

This LLP to Ltd business sale case addresses the distribution issues: https://www.bailii.org/uk/cases/UKFTT/TC/2022/TC08391.pdf

Para 143 seems a surprisingly good result for the taxpayer: £8.25m sale proceeds not subject to CGT (due to £1 deemed CGT MV) nor IT (due to no distribution, as £1 CGT MV deeming not applied for IT, which looks instead at "good faith" valuation). A bit of a bizarre loophole that!

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Replying to Justin Bryant:
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By Bobbo
09th Feb 2022 16:14

It does seem to suggest that the limited company now owes £8,249,999 x applicable CT % due to the tax cost of the intangible being amended to £1... if i'm reading it correctly???

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Replying to Bobbo:
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By Justin Bryant
09th Feb 2022 17:38

Yes; that's the less interesting bit of the decision (as I recall this CT relief has since been blocked). Imagine how annoyed HMRC's counsel must have been to see the taxpayer getting a big CGT refund with no IT charge i.e. a totally tax-free receipt! I would expect an appeal due to the big numbers.

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Replying to Justin Bryant:
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By Justin Bryant
19th Jul 2023 20:48

This was indeed appealed and the taxpayer lost (so there's no bizarre loophole after all).
https://assets.publishing.service.gov.uk/media/64afbadf8bc29f000d2ccc81/...

Interesting comments on MV and distributions etc.

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By Justin Bryant
21st Sep 2022 14:56

The UT has now enlightened us all with the taxpayers losing their appeal rather resoundingly (I'm not sure if some of my above points could have helped here, but the taxpayers appear to have overpaid CGT at least).

https://www.bailii.org/uk/cases/UKUT/TCC/2022/253.html

Also, at least they hired a proper tax barrister this time round. A goodwill price adjuster clause should have been recommended, so they can perhaps sue their advisers if they did not recommend that.

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Replying to Justin Bryant:
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By Justin Bryant
25th Oct 2022 17:01

This TJ bloke agrees with me re price adjuster clause: https://www.taxjournal.com/articles/quantifying-distributions-

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