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Can my client claim entrepreneurs relief?

My client is a Ltd Co that owns, and is selling a franchise.

Didn't find your answer?

The purchase seems to have been put through her directors account, rather than creating an intangible asset, by her prior accountant. So my question as she sells it, with a substantial profit, is can we clear the debt the company owes her through her director account and then base the company tax liability on the profit made, and claim entrepreneurs relief - as she is an Office Holder and the company is a trading one? Many thanks for advice

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By williams lester accountants
23rd May 2022 13:14

Have you seen the original franchise agreement? Who's name is it in....was the franchise purchased by the limited company or the individual?

And....what is being sold? The franchise or the limited company?

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Replying to williams lester accountants:
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By Melissa Richards
23rd May 2022 13:50

I haven't seen the original franchise agreement but the client tells me that the Ltd Co owns it - paid for by the money she put in to the Ltd Co

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By DKB-Sheffield
23rd May 2022 13:14

First answer... "No, Entrepreneur's Relief is unlikely to apply as it (ER) has been replaced by BADR!"

Second answer... "Please be more specific". Who bought what (contractually)? Who owns what (contractually)? Who is selling what? There are at least 2 clients here, potentially 2 owners of an asset, and potentially 2 (or more) disposals (the asset, the company).

BTW on first reading I believed the company purchased a franchise and the owner (shareholder) was selling it. Subsequent readings have led to many alternative views!

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Replying to DKB-Sheffield:
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By Melissa Richards
23rd May 2022 13:52

I know it's BADR now - the client tells me the Ltd Co bought the franchise, using the money she put in as a director. The franchise is being sold imminently then she will eventually close the company down, but not immediately

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Replying to Melissa Richards:
paddle steamer
By DJKL
23rd May 2022 13:56

Can they persuade the purchaser to buy the corporate entity holding the business instead of them buying business from the company?

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Replying to DJKL:
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By Melissa Richards
23rd May 2022 14:07

I don't think so - but am I right in assuming that if she could then she would be selling her shares in the company and would therefore qualify for BADR?

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Replying to Melissa Richards:
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By Leywood
23rd May 2022 14:03

The client tells you is clearly not enough.

You need to see the agreement.

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Replying to Leywood:
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By Melissa Richards
23rd May 2022 14:08

Ok - I am meeting her this week so will see if I can get that, thank you

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paddle steamer
By DJKL
23rd May 2022 13:15

A company cannot claim ER . (BADR)
Does company own the goodwill?
Where did the debit go upon purchase?
Presume her cash outside the business made the purchase?

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Replying to DJKL:
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By Melissa Richards
23rd May 2022 13:56

I have only recently taken her on -the company owns the franchise. She put money in the business and used that to buy the franchise, so her directors account reflects the balance owed to her. As for the original purchase I am not sure it was accounted for correctly as there is nothing on the BS that was compiled by the previous accountant

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Replying to Melissa Richards:
paddle steamer
By DJKL
23rd May 2022 13:58

Well if her DLA holds a Cr balance arising from the purchase what happened to the Dr, where did it go, how was it treated?

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Replying to DJKL:
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By Melissa Richards
23rd May 2022 14:24

Good question - and I can't get to the bottom of it on the system as it was all just opening balances from another system, and there's no obvious other side. Will have to get more information regarding the original purchase - thanks for answering.

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Replying to Melissa Richards:
paddle steamer
By DJKL
23rd May 2022 15:27

I would likely take a look at the accounts about the time the business was acquired and see if there was recorded a stonking cost through these, even if only on Companies House with no P & L as a balance sheet drop in reserves might be a useful clue re treatment.

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By Tax is always taxing
23rd May 2022 13:18

Ignore...

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By Tax Dragon
23rd May 2022 14:18

What does "put through her directors account" mean? (That's possibly just DJKL's question translated from accountant-speak... not sure, IANAA.)

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By Michael Beaver
23rd May 2022 15:37

If the company owns the franchise and sells it, the company can't use BADR. It will have to account for its gain at 19%.

If the company is no longer in use, has excess liquid assets, and the costs of liquidation are worth it, they can liquidate the company and take advantage of BADR on the liquidation.

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Replying to michaelbeaver:
By JCresswellTax
23rd May 2022 15:44

Nice one Michael, always beavering away on here :)

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Replying to JCresswellTax:
By Michael Beaver
24th May 2022 09:19

Cheers! :)

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By Matrix
23rd May 2022 20:05

What is she selling?

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