Corporation Tax & Goodwill

Corporation Tax & Goodwill

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 Hi Community

Our business went from partnership to a limited company in Jan 2004. Our clever accountants also created a goodwill pot of cash in the accounts which we could use for drawings. I think we paid 10% tax on that.

Now every year we write down 10% of that goodwill into our profits so it inflates our corporation tax liability.

Problem is where we now make over 300k profits (cos we pay dividends) the effect of that is we actually pay 28.8% corporation tax on that portion of write down - i.e. the difference of writing it down to not writing it down.

Is there a better way? Should we do it this way?

Thanks

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By Kevin KashGone
08th Jul 2010 12:04

Goodwill & Corporation Tax

Thanks but...

What do you mean by "Charged to the accounts" - resulting in the same figure you started with.

When I saw the corporation tax calcs it was net profit plus 10% of Goodwill - but the Goodwill was not charged to the accounts i.e. reducing the net profits first - should we have done that.  

Kev

 

 

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By Kevin KashGone
08th Jul 2010 13:27

Goodwill & Corporation Tax

 Sussed it.

The depreciation of the Goodwill was charged to the accounts (so the net profits were higher to start with) but then added back for corporation tax purposes as the goodwill was purchased from a related party.

Now it all makes sense.

Thanks

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