Tony Greer
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Developing new product - should a new company be started?

Developing new product - should a new company...

I have a client - 5 man Ltd Co - which develops brand awareness \ corporate image for their clients.

They wish to develop a software package which would assist in lead generation and then, once perfected, sell the whole thing to a single third party buyer.

The question is - should they do this within the existing company or stat a new one.

As I see it, if they develop through the existing one then a sale will raise a CT liability and personal tax when they withdraw the money.

If they separate the project to a newco then the sale of this company in due course would raise a capital gain for each director (on sale of their shares) which, of course, would be reduced by the CGT personal allowance and entrepreneurs relief.  However, if I were advising a prospective purchaser I would suggest that they buy the software package via their own new company so that the value would be attached to the asset (allowing capital allowance claims) rather than to the share capital.

I don't think R&D allowances can be claimed by my client as I don't see it as an advance in technology as this software must exist somewhere else.

Any thoughts on which way they should g would be welcome

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