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How to calculate CT on the Sale of Goodwill

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A limited Co has sold their business.  The sales price was £64K for goodwill and £6k for the assets.

The company purchased the goodwill back in 2003 for £38k and amortised it in their accounts over 10 years.  However the amortisation figure was always added back in the CT calculation as it was not allowable back then.

The cost of selling the business has gone through as expenses and I have put in a balancing charge for the £6K of fixed assets as all fully depreciated and written off in the tax returns but in the CT return do I put the sale of the goodwill as taxable @ £64K or can I deduct the original £38K and put it in as £26K.

Thanks

 

 

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By 356B
03rd Dec 2021 10:18

Well you wouldn't want to write off £38k would you?

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Replying to 356B:
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By Helen Lilley
03rd Dec 2021 10:40

Sorry -so are you saying I am correct I can deduct the amount they paid for the goodwill ?

The goodwill has already been written off in the accounts and has a NBV of zero.

I have searched HMRC and can not find anywhere that it shows how to calculate this, although to be honest I am not at my best at the moment.

Thanks for any advice.

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By 356B
03rd Dec 2021 10:53

It may be written off in the accounts, but as you say amortisation was written back in the comp. Still has a base value of £38k.

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Replying to 356B:
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By Paul Crowley
03rd Dec 2021 11:50

+1

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By Tax Dragon
03rd Dec 2021 12:56

Have you checked that it was added back? Given that it shouldn't've been (unless there's something you're not telling us) you'll need statutory backing to deduct the £38k, not just a show of hands in here - as tax relief for the £38k was due years ago, there is a risk it's not (still) available now.

I think s736(6) CTA2009 must be part of your statutory answer.

Edit: one risk is that you have/your client has walked into s738, which charges tax on the full proceeds.

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Replying to Tax Dragon:
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By Helen Lilley
03rd Dec 2021 15:44

Hi Tax Dragon

The original £38k in July 2003 was goodwill on incorporation and therefore not allowable as it was a related party.

I have copies of the tax returns which shows it being eliminated each year.

Does this change your view ?
Thanks

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Replying to Helen Lilley:
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By Tax Dragon
03rd Dec 2021 23:38

Change my view? No, you still need to apply statute - them's the rules, sorry.

The test in s736(1) looks like an accounting test. You (and others) are probably more qualified to tell me what it means than I am to tell you.

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Replying to Tax Dragon:
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By More unearned luck
04th Dec 2021 14:47

If the FA note shows the cost and a similar sum for accumulated amortisation then I think it is arguable that 736(1)(b) test is met, but I recall the difficulty Rupert Grint got in part of which revolved around the meaning of 'accounts'. Does the word in s 736 mean just the BS or does it also include the notes?

If there is allowable cost expenditure it should be augmented by indexation allowance.

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Replying to More unearned luck:
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By Tax Dragon
06th Dec 2021 14:47

More unearned luck wrote:

If there is allowable cost expenditure it should be augmented by indexation allowance.

Is that so?

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Replying to Tax Dragon:
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By More unearned luck
06th Dec 2021 15:05

I thought so when I wrote it. I stand to be corrected, if it's wrong.

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Replying to More unearned luck:
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By Tax Dragon
06th Dec 2021 15:27

You may not be. It seems to be another accounting question: s736 CTA 2009 refers to the excess of proceeds of realisation over the amount of expenditure on the asset capitalised by the company for accounting purposes.

I don't do accounts.

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Replying to Tax Dragon:
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By More unearned luck
06th Dec 2021 18:16

I think you're right; there is no indexation in the IFA regime, but (I'm clutching at straws now) we don't know why the debits were added back - it might because the goodwill in question didn't meet the definition of an IFA.

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Replying to More unearned luck:
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By Tax Dragon
06th Dec 2021 20:49

Because, perhaps, it was bought in 2003 from a related party and may at heart be preFA2002 goodwill?

Good point well made.

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Replying to Tax Dragon:
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By Helen Lilley
06th Dec 2021 20:55

That's correct.

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Replying to Helen Lilley:
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By Tax Dragon
07th Dec 2021 09:46

Then MUL is right. The TCGA (wherein you will find indexation) rules apply.

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Replying to Tax Dragon:
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By Helen Lilley
06th Dec 2021 20:56

.

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