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Incorporating a Guest House/BnB business

Incorporating a Guest House/BnB business

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Apologies for reposting a question from yesterday but the original question had the wrong title and got caught up in an AW glitch before I could check and correct things.

I haven been asked to help incorporate a going concern business. I haven't done this before (but you have to start sometime!)  so I wanted to check a few things before deciding whether the work might be too complicated for me.

Potential new client has run a successful BnB business for several years with a turnover approaching 250,000 and profits of apprx 80,000 after deducting loan interest of 30,000. He owns the building that the business is run from.

It is not his PPR (he lives in the next village).

He has asked whether he might be better putting the business into a limited company?

Just trying to get my head round the various issues that need to be considered. I have tried to research the best approach but the answers seem fragmented. I can't find a book or publication that covers all the issues in enough detail.

Would it generally be a good idea for the company to buy all the assests of the business including the property or are there possibly reasons to leave the property out of the business?

If the property is included in the incorporation will there be stamp duty and CGT to pay?

Is VAT payable on the sale of the business or would the new business just take on the VAT registration of the old business?

What is the possible interraction of entrepreneurs relief and incorporation relief in this situation?

I presume a value for goodwill will need to be attributed to the business; is a professional valuation required for this and does a valuation have to be approved by HMRC before going ahead?

The more I think about it the more complex it seems.

Replies (3)

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27th Apr 2018 13:19

Here's a novel idea for you book yourself on an incorporation training course there are plenty around. My incorporation checklist currently has 50ish items on it so yes there are many points to consider.

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By Openhouse
28th Apr 2018 19:13

A number of things you should consider but trying to keep things as simple as possible.
First comparing sole trader tax and NI on a profit of 80,000 with a Ltd Co (if all profits drawn) the Ltd Co route would probably save around 2,000 a year in taxes after accounting for extra accountancy costs etc. That may not be deemed a big enough saving to make all the upheaval worthwhile!
If you bring the building into the Limited Company there would almost certainly be stamp duty to pay which would probably be at 5% of the MV at the time.
You could bring the assets into the business including the property and goodwill and credit the DLA and take the CGT hit on the goodwill and property bearing in mind that if conditions are met then you should get entrepreneurs relief on the property gain.
Or bring all the assets into the Ltd Co in exchange for shares and go for incorporation relief; however you would lose the benefit of entrepreneurs relief if you did this.
Or bring some of the assets into the business (eg goodwill) and claim holdover relief.
This is a pretty simplistic view of some of the issues and it may be sensible to point your client in the direction of someone who has more experience of doing this sort of thing as the numbers are not insignificant.
With VAT they should notify HMRC of the transfer of a going concern (VAT 68) so there is not VAT to account for when the assets are transferred

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By plummy1
30th Apr 2018 10:54

Just a selfish thought but as part of the incorporation why don't you explore whether a capital allowances claim has been undertaken on the "fixtures" heating, electrics etc before. This could help reduce your clients tax bill considerably over time. Again "shameless self promotion" but here is a link to a blog I wrote sometime ago on the subject.

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