Incorporation of a cinematographer - Goodwill

Incorporation of a cinematographer - Goodwill

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A sole trader cinematographer is looking to incorporate.

Profits have varied between £40-£50k over the last few years and he is expecting this to increase fairly steadily going forward.

Other freelancers have occassionaly been used but there are no employees of the business.

The sole trader operates using his name and this would continue following incorporation.

I see any goodwill as being personal so not transferrable - correct?

 

 

 

 

 

Replies (10)

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By Paul Crowley
11th Apr 2024 12:06

Always a good idea to indicate direction.
Are you concerned that HMRC will try to look for a CGT charge?
Or does client want to add goodwill to the balance sheet and you are not happy with it?

Thanks (1)
Replying to Paul Crowley:
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By Elgin
11th Apr 2024 12:23

The client has mentioned that a colleague that has incorporated recently included a significant goodwill valuation but they may have a different business model.

I'm struggling to see a value in this case as, without the individual, the company would have no work.

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Replying to Elgin:
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By Paul Crowley
11th Apr 2024 12:33

I would not worry about a modest sum for goodwill. Almost no tax advantage: there was in the past.
CGT allowance is trivial, no BADR, HMRC have no interest in challenging small stuff.
What advantage does the client think he will gain? Address that with the client and he will probably lose interest. He probably thinks his mate did a really clever thing.

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Replying to Paul Crowley:
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By I'msorryIhaven'taclue
11th Apr 2024 12:50

Good approach. On a separate tack, the bloke-down-the-pub mate [of the cinematographer] opted for a "significant" goodwill value.

Is there an argument for argument for the goodwill being transferable? Might not our cinematographer sell the business to his cinematographer mate? Or, come to that, to any other cinematographer. I know it's not a very good argument, but at least you'd have something to support your "significant" claim.

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By paul.benny
11th Apr 2024 12:40

Another example of Client coming up with solution - and accountant rushing to comply without finding out what the question is first.

Why does Client feel need to incorporate? And do you think incorporation makes sense given the scale of Client's business?

(No disrespect to OP - happens frequently)

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Replying to paul.benny:
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By Paul Crowley
11th Apr 2024 12:58

Ignoring the increased admin, I prefer traders, especially Partnerships to incorporate purely because of limited liability.
A small trade can become liable to register for VAT without client realising it, no matter how often the rules are explained.
It is really a back up for disasters.

Thanks (4)
Replying to paul.benny:
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By Elgin
11th Apr 2024 13:35

In this case, profits are expected to increase going forward and the client is hoping to get a mortgage at some point so smoothing of income is a consideration.

He's aware of the additional admin, and minimal immediate tax savings but considers Ltd status to be preferred by potential clients.

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Replying to Elgin:
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By FactChecker
11th Apr 2024 14:11

"considers Ltd status to be preferred by potential clients"

A commonly expressed view (nearly said misconception but who am I to second guess their unknown potential clients).
My limited attempts to research whether it matters to those purchasers who have a choice (between a sole trader and an OMB that happen to be incorporated) is inconclusive - although anecdotally there are a worrying number who refer to 'IR35 issues' in a vague, uncomprehending way.

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Replying to FactChecker:
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By Paul Crowley
11th Apr 2024 14:27

"considers Ltd status to be preferred by potential clients"

A common view that I have heard from clients at even quite small levels of turnover.

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Replying to Paul Crowley:
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By stepurhan
11th Apr 2024 16:07

A very common view, but astonishingly rare in real life based on my experience.

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