We have a client who has received an insurance settlement re contents etc. Can the cost of goodwill in his accounts be set off against the settlement? The business will not reopen.
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Why on earth would you want to credit the proceeds of an insurance claim to goodwill?
You credit the proceeds against the book value of the assets covered by the claim, and account for any profit or loss in the P&L.
If you think goodwill has been impaired and should be written off that is a completely separate matter.
I think he's asking if the goodwill can be amortised or impaired to offset any taxable profits from the insurance claim. Though maybe that's not what he's asking, who knows, there's so little information given we could answer any number of questions that might be being asked.
Yes that's exactly it. After you offset the written down value of the tangible assets can you offset the cost of the goodwill or is it just not part of the calculation?
Like I said the questions of whether there has been an impairment of goodwill, and whether to account for it, and whether any accounting adjustment is allowable for tax are nothing whatever to do with the insurance proceeds.
I'm not asking how it should be treated in accounts. I'masking about the tax position. Since goodwill is now nil can the cost be used to offset tax. The business is closed no more accounts to produce.
Tax?
I'm not asking how it should be treated in accounts. I'masking about the tax position. Since goodwill is now nil can the cost be used to offset tax. The business is closed no more accounts to produce.
Then perhaps you should phrase your questions better, to save people wasting time answering the question you ask, when that is not what you want.
Your question did not mention tax at all.
What is your client?
What is your client- sole trader/partnership/limited?
When did the goodwill arise?
The loss on the goodwill (if there is a loss on goodwill) is a capital gains loss.
It cannot be offset against the trading profit.
If it cannot be used in the year it arises it carries forward to be used against future capital gains .
If not used then it lapses on death of the individual.
The key is to ensure that allocation of the insurance receipt is correct if it covers both contents/goodwill
(Does goodwill often get insured or is it more likely business interruption is insured in which case that also will be assessed to income tax?)