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Legal fees on sale of shares, paid by company

Company met the legal fees on sale of shareholders shares to a third party

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Good morning,

Just a quick check to see whether my understanding is correct.

Fees incurred regarding the sale of shareholder shares were paid by their close company.

My understanding is as follows:

1. The meeting of the pecuniary liabilities is taxable and nic'able via the payroll and noted on the P11d as a Class 1 NIC item.

2. The payments by the company are effectively salary and so are allowable for CT.

3. The fees are deductible in computing the shareholders CGT liability. This seems to be the case under TCGA 1992 s.38.

I can't quite square how the company can get a CT deduction and the shareholders get a CGT deduction for the same expense.

Happy to be corrected on any of the points noted above.

Thanks in advance.

Replies (7)

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paddle steamer
By DJKL
17th May 2022 10:29

"I can't quite square how the company can get a CT deduction and the shareholders get a CGT deduction for the same expense."

They are not the same expense, the company's expense is a salary paid, the individual uses said salary to pay their legal fee (I assume their legal fees, maybe incorrectly)

You do not say in whose name the legal fees are, are they fees addressed to the selling shareholder with the company meeting his personal costs or fees addressed to the company, this might temper my view of 1-3.

Also not sure how 1 has via payroll subject to NI but also via P11D.

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Replying to DJKL:
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By Liam.em
17th May 2022 10:44

Hi,

The legal fees are, I believe, addressed to the shareholders (95% sure) but I will clarify. As you quite rightly say it will make a large difference if the opposite is in fact true.

That was my rationale regarding it being a part of their remuneration but I was having trouble with it still.

Pecuniary liabilities are subject to class 1 NIC's via payroll but the Tax is collected via a P11D entry.

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Replying to Liam.em:
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By gillybean04
17th May 2022 11:57

Liam.em wrote:

Pecuniary liabilities are subject to class 1 NIC's via payroll but the Tax is collected via a P11D entry.

Nope.

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Replying to gillybean04:
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By Liam.em
17th May 2022 12:13
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Replying to Liam.em:
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By gillybean04
17th May 2022 12:41

Does this mean the shareholders are also directors and/or employees? Because you only ever seemed to refer to them as shareholders.

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Replying to gillybean04:
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By gillybean04
17th May 2022 12:53

I know this is in response to my own post, was to add that who the contract for legal services was with is not the only defining factor.

If you, for instance, had a scenario where the remaining shareholders agree to settle it as a condition of the sale.

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Replying to gillybean04:
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By Liam.em
17th May 2022 12:56

Yes he is a director/shareholder. I thought I mentioned it in the OP when talking about the pecuniary liability, but clearly not!

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