karen30p
Blogger
Share this content
0
2776

Loss on sale of goodwill

Loss on sale of goodwill

Hi,

I started a thread last October which Ruddles so kindly replied to promptly. I have tried adding to the original thread thinking it might appear back at the top of the list again but it doesn't seem to have done hence the reason for a new thread. Apologies if this is the wrong way to go about this.

Original question:

Company acquired a shop in 2011 including goodwill and property. They also have acquired several other shops since within the same company. The first shop is now being sold - with a loss on goodwill. Can anyone please explain the treatment of this loss - can it be written off as a P&L expense against all trading profits for all shops? Only against the shop being sold? Or only against non-trading profits? Other answers online are a bit ambiguous so hope someone can help!

Ruddles answer:

I assume that the goodwill was acquired from an unconnected party and that tax relief has been claimed for amortisation (with no fixed rate election).

Whether or not amortisation has been claimed, the goodwill will have a tax written down value, which will form the basis of your tax gain/loss on disposal. Gain or loss is treated as a trade item and therefore treated as income or expense in computing trading profits/losses, ie tax should effectively follow the accounts.

Now ... there are a couple of issues still confusing me as client has asked me to double check the treatment.

If the goodwill was acquired pre-July 2015, is that alone enough to be able to claim any loss on goodwill (in my case probably around 130,000) against trading profits? Presumably there is no limit? 

Reading various related websites does not make it clear - for example one says that goodwill acquired from an unrelated party "after 1 April 2002 but before 8 July 2015, disposal gives rise to trading profit and loss" - whereas another says "relief will still be available if the goodwill is sold, although any loss arising on the sale will be treated as a non-trading debit" but does not differentiate between pre or post July 2015 acquired goodwill.

The HMRC "Corporation tax: restriction of CT relief for business goodwill amortisation" says "Part 8 CTA 2009 will also be amended to treat any debits arising on a realisation of a relevant asset as a non-trading debit. This is to limit how these debits can be relieved. In particular the debit will not be included in the calculation of trading losses. This amendment will apply to all disposals occurring on or after 8 July 2015 of goodwill and customer related intangible assets that are subject to the new rules" - so is a business only "subject to the new rules" if the goodwill was acquired post July 2015?

Any feedback would be much appreciated, as would a link to something that I can send to the client which explains it unambiguously!

Thanks,

Karen

Replies

Please login or register to join the discussion.

18th Feb 2016 21:15

Sale post 08-07-15

Assuming the loss on the sale of the goodwill arises post 08-07-15 then the loss is a non-trading debit and not a trade debit and usual non-trade IFA rules apply re loss relief - offset against total profits.

Thanks (0)
By Ruddles
18th Feb 2016 21:40

In a nutshell

The new provisions apply only to relevant asset expenditure incurred (eg goodwill purchased) post 8 July 2015. The disposal of goodwill that was acquired before that date will continue to be treated as it always was - in most cases giving rise to a trade credit or debit.

F(2)A 2015 s33(10) is pretty unambiguous:

"But the amendments made by this section do not apply in a case in which a company acquires a relevant asset if the company does so–

(a) before 8 July 2015, or ..."

Thanks (0)
18th Feb 2016 21:42

My apologies

I stand corrected.

Thanks (0)
avatar
19th Feb 2016 10:29

Loss on sale of goodwill

I have a loss on sale of goodwill issue. The goodwill has been partly amortised. I know that i can include the net loss in the profit and loss account as an expense but am unsure whether i then have to adjust for either the net loss or amount amortised in the tax computation?

Thanks (0)
By Ruddles
19th Feb 2016 10:34

Beck


You don't really expect an answer with such paucity of information do you?

Thanks (0)
avatar
20th Feb 2016 11:25

My apologies - AS i was out of the office I didn't have the details with me. The details are as follows:

Goodwill of £15,000 was introduced upon the transfer of the sole trader business to the company upon incorporation with the transaction recorded during the financial year to 31 March 2014 and an appropriate charge for amortisation was made of £1,500 at that time. 

The goodwill was then sold on 27 June 2014. I have offset the proceeds, sale costs and NBV of the goodwill which has produced a loss. I understand that i can include this loss in the P & L to arrive at my pre-tax profits. My query then is regarding the tax computation - do i have to adjust the taxable profits for this loss?

Thanks (0)
By Ruddles
20th Feb 2016 11:34

I don't know

You're still omitting one vital piece of information

Thanks (0)
avatar
20th Feb 2016 11:41

More info

Hi

My client is a hairdresser who has one company she works as a hairdresser and had another company who owned the hair dressing business and it was this that was sold leaving her working as a hairdresser.

Is there something else that you would need to know?

Thanks (0)
By Ruddles
20th Feb 2016 11:51

Yes

When did the sole trade start!!!!

Thanks (0)
avatar
20th Feb 2016 12:05

More Info

I only took over this client last year and it was the previous accountants who had put the goodwill into the books of the hairdressers company knowing that she would be selling the business. My client had been operating the two companies since February 2003, one as a hairdresser, one as a business with several hairdressers using the facilities. I will need to ask my client when she first traded as a sole trader.

Thanks (0)
By Ruddles
20th Feb 2016 12:14

???

You said that incorporation happened in 2014. Are you now saying that incorporation was in 2003? And that goodwill was recognised only in 2014 (if so, what was the other side of the entry to bring the goodwill into the accounts)?

It really does help (and avoids frustration) if questioners can give full information from the outset.

Thanks (0)
avatar
24th Feb 2016 15:05

More info

I appreciate your help !!! The other side to the goodwill was the director's loan account. My client was self-employed from the 06/04/99 to 05/04/03.

Thanks (0)
By Ruddles
24th Feb 2016 16:10

So ...

... trade started before April 2002. Goodwill - whenever recognised - is therefore a capital asset and outside the IFA regime. Please tell me that no tax relief has been claimed on amortisation.

And if cash has been withdrawn against the DLA created by the recognition of the goodwill I imagine that HMRC might have something to say about it.

As things stand, though, your loss on disposal of the goodwill will be a capital loss - whether that loss is of any use, who knows.

Thanks (0)
avatar
24th Feb 2016 16:27

thank you !

Just to confirm, no relief has been claimed on amortisation!

THANK YOU !!

Thanks (0)
Share this content