Sale of accountancy Practice

Sale of accountancy Practice

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Small accountancy business for sale.  One shareholder who is the director.

Shares have a nominal  cost price value of £1 . Totals £100

Currently BADR is applicable to the one shareholder.

I can see various scenarios.  

1 Sell the shares. BADR is applicable.  Personal CGT becomes payable on the Capital Gain.

2 Sell the business, sale proceeds are received in the company, CT is paid and the balance is  withdrawn via salary and dividends.

Questions:

1  What is best?

2  Do readers agree with me  50% of the shares be gifted to spouse before sale takes place.

3  Do readers agree with me it is wrong to gift shares to spouse if option 1,sale of shares, is completed as there is 50% loss of BADR?

4   Who owns the goodwill of the practice?  Is it the limited company or the director/shareholder?  Without the director the Practice does not survive.

3   Are there further issues and concerns I have not addressed or not thought about?

Thank you.

 

 

 

 

 

Replies (14)

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By David Ex
08th Jun 2023 15:52

davidbarry wrote:

Small accountancy business for sale. 

Without the director the Practice does not survive.

Well who’s going to buy the business if it can’t survive without the current owner?

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By Hugo Fair
08th Jun 2023 16:07

Question 1 ("What is best?") sums up why this post is entirely unanswerable.
... with what objectives? / for whom? / measured how? and so on.

Similarly, too much is unknown (as well as David's reasonable but cynical query) - such as "Who owns the goodwill of the practice?" = what 'goodwill'?
Do you really mean the extrapolated value to a purchaser of new clients who might potentially be sold new services - or actual goodwill?

Valuing a business / Selling a business / Constructing the Agreement (with an eye to liabilities, taxation, warranties, etc) are not back-of-envelope processes.

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Replying to Hugo Fair:
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By davidbarry
12th Jun 2023 09:57

thank you

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By ianmac2509
09th Jun 2023 08:45

Ask the accountant who is selling their own business, they should have all the answers?!!!

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By bernard michael
09th Jun 2023 09:29

Are you the buyer or the seller??

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By John R
09th Jun 2023 14:28

You just have to do the sums. For example:
If the goodwill is worth, say £100K, assuming nil CGT cost or nil NBV if within intangibles regime, the deferred tax on this would be, say, £26,500, so the true value of the shares would be £73,500, ignoring NPV adjustments. So the purchaser of the shares would only pay £73,500. The shareholder would pay CGT on this less £6,000, probably at 10% leaving £66,750. Same effect if the company sells the goodwill for £100,000 i.e. CT payable at, say, 26.5% on the gain (assuming nil cost), then liquidate with capital distribution.
Interestingly, had the practice been operated as a sole trader, the proceeds would have been £100,000 and the tax would be £9,400 leaving a net sum for the owner of £90,600. (Penalty for incorporating)
If half the shares are gifted to the spouse an extra £6,000 would potentially escape tax but half the chargeable gain would be taxed at 20%, 40% 0r 45% depending on the spouse's marginal rate.
E and O E

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Replying to John R:
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By davidbarry
09th Jun 2023 16:32

This is a quite brilliant reply and is on the grounds that I was thinking.

Kind regards and thank you. Very much appreciated.

David

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Replying to davidbarry:
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By davidbarry
09th Jun 2023 16:35

The sale proceeds will be on or about £50K.  Both taxpayers are basic rate only.

In your opinion does this change anything?  Kind regards,

David

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Replying to davidbarry:
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By Hugo Fair
09th Jun 2023 19:28

Why (and how) do you think those 2 bits of info would change anything?

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Replying to John R:
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By John R
12th Jun 2023 11:37

Re my last sentence - in my haste I used income tax retaes instead of CGT rates. I should have said "10% or 20%".

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Replying to John R:
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By davidbarry
13th Jun 2023 11:06

Yes, I understood this. Thank you though. I appreciate your reply.

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paddle steamer
By DJKL
11th Jun 2023 22:26

If goodwill sold by company does company need to be wound up- could funds be left within over number of years providing a quasi pension of dividends throughout retirement/ company use funds to do something else?

Pension contributions by company may also be worth a thought.

Plenty of perms, step one is determining what vendor want to happen with the proceeds, what are his/her financial priorities/needs for cash?

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By davidbarry
12th Jun 2023 09:56

thank you.

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All Paul Accountants in Leeds
By paulinleeds
13th Jun 2023 12:06

"and the balance is withdrawn via salary and dividends."

you cannot draw a tax [deductible] salary if there is no trade to run. You can of course take dividends over a number of years, paying 8.75% tax.

A spouse may be helpful, if you can use multiple CGT / dividends / personal allowances.

Your question is of course fairly main stream tax planning!

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