Evening AWeb folk! Hope you can help me on the below:
Mr & Mrs H purchase a Restaurant business for £85k in 1999. They operated this until March 2013 when the trade became a Limited Company. They then ran the limited company as equal shareholders up until May 2019 when they disposed of the company for £95k.
Now… the previous accountant made no accounting reference to Goodwill upon incorporation and the shares were issued to the husband and wife for £10 (£5 each). The reason this was not changed was because the client never told me about the purchase price until i told him the tax bill for selling it!
I believe what should have happened is that 85000 £1 shares should have been issued in March 2013, in exchange for the partnership business. However, this was not the case and as such I believe the original cost £85k is sunk upon the incorporation of the business, and cannot be used in any sort of calculation for CGT.
Incorporation Relief has clearly been missed but my question is what can I do retrospectively? If goodwill was created in the company it may have been possible to structure the sale of the business in such a way that the GW and shares were sold under separate transactions but as no goodwill was created upon incorporation this cannot be done. The solicitor dealt with the disposal so I have had no sight of the sale agreement.
Safe to say my client cannot understand why they have a circa £7k tax bill when they have made a ‘profit’ of £10k!
Is my understanding correct? Would you explore any other options?