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Self employed to Ltd, goodwill benefits post 2014?

Have I missed out on not transferring goodwill?

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Hello

I incorporated last year from being self employed to limited company. My accountant took care of setting the company up, but I've only just learnt of 'goodwill' and how this could have been transferred. Have I missed a trick by not transferring goodwill?

I've done some reading and can't get my head around if I've missed out on any benefits by not transferring goodwill, so I hope someone can enlighten me. I can tell you want I've learnt, and then hopefully someone can tell where I've gone wrong and set me straight.

I understand that the value of goodwill is subjective, and that's for another post. I understand that since 2014/2015 when the policy changed goodwill no longer benefited from tax relief, however, there would still be a benefit from tax relief once company is sold. Is this correct? If so, it would have still be beneficial to transfer goodwill as I would benefit from being able to off set the cost of goodwill against corporation tax once the business was sold. Have I got this correct, or am I horribly wrong? I hope it's the latter as would mean I haven't missed out.

Thank you

Replies (9)

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By Accountant A
19th Oct 2019 15:51

What did your accountant say when you discussed this with him/her?

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RLI
By lionofludesch
19th Oct 2019 16:42

If only you'd asked your accountant ..... I bet you were thinking this accountancy lark was a doddle - you didn't need any advice.

Can't put numbers on it as you provide no numbers but it's probably cost you a fair wedge.

Still, don't fret as there's nothing you can do about it now.

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Replying to lionofludesch:
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By Tax Dragon
20th Oct 2019 08:28

Quote:

It's probably cost you a fair wedge.

Still, don't fret as there's nothing you can do about it now.

I'm not sure I agree on either count.

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By Tax Dragon
20th Oct 2019 08:22

Maybe it's too niche, but the phrase "there's more than one way to incorporate a sole trade" could legitimately substitute the more familiar one involving feline taxidermy. Why the original wasn't itself too niche to become widely recognised remains a mystery to me.

Anyway, I digress. It's impossible to comment without knowing how the incorporation was done - and even less chance of us being able to comment on whether the method adopted was the most suitable.

Talk to your accountant.

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By bitbitbib
20th Oct 2019 12:04

Thanks for your replies.

@ Accountant A - I've not discussed yet as I've only just learnt of goodwill as mentioned, and so just want opinions of others to try to have a better understanding before raising issue with my accountant.

Quote:

If only you'd asked your accountant ..... I bet you were thinking this accountancy lark was a doddle - you didn't need any advice.

Can't put numbers on it as you provide no numbers but it's probably cost you a fair wedge.

Still, don't fret as there's nothing you can do about it now.

Not at all, and I very much welcome all the advise I can get. This is the very reason why I hired an accountant to setup and incorporate as mentioned. I can't know what I don't know and at the time I was completely unaware of goodwill. Isn't this something that my accountant should have informed me of?

My accounts have yet to be submitted for my first year. Is it not possible to add goodwill to the books now, or is this only possible at time of incorporation?

Quote:
I'm not sure I agree on either count.

Can you explain why please? Is there still something I can do now so?
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By David Heaton
20th Oct 2019 17:08

If you transferred an existing trading business into your newly-incorporated company, and ceased to trade as a sole trader, you *did* de facto transfer the goodwill, whatever the value might have been. The value may, of course, have been £nil, but it depends on the type of business. If you had sold the business to a third party, but not agreed to run it for that third party, would the purchaser have paid you more than the sum of the values of the tangible assets it acquired? If not, your incorporation goodwill is worth £nil.

Because it's an intangible asset, and assuming it has a value, you can only transfer it in law by a contract or deed - ie, the transfer must have been documented. Unlike your computer and other tools, you can't just hand it over. Your accountant should know this.

There are two basic tax reliefs for incorporation to stop you paying tax when you sell your sole trader business to another legal person, such as the company. One applies where you transfer everything (except cash) in exchange for shares, and the other applies where you sell or gift the assets to the company for some other consideration, such as a cash value left outstanding on your director's loan account. Both include a transfer of goodwill. Both involve documenting the transfer. Your accountant should know this.

It sounds like you need to find an accountant who can advise to a level higher than just how you incorporate a company at Companies House.

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By Tax Dragon
20th Oct 2019 21:11

My thoughts overlapped with David's - except I was more positive about your accountant and assumed s/he had considered goodwill. So I repeat my initial advice: talk to your accountant. (The answers to your questions to me vary depending on how the incorporation was done. Do you recognise either of David's descriptions?)

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By Clinton Lee
22nd Oct 2019 13:13

This is a question you raised in AccountingWeb's sister forum, UKBF, some days ago, and you got detailed answers including from me.

I also pointed out the issue of CGT. If there was a value to that goodwill and you sold it to a limited company, you have made a gain in that year. And you have to pay tax on gains.

I also advised that you pay a good accountant, not that you try to get some more free advice in a different forum ;)

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By The Dullard
22nd Oct 2019 13:24

In the absence of arrangements to the contrary, the goodwill would have transferred and should have been transferred at market value for all purposes. Take decent, paid for, advice. You'll mostly get claptrap here.

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