I was a Sole Trader that converted to LTD in DEC 2019.
My company acquired the business website and all IP, computer setup of around £3500 and a client that I was pursuing running up to the incorporation of the company that has generated the company £90,000 in service charges this tax year.
Upon incorporation I discussed a goodwill value of £10,000 with my accountant... but i'm now reading online I may have restrictions?
What restrictions do I have?
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What restrictions are you reading about?Upon incorporation I discussed a goodwill value of £10,000 with my accountant... but i'm now reading online I may have restrictions?
What does your accountant say?
Restrictions around being a sole trader and the sole director of a new LTD are scattered but can't find anything solid outlining when it applies and when it doesn't.
I've bombarded my accountant with a number of other questions this year so I'm giving him a breather until I can get him my accounts info for this year.
If you have bombarded your accountant he probably has an eagle's eye view of the battle ground.
Far better that you allow him to provide a Field Marshal's answer, we are just pawns second guessing the big picture.
What restrictions are you talking about? When what applies? You neeed to give some sort of steer! Here we go, are you talking about some sort of tax restriction? Or something else?
You are asking for advice but giving next to nil information to clarify what sort of advice you are seeking.
If tax are you talking about Income Tax, Capital Gains Tax or Corporation Tax.
HMRC has a view that not all goodwill is transferable. You've not provided information for comment on that point here. Your accountant has clearly formed a view that this "restriction" doesn't apply, so, like Wanderer, I'm not sure (because you're still not saying) what you are getting at.
Jesus this is like pulling teeth!!!!!!!!!!!!!!!
What are you talking about? What are you trying to achieve? Is this for accounts? for tax? (is so WHICH tax?) for chatting to someone down the pub???
Actually bearing in mind your complete refusal to supply any details despite a number of requests I've decided to be like your accountant, take a breather and not bother trying to help any more. You are right when you say "I'm aware I could come across as that (PITA) guy.".
There is no tax relief on the cost of goodwill
BUT you get a credit in the company that you can draw out in real money tax free
If he decided £10,000 he got it about right
If you bombard with daft questions and do not wait for him to do the accounts and give you the results then you are likely to be a PITA client.
He knows what to do and when to do it
Put all your questions in one email
DO NOT BOMBARD ONE THOUGHT AT A TIME
Write them on a spreadsheet so you do not forget and only send the list in once a month
The payment is the right thing
Demonstrates appreciation
50% of mine pay in two weeks
The 10% who take more than a month are the cause on me putting into place a debt collection system that costs time and money
Paying early/on time doesn't stop folk from being a pita client. A pita is always a pita, even when you double their rates.
If he decided £10,000 he got it about right
Did you do that valuation based solely on "a client that I was pursuing running up to the incorporation of the company that has generated the company £90,000 in service charges this tax year"? You didn't want to know more about the status of the £90k before valuing? Or is every sole trade worth £10k in the weird world of Paul Crowley?
I've seen entrepreneurs in Dragons' Den valuing businesses with less turnover at £3m and more. Of course, those guys normally walk away without an investment, but that's not the point.
£10K trivial and unlikely to be challenged based on a real business that traded.
The only attempt to challenge on any incorporation I have come across was £600K, and HMRC backed down and accepted.
My point was (partly) that if you sold a £3m business to a connected party for £10k, you might have something more to worry about than the tax treatment of the trivial £10k.
I'm not saying that's happened here, of course, and it's for the OP's accountant (not Aweb) to cover off the angles. But I hope said accountant's answer, if asked, would be a bit better than "oh, I didn't think you'd bother".
What is the business worth without you operating it?
Probably not much
HMRC are known to argue both directions if it suits them
Could you sell the contract, or it it YOU they want.
Is the goodwill personal goodwill?
The answer depends on the person arguing the case, for and against followed by some other persons making a decision. The tribunal decision would never be known in advance. Identical facts could still result in different decisions.
When we spoke about valuation I was encouraged to keep it low as to not have issues backing the valuation up and then also have it under the CGT threshold.
So you think £10,000 is less than the... let's call it the "market value" - MV. Paul obviously thinks £10,000>MV. (Tbh, even though Paul has next to no information to form a view, as you have provided so damn little of relevance, I suspect his guess is better than yours. There's an irony there somewhere. Not that you'll see it.)
We (also) don't know how relevant my next-but-one sentence is, because we (also) don't know that CGT applies, because you've (also) missed Wanderer's point. I'll say it anyway. The (default - alternative possibilities may exist by election) CGT rule is that a transfer between connected parties is taxed as if made at MV.
Thanks overall, the comments have been useful in guiding me to look further.
That's what you pay an accountant for.
Except you don't, do you? You lied about having an accountant.
You shouldn't do that, because people will reply on the basis that you have an accountant. There's a lot not been said in this thread as a result. (Example: Wanderer has mentioned income tax; the point died at the mention. An accountant would know the relevance. You might well not know.)
But hey, you carry on. My motto last year was that paying fees saves money. I didn't want it to carry over into 2021. So... thanks for making me bring it up again. (Perhaps I can tweak it: how about "paying fees saves money, but the choice is yours"?)
The point that you appear to be overlooking is that while you pay your accountant for the help and advice that he is able to provide you seem to be expecting other accountants to fill in the gaps for free.
AccountingWEB.co.uk is the largest independent online community for accounting and finance professionals
Do you fit that description?
Well perhaps if 8/10 non-accountants understood the purpose of the site it would make for happier reading.
Ah, you see... there it is, that's why 8/10 threads from non-accountants have the same toxic comments.
I agree with the comments by my esteemed colleagues Wilson, Awol and Paul. Your allegation here is an interesting one for you to make considering you only joined this forum in 2021. What is your sampling method? What are you describing as "toxic"?
FWIW, there are thousands (probably tens of thousands) of threads in here initiated by non-professionals. Huge numbers of those contain no toxin at all. Where there is the toxicity you suggest, very often (or so it seems to me) it's the OP that introduces it. (I'll grant you that there are some excessively belligerent supposed 'professional' respondents who seldom add anything of value and take pop shots when they spot an 'intruder'. But those guys haven't shown up in this thread. Sadly, they will, with the way you are carrying on.)
Meanwhile, if you are alleging toxicity in this thread, do please show me where you perceive it. I think if you do that openly, it will help, not only me as a respondent, but also the moderators, with the difficult job they have in 'policing' this forum.
You talk about checking your accountant's advice (continuing your claim to have an accountant)... do you do similar with the work of every professional? Your car mechanic? Your electrician? Your solicitor? Your doctor? (etc). If not... why do you assume you know more than your accountant but not the others (except, perhaps, your mortgage advisor, aha)? Do you hold all accountants in such contempt*, or just yours?
*If so, what are you doing in here? (And if so... do you see where some of the toxicity in the threads comes from, when it's not the OP that 'starts' it? How can you diss the profession so and expect a warm welcome in a forum for the profession? Though, from what I can see, you actually have had a warm welcome. Maybe that says something about the professionalism of the respondents? Think on that, for a moment.)
Btw, you've still completely missed Wanderer's points.
Thank you for taking the time to reply. I note that, one comment aside, you attribute all of the toxicity to me. There may be something in that - a lot of people seem to have an allergic reaction to me and that presumably says something about me. Those that persist with me though tend to find that my motives are by and large anything but toxic. (Ask Paul - you quote one of my remarks to him on your "toxic" list.)
To be noted that these were all said before the first of my missteps where I admittedly misread the room and didn't understand that there's an expected minimum competence to be upheld here.
My point about saying that an OP shouldn't lie about having an accountant was that we assume, once OPs say they have an accountant, they would cover off everything up to the "minimum competence" with their accountant, so we don't need to go through those competences here. If an OP is honest and says they don't have an accountant, they may get more of an explanation in this room.
I'd add (though I am now aware that you might find this "toxic"... please trust me that it's not meant to be): if you yourself don't have that minimum competence, then how on earth do you expect to learn more, from discussions such as this, than your accountant hopefully knows without asking?
but no, this is a service just like many others where it's a good idea for the person financially responsible for the business to also do his own due diligence.
Yes and no.
If by ‘due diligence’ you mean paying a proper regulated firm of professionals to advise you with all of the facts available, then yes.
If, on the other hand, you mean waste your accountants time by double checking his advice against that of a group of strangers whose credentials you know nothing about, and who don’t have the complete picture anyway (making even the most competent posters’ advice risky) then no.
As for the purpose of this website, as another has pointed out to you (and as was blatantly obvious to anyone with at least half a brain during the sign up process the purpose isn’t really for the self entitled to come on demanding free advice and whingeing when they don’t get fawned over. This mistake isn’t just yours however - as you rightly point out ‘freeloaders’ are commonplace and this is a problem created by an (initially lenient and now) misguided moderation.
1 Assets are not goodwill
2 Is the website worth anything at all without YOU?
3 The contract needs to be serviced and is clearly down to clients perception of YOUR skills
4 Profit of £20,000 for a skilled IT man is trivial
Do you really think you could have sold the business at all on the open market?
My guess: No
Legal fees would probably exceed value, cos new man is not you and would change everything.
You could do the same thing again and win back the client.
BUT £10K not worth the time to argue by HMRC, and what I would have done is your accountant's shoes
BUT again I am out
This forum has proper experienced tax experts and accountants
We deal with the real world having done it all before
This is your first time
But you choose to do the newbie thing and consider your your skills and knowledge to exceed ours and suggest toxicity that only you perceive
Every responder is an expert
If you do not like what is said best to keep shtum and not to antagonise the panel
Experts for free and you decide to call out? Was that a good decision from a financially and fiscally aware trader?
Would I be correct in that that your answer summed up is that the goodwill isn't of much value without me and therefor if it was worth HMRC's time they wouldn't allow it? But since it's so low it's an eyeroll question?
To be clear here we're talking about £100,000+ profit in the last 2 years, it's not trivial to me, which is why I asked.
Putting those statements together... it could be worth HMRC's while 'taking a look' at the sale of a business with a profit of over £100k annually to a connected party. Quite apart from Wanderer's point (given extra weight, if you are in the 60% rate band), see my Dragons' Den one earlier.
How a single contract of 90k gives profits of over 100k is a bit beyond me. But, though you (also) claim to have provided a lot of info, much of what you have said appears to be false (or, at the very least, incomplete). So, I won't be investing [any more than I have in time and effort]; I'm out (with the request that, nevertheless, you provide something by way of 'pay' for our collective efforts by answering the questions in my other post here this morning).
If you had to pay someone to do the work, and pay yourself for supervising them/running the company, how much profit would there really be?
I Lied
If you call out TD you need to consider your position
TD expects completeness and accuracy backed up by legislation
She calls me out on a regular basis, almost daily.
BUT she is correct. If a casual reference is made, you need to follow it up