Tax treatment re fees re shareholders' agreement & company valuation

Tax treatment re fees re shareholders'...

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With one exception the directors are also shareholders of the company; the other director is the beneficiary of a trust that holds shares in the company.

The company has incurred expenses on valuing the business so that the directors could advise the shareholders on the value of the company in advance of a potential sale.  In addition expenses had been incurred in relation to a shareholders agreement.  

My view is that the expenses should be treated as not allowable for corporation tax purposes (I've had this confirmed by a tax advice line).  Also the expenses are benefits in kind (although the director whose shares are held through the trust may be debatable).    

I am conducting a review on behalf of a potential purchaser who happens to be a chartered accountant (although not in practice).  He says he has been involved with another business where similar expenses were regarded as not allowable by a large firm of accountants (although I've a feeling the circumstances weren't exactly the same and there were outside shareholders).

Am I right? Or does the purchaser have a point?    

Replies (4)

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By Marion Hayes
29th Oct 2012 11:53

Valuation costs - allowable for CGT

If you are calculating a Capital Gain, costs of valuing the asset to be sold are allowable for tax purposes. This menas that you have to identify who the cost relates too.

If you feel the cost is proper to the Director personally then I would use the directors/participators loan account route. The cost is then an allowable dedcution for the shareholder in his CGT calculation.

If you feel that the cost is proper to the company but with a benefit to the director then it needs to be shown on the forms P11d and then again is a deduction in the personal cgt calculations.

Had the company been selling or buying back the shares I believe that the valuation cost would be an allowable deduction in the gain calculation, for the company, as opposed to within the profit calculation.  

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By David_Lewis
29th Oct 2012 12:08

Clarification

Marion

Thanks for your reply.   

Am I right in thinking that you are saying that the expenses are not allowable as a trading expense in calculating the corporation tax liability?

The company has borne the costs and written them off in the profit and loss account - the shareholders will be selling their shares in the company to a third party (the CGT on the sale of shares their shares is not relevant to the buyer whom I'm advising).

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By Marion Hayes
29th Oct 2012 13:06

HIya

I look to be corrected if wrong but think that you have a cost which is either Directors Loan or P+L.

If P+L then it is a P11d item and deductible for the company as part of the remuneration package. As the Directors will declare a taxable benefit and pay tax on it, it is then also a deduction for them in their cgt calculation.

If Directors Loan then no P11d necessary so no personal tax liability on the benefit, and again deductible in the cgt calculation for the individuals.

If company had been selling the shares, or buying them back from the Directors, then it would have been an add back in the tax calc for profit purposes but deductible in the calculation of the capital gain so would be allowed for CT purposes but only in the Capital side as opposed to the revenue side which can be important if you are looking at losses carried forwards

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By David_Lewis
29th Oct 2012 13:43

Thanks - that seems to make sense

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