TAX FEATURE: Capital Gains Tax - Treatment of goodwill in franchised businesses. By Nichola Ross Martin

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HMRC has set out its views on the implications of the Special Commissioner's decision in the case of Balloon Promotions Ltd and Other, which confirmed the existence of goodwill where HMRC have always said that there could be none.

Not surprisingly, HMRC do not feel that the decision is of general application to other cases involving the sale of franchised businesses.

Decision of Special Commissioner (SpC524) 3 March 2006: Balloon Promotions Limited (Appellant 1) and Alonso Vela-Castro, Edward Kidney and Natale Lucibello (Appellant 2) v Wilson and Rodin.

Roll-over relief and goodwill

Briefly, the facts were that the appellants were members of partnerships whose Pizza Express franchised restaurants were acquired by Pizza Express (Restaurants) Ltd for the purpose of operating them in-house...

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By Anonymous
28th Jun 2006 23:34

Yes, I agree fully.
This case was a bit of an "eye opener" in this respect. Note also the Spec's comments on the accounting concept of goodwill!

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27th Jun 2006 14:33

HMRC's Valuation Approach in Balloon
A point picked up by the Special Commissioner in Balloon was the application of the RICS 'Red Book'Guidance Note 1 and the way in which the expert witness misdirected himself. The only applicable Guidance Note in CGT and SDLT valuation cases is UK GN 3. This was specifically agreed between RICS, BPF and HMRC in 2000. The original meetings were chaired by David Varney.There is no provision in any taxing statute, or case law, as far as I know which looks at the valuation of a property asset as a going concern, and there is no justification for the arguement which says the existence of inherent or adherent goodwill precludes the existence of free goodwill. Indeed Guidance Note 1, even though not applicable in these cases makes that point. the current HMRC view, and I disagree with the suggestion this has always been their view, is based on the most tax efficent outcome [for HMRC] rather than a technically correct one.One interesting point here is how HMRC propose to prove that no free goodwill exists, it is quite hard to prove a negative.

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