Nothing has happened to the subsidiary.. but is it worth to have this subsidiary if it's not trading? As the parent already own 100% shares, do they still have to make another payment to buy the Goodwill?
My thinking was if the parent is showing £75k investment in the subsidiary and if the subsidiary is closed and transfers only the £2k assets, what will happen to the £73k investment?
@BKD - I actually did not investigate about the Capital Gains - I assumed he would have paid capital gains anyway on the sale of the shares. I will check with him on this.
It's interesting about S176. Didn't think about this at all. This deal was handled by his previous Accountants & the commercial director.
John - Company A is not trading at all. So it will become Dormant very soon. They kept it open as company A had a small debtor, but now settled. Sorry if I wasn't clear. The old company hasn't become dormant yet, but will be. In this case what would be the best way to transfer all the assets to the new co. Can they transfer the good will at this point?
I agree that company A shouldn't capitalise the internally generated goodwill. But, if company A is closed, how can we realise this goodwill in Company B's books? I don't think we can as they have purchased only shares, that means their investment will be lost.
The logic behind the who scenario was, the founder wanted to start this new co with several people on board, so he sold his personal shares in the old co to the new co at a price which was accepted by the board of the new co.
Company A was started by the client and the shareholders were the client and his wife. he built up a database which was the main asset of the company. Later stage he wanted to grow and they decided to open a new company and taking on new shareholders.
The agreement was that the new co will purchase the shares from the founder and his wife for £75k ( Their commercial director has made a valuation and no one knows how this was valued). However they are under the impression as the new co owns 100% of the old co, they could use the database without any problem.
The issue I have is, the old co's balance sheet is only worth £2k and they have not recognised the value of the database/goodwill in the balance sheet of the old co.
There is no paperwork that talks about database, IP or goodwill.
The new co has made some good profits this year and they are evaluating options to reduce the tax bill. I still don't understand why they made the structure so complex. They should have just bought the database and things would have been easier.
So, I take it that there are no avenues for a tax reduction.
My question is, if they decide to close down the subsidiary - they are considering this as there is no point of having this subsidiary as this is dormant. In that case, do you write off the Investment? As it's a capital loss, I think they can only set this off a capital gain they make in the future? Or is there anyway they could recognise this as an asset in the balance sheet?
Is there anyway we could account for the impairment of the investment and claim any tax relief?
Or now there are no options left at all..
- Can the company claim any relief on the investment in shares ( similar EIS or SEED)?
What will happen to the payments they have paid over and above the NET assets of the company.
If not I assume only the option left is there Capital gains will be limited if they sell the shares at any point, which I think will not happen. It's quite confusing to account for this Parent , subsidiary scenario.
CT and VAT is working fine for me. Just the PAYE - There is no option to change the address.
One of the HMRC staff said, I have to call HMRC and change the agent address for clients individually. This will take ages. Why can't they just change my address and apply this change to all my clients.
I am sure one man companies like us won't be a competitor for large firms.. But it's disappointing we can't find anyone to assist in this situation.. It's a catch 22 situation..
My answers
Thanks John.. it makes sense . Appreciate your help and for your valuable time.
Thanks BKD.
I am happy to seek paid advice from another professional. Would you be able to suggest anyone in AW?
It's not trading
Nothing has happened to the subsidiary.. but is it worth to have this subsidiary if it's not trading? As the parent already own 100% shares, do they still have to make another payment to buy the Goodwill?
My thinking was if the parent is showing £75k investment in the subsidiary and if the subsidiary is closed and transfers only the £2k assets, what will happen to the £73k investment?
Am I wrong in thinking this way?
Need more investigation I guess
@BKD - I actually did not investigate about the Capital Gains - I assumed he would have paid capital gains anyway on the sale of the shares. I will check with him on this.
It's interesting about S176. Didn't think about this at all. This deal was handled by his previous Accountants & the commercial director.
John - Company A is not trading at all. So it will become Dormant very soon. They kept it open as company A had a small debtor, but now settled. Sorry if I wasn't clear. The old company hasn't become dormant yet, but will be. In this case what would be the best way to transfer all the assets to the new co. Can they transfer the good will at this point?
I agree that company A shouldn't capitalise the internally generated goodwill. But, if company A is closed, how can we realise this goodwill in Company B's books? I don't think we can as they have purchased only shares, that means their investment will be lost.
The logic behind the who scenario was, the founder wanted to start this new co with several people on board, so he sold his personal shares in the old co to the new co at a price which was accepted by the board of the new co.
Thanks and sorry for the lack of info..
Company A was started by the client and the shareholders were the client and his wife. he built up a database which was the main asset of the company. Later stage he wanted to grow and they decided to open a new company and taking on new shareholders.
The agreement was that the new co will purchase the shares from the founder and his wife for £75k ( Their commercial director has made a valuation and no one knows how this was valued). However they are under the impression as the new co owns 100% of the old co, they could use the database without any problem.
The issue I have is, the old co's balance sheet is only worth £2k and they have not recognised the value of the database/goodwill in the balance sheet of the old co.
There is no paperwork that talks about database, IP or goodwill.
The new co has made some good profits this year and they are evaluating options to reduce the tax bill. I still don't understand why they made the structure so complex. They should have just bought the database and things would have been easier.
So, I take it that there are no avenues for a tax reduction.
My question is, if they decide to close down the subsidiary - they are considering this as there is no point of having this subsidiary as this is dormant. In that case, do you write off the Investment? As it's a capital loss, I think they can only set this off a capital gain they make in the future? Or is there anyway they could recognise this as an asset in the balance sheet?
Impairment of the investment?
Thanks John and BKD for the quick response.
Is there anyway we could account for the impairment of the investment and claim any tax relief?
Or now there are no options left at all..
- Can the company claim any relief on the investment in shares ( similar EIS or SEED)?
What will happen to the payments they have paid over and above the NET assets of the company.
If not I assume only the option left is there Capital gains will be limited if they sell the shares at any point, which I think will not happen. It's quite confusing to account for this Parent , subsidiary scenario.
Thanks
Cute PDF or Nitro
I have used the paid version of Nitro. I would strongly recommend
Templates
Euan, would you please recommend a good place to get the templates?
Any update on this ?
I called few HMRC numbers, and no one has a clue.
CT and VAT is working fine for me. Just the PAYE - There is no option to change the address.
One of the HMRC staff said, I have to call HMRC and change the agent address for clients individually. This will take ages. Why can't they just change my address and apply this change to all my clients.
Competition?
I am sure one man companies like us won't be a competitor for large firms.. But it's disappointing we can't find anyone to assist in this situation.. It's a catch 22 situation..
I shall let you know if I am lucky!