Reducing tax on possible 'sale of goodwill'

diveleader

I am thinking of running down my Ltd company. Formed after 2002.

My ex working partner is interested in taking on my customer base.

Lets say he will pay me 50k (10k per annum for 5 years)- these figures are made up

My accountant says that this would be shown in my accounts as 50K in year one for 'sale of goodwill' and I would be liable for corporation tax on this amount in year one even though I will not see all of the money until the end of year 5?

What I really would prefer is the 10k each year being perceived as income to the company that I can then offset costs against thus resulting in a lower total corporation bill over the five years.

But I suppose that is wishful thinking on my behalf.

My company would still be running over these five years, as I would be performing consultancy work for my ex work partner and would also be running down retained profit via dividend payments.


Your thoughts would be appreciated.

martinsurrey

you could investigate a lease agreement with your partner.

They rent your contact book for 5 years for £10,000 a year and have an option to pay £1 at the end of the 5 years (conditional on completion of the 5 payments) for ownership.

The option being conditional of future performance is important.

this has its downsides though, which you can discuss with an accountant, but it would be fairly tax efficient.

diveleader

martinsurrey wrote: »

you could investigate a lease agreement with your partner.

They rent your contact book for 5 years for £10,000 a year and have an option to pay £1 at the end of the 5 years (conditional on completion of the 5 payments) for ownership.

The option being conditional of future performance is important.

this has its downsides though, which you can discuss with an accountant, but it would be fairly tax efficient.

Hi Martin

Thanks for your reply.
The comment ' The option being conditional of future performance is important' confuses me. Did you mean to say conditional on completion of the 5 payments?

martinsurrey

diveleader wrote: »

Hi Martin

Thanks for your reply.
The comment ' The option being conditional of future performance is important' confuses me. Did you mean to say conditional on completion of the 5 payments?

yes, or another term which means the option can only be exercised at the end of the 5 years after the competion of another condition.


again, if you want detailed advice, pay for it, but its an idea to get the converstaion started.

Nicola_Ed

Hi

Could you sell the shares in your company to transfer the ownership of the customer base to your business partner? The money is then paid directly to you - rather than into the company and then out as dividends, which should reduce the tax burden overall. You should be able to use your annual CGT allowance.

CKhalvashi

The CGT would be payable at 10% in most cases (see here)

This is generally the most tax-efficient way of doing this on a share sale.

CK

zygurat789

Nicola_Ed wrote: »

Hi

Could you sell the shares in your company to transfer the ownership of the customer base to your business partner? The money is then paid directly to you - rather than into the company and then out as dividends, which should reduce the tax burden overall. You should be able to use your annual CGT allowance.

Generally speaking the sale of shares is the best way to sell a limited company, conversely it is the least best way to purchase a limited company. This is something your accountant should have discussed with you.

Freecall

zygurat789 wrote: »

Generally speaking the sale of shares is the best way to sell a limited company, conversely it is the least best way to purchase a limited company. This is something your accountant should have discussed with you.

Remember the old saying.....

Buy assets, sell companies!

pjread

I'd be half thinking of forming two subsidiaries, transferring the assets in to them (one you want to keep, one you're selling) then winding up the parent then selling the one with the assets you don't want....

Arguably you could probably rename the subsidiary you keep to match the original name, and the parent to a placeholder before wind up. (e.g. MyCo forms MyCoA and MyCoB, rename MyCo to TempCo, MyCoA to MyCo and then wind up TempCo. Then sell MyCoB)

Either way get some proper advice, but there seem fewer risks than the lease suggestion (i.e. will the buyer definitely be viable for 5 years - if they wind up in month 2 you're not in a good position...)

zygurat789

In these sort of situations it is always best to get ALL the money up front otherwise the purchaser doesn't really have any financial committment and may, if things get a bit tough, just stop paying. Then there's all the hassle of courts to get the money you've already paid tax on.

Pennywise

diveleader wrote: »

Your thoughts would be appreciated.

Create a new company (subsidiary). Transfer the goodwill into it. Your purchaser can then "buy" shares in it at the rate of 20% per year for £10,000 per year. If he stops paying half way through, you still own at least a major share of the goodwill and continue to make a business out of it or sell it to someone else.

Far too risky to sell him the goodwill and not be paid at the time. You're effectively giving him a 5 year loan, some of which you may never receive, yet he has legal ownership of the goodwill to use or sell on. Not a good negotiated position at all.