Double tax saving
Goodwill is an accounting concept which recognises the value of a business over its physical assets. For example, my accounting business could be sold for 1.25 times the annual turnover even though I only have £5,000 worth of assets such as computers.
When you transfer your business from a sole-trader or partnership to a company you actually sell the Goodwill to the company. But, the chances are your company doesn’t have any cash to pay for it so you create a loan between the company and you.
The company owes you this money and can repay you without you paying tax. The good news is that the company can claim a tax deduction against its profits for the cost of the Goodwill. You and the company save tax and this is another reason to consider our Going Limited service.
Some businesses will not be able to take advantage because the goodwill will be viewed as “personal” goodwill by the tax office. Like all tax planning, the issue needs to be research and professional advice taken.