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Where Taxpayers and Advisers Meet

Cost of marketing and selling a business

LegallyBrunette
Posts:10
Joined:Thu Jan 21, 2021 12:10 pm
Cost of marketing and selling a business

Postby LegallyBrunette » Thu Jan 21, 2021 12:24 pm

Hi there, nice to meet everyone! I hope everyone is well.

I wonder if someone might be able to point me to the relevant legislation, that might allow me to work out the correct answer to my question.

I have a client who has been considering to sell his limited company. He has paid quite a lot of money to Benchmark, who have done some marketing, then found potential investors... and then he decided it wasn't the right time, and he wanted to grow the business some more, and review in a couple of years.

Initially, I asked whether he intended to sell his shares, or, transfer the IP rights of the company. He said he assumed he would sell his shares, but he's not sure - presumably this would depend on the buyer.

I've not had to deal with this before, and I would like to review how to treat these costs - in the accounts, for VAT, and where the tax relief would arise. I had thought if the shares were being sold, that would be nothing to do with the company, so no VAT or CT relief. But with the uncertainty, I clearly need to review and understand this more.

Any guidance much appreciated, and thank you in advance for reading.

LB

Lambs
Posts:1558
Joined:Wed Aug 06, 2008 3:15 pm

Re: Cost of marketing and selling a business

Postby Lambs » Thu Jan 21, 2021 1:52 pm

L,

Simply put, costs incurred in order to market/sell the trade are not costs of the trade. They are not incurred in the furtherance of the trade itself, so would not fall within the scope of "wholly and exclusively", etc., etc. They MIGHT be capital costs, such as to enhance an asset. Marketing and development for inward investment would fall along similar lines.

However, advice on how to "grow" your trading activity (as distinct from grooming for sale / investment) might well be allowable, depending on the circumstances.

From memory, VAT in this area is a potential minefield, as it does not follow simple trading rules for direct tax - in other words, your client may be eligible to reclaim VAT, even if the net expense is not classed as deductible against trading income.

With regards,

Lambs

LegallyBrunette
Posts:10
Joined:Thu Jan 21, 2021 12:10 pm

Re: Cost of marketing and selling a business

Postby LegallyBrunette » Thu Jan 21, 2021 2:08 pm

Thanks so much for your kind reply, Lamb. (is there a thanks button? I can't spot one)

Yes I absolutely agree, not costs of trade. In the first instance, I have asked the client whether he has some written detail of exactly what he instructed Benchmark to do. I don't believe they have given any advice on how to grow the business, he was unhappy with the offers, and wants to grow sales income before touting it out again. As the process was halted, it didn't go so far as to confirm whether those offers were to buy the IP rights from the company, or, the shares. At this point, without a clear answer, I've been debating whether it would be appropriate to show the gross value as a prepayment, until such time as a certainty was presented, as, there is a cost to show it as a debit to the director account - which would be fair if the shares are sold.. but unfair if not?

It's all good fun, isn't it!


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