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Where Taxpayers and Advisers Meet

Tax on sale of assets

MarkKnight
Posts:3
Joined:Thu Dec 05, 2019 7:00 pm
Tax on sale of assets

Postby MarkKnight » Thu Apr 08, 2021 9:46 am

Hi guys. I have a financial adviser ltd company and I decided to sell up. The best option was to join another financial advice firm as a sole trader. They then sent a direct offer to my clients and for any of the clients who signed up with them, I received a fee.

The way it was sold to was that it was a 12 month contract and as I am receiving money for the sale of clients it will be subject to cgt.

My accountant doesn't agree and says the money should go into the ltd company.

But it wasn't a choice, they only bought clients in the way I have mentioned.

1. Which sounds right?
2. If I carried on with the money being paid to me as a sole trader and paying 20% and HMRC picked it up and said no, this is ltd company money. Can I just pay the cash back into ltd company and treat it like it was a loan, or will they force me to keep it as it was and pay income tax on the full amount?

Thanks

Mark

AGoodman
Posts:1223
Joined:Fri May 16, 2014 3:47 pm

Re: Tax on sale of assets

Postby AGoodman » Thu Apr 08, 2021 10:24 am

Not a CT expert but it doesn't sound like it hangs together.

First, these are clients of the company so if you are receiving money for referring them on, that sounds like money that should accrue to the company (particularly if you are treating them as assets). If you're receiving the cash, that sounds like a distribution (so subject to income tax).

Second: i don't see how you could be a sole trader in the trade of referring clients yet your profits of that trade are subject to CGT. If the advisory business had been your sole trade (rather than the company's business) then it (possibly) could have been CGT as you were selling the assets of your business.

Incredulum
Posts:2772
Joined:Thu Dec 03, 2009 5:35 pm

Re: Tax on sale of assets

Postby Incredulum » Thu Apr 08, 2021 1:25 pm

It's surely a straightforward question of contract law rather than tax. It's such a simple question that I am not certain what the answer is.

You have a company and work for the company, and the company has clients.

You then go to work for a third party, but you're working for them as a sole trader. (I never understand how IFAs manage to be sole traders rather than employed when the 'employer' is somebody like St James's Place, but that's not my problem.) And payments accrue to you as a result of clients who transfer from the limited company.

I guess a significant question is what happens in the future? I rather get the impression that you're not actually going to be working for(/with) this new firm, it's just a way of transferring your clients.

So it feels like a one-off disposal of clients by your limited company to this new firm in exchange for cash.

Therefore I'm inclined to agree with your accountant.

But I'm not really certain what the tax problem is I think you should be fractionally better off if the cash goes into your company than directly to you (it doesn't sound as though there's much cash coming out of this). There is probably a slight issue with the existence of a loan to participator. I can't imagine HMRC wanting to argue whether you should be paying 20% CT rather than 20% IT.

MarkKnight
Posts:3
Joined:Thu Dec 05, 2019 7:00 pm

Re: Tax on sale of assets

Postby MarkKnight » Thu Apr 08, 2021 2:09 pm

Thanks for the replies.

It's about 2.7 million. If it goes into company, that's ct plus personal tax when I extract. If it comes to me, it's just the 20%.

What's your thoughts on if the HMRC would allow me to unwind it by accounting it as a directors loan if needed?

darthblingbling
Posts:407
Joined:Wed Aug 02, 2017 9:09 pm

Re: Tax on sale of assets

Postby darthblingbling » Thu Apr 08, 2021 2:45 pm

Could you not just sell the shares in the company to the buyer? MY background is employment tax, but that's the first idea that springs to mind, usually works out better than selling the assets in the company first.

That way you'd just pay CGT on the share disposal, maybe get BADR but it's nothing something I've looked at recently.

darthblingbling
Posts:407
Joined:Wed Aug 02, 2017 9:09 pm

Re: Tax on sale of assets

Postby darthblingbling » Thu Apr 08, 2021 3:01 pm

Ignore me, I just skim read your post, didn't realise it had already happened.

If you took a large loan you'd likely be subject to the participators loan charge and a seperate taxable benefit if it was an interest free loan.

Also, you'd have to pay it back eventually, otherwise there'd be more tax charges.

Incredulum
Posts:2772
Joined:Thu Dec 03, 2009 5:35 pm

Re: Tax on sale of assets

Postby Incredulum » Thu Jun 03, 2021 10:13 am

It's about 2.7 million. If it goes into company, that's ct plus personal tax when I extract. If it comes to me, it's just the 20%.
If it goes to the company it's 19% CT plus dividend tax, making a total of about 45%. If it goes to you, it's 45% plus NI - so not much difference unless I'm missing something?

It's quite possible that you could wind up the company and get Business Asset Disposal Relief if you do this after the point when you stop working for your new firm.

It strikes me that your new firm is paying you for something that your company owns. Therefore perhaps you need to make an equivalent and tax-deducbtible payment to your company for the payments your new firm pays to you. That way the profits go back to your company via you.


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