Until the Summer Budget 2015 when you purchased a business (not its shares) into a limited company from an unrelated party you could write off the goodwill (Intangibles) against your corporation tax but that has now changed and you can’t, another tax relief bites the dust!
In accounting terms, purchased goodwill is the balancing figure between the purchase price of a business and the net value of the assets acquired. Goodwill can therefore be thought of as representing the value of a business’s reputation and customer relationships.
This measure removes the tax relief that is available when structuring a business acquisition as a business and asset purchase so that goodwill can be recognised. This advantage is not generally available to companies who purchase the shares of the target company. The current rules allow corporation tax profits to be reduced following a merger or acquisition of business assets and can distort commercial practices and lead to manipulation and avoidance. Removing the relief brings the UK regime in line with other major economies,reduces distortion and levels the playing field for merger and acquisition transactions.
Intangibles acquired before 8 July 2015 will continue to be treated under the old rules, so a corporation tax deduction will continue to be available for amortisation, and any loss on disposal will be treated as part of the company’s trading profit or loss for the year of disposal.
Acquisition costs need to split into capital and revenue expenses.
“Several tests have been developed through case law to ascertain whether expenditure is revenue or capital in nature. The ‘enduring benefit’ test, which originated from Atherton v British Insulated & Helsby Cables Ltd  10 TC 155, is one such test.
“In this case, that expenditure incurred with a view to providing the business with an ‘enduring benefit’ was not allowable as a trading expense. ‘Enduring benefit’ means that the expense will benefit the business not just in the year in which it is incurred, but also in the years that follow. [Taxation]
Legal costs for the property purchase
Property Acquisition Cost
Capital expenses are only recovered as part of the capital gains calculation when they are added to the purchase cost to reduce the overall gain.
Mortgage arrangement fees
Legal fees on arranging loans
Lenders normally include valuation fees in their charges
Revenue expenses are charged to the P&L and are deductible against income tax/corporation tax.
When loan costs are material they would normally be amortised over the period of the loan in order to apply the matching principle of accounting.
You cannot deduct:
Expenses incurred in connection with the first letting or subletting of a property for more than a year. These include legal expenses such as the cost of drawing up a lease, agents’ and surveyors’ fees and commission.
Any costs of agreeing and paying a premium on renewal of a lease.
Fees for planning permission or registration of title on property purchase.
SCA have recently completed the acquisition of Access Scaffolding IW, and have formed a single division for our Isle of Wight operations that will become the largest provider of contract scaffolding on the island. Access Scaffolding IOW will exist as a wholly owned subsidiary of the SCA Group, with the existing owner, Ashley Palmer, excited to commit his future to the new venture.
Ashley Palmer’s scaffolding business, Access Scaffolding, has been a presence on the Isle of Wight for many years, and the business has undergone substantial growth under Ashley’s stewardship, forging some great partnerships and working relationships along the way. SCA recognises the potential in Ashley’s business, and the hard work that has gone in to creating such a fantastic company, and coupled with our resources, reputation and enhanced service provisions, we believe that we can further improve the offering to the Isle of Wight, and build upon some well laid foundations.
SCA also has vast experience of working on the Isle of Wight with local people and local businesses, and we can further establish the reputation of ‘SCA Access IOW’ through our accreditations and memberships, not to mention our network of contacts and customers. As full members of the National Access & Scaffolding Confederation, or the NASC (as one such example), we can demonstrate our dedication to high standards of workmanship, attention to detail, and ability to work to the highest levels of health and safety, something that can only bring additional benefits to the service we can provide.
Ashley’s focus in the past has been on delivering a high quality, access scaffolding service to his clients, which has served the market well. With SCA’s influence, we can expand on these capabilities, and offer a wider package including Rope Access and Industrial Painting as well, and we look forward to exploring these possibilities with Ashley on board.
With the formation of a single division now complete, it is essential to us that ongoing activities remain uninterrupted, and with this at the forefront of our minds, all existing customer contracts of Access Scaffolding will be fulfilled as scheduled as we look to not only maintain existing relationships, but build and strengthen them as well.
Should you have any queries or concerns or future requirements for the new division, please note all the relevant contact details below:
Normally the sale of the assets of a VAT registered or VAT registerable business will be subject to VAT at the appropriate rate. A transfer of a business as a going concern for VAT purposes (TOGC) however is the sale of a business including assets which must be treated as a matter of law, as ‘neither a supply of goods nor a supply of services’ by virtue of meeting certain conditions. Where the sale meets the conditions then the supply is outside the scope of VAT and therefore VAT is not chargeable.
It is important to be aware that the TOGC rules are mandatory and not optional. So it is important to establish from the outset whether the sale is or is not a TOGC.
The main conditions are:
the assets must be sold as part of the transfer of a ‘business’ as a ‘going concern’
the assets are to be used by the purchaser with the intention of carrying on the same kind of ‘business’ as the seller (but not necessarily identical)
where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer
in respect of land which would be standard rated if it were supplied, the purchaser must notify HMRC that he has opted to tax the land by the relevant date, and must notify the seller that their option has not been disapplied by the same date
where only part of the ‘business’ is sold it must be capable of operating separately
there must not be a series of immediately consecutive transfers of ‘business’
The TOGC rules are compulsory. You cannot choose to ‘opt out’. So, it is very important that you establish from the outset whether the business is being sold as a TOGC. Incorrect treatment could result in corrective action by HMRC which may attract a penalty and or interest.
Gap in trading – for TOGC to apply there must be no significant gap in trading between the sale and purchase
VAT registration – If the vendor is VAT registered, there can only be a VAT-free TOGC if the purchaser is registered at or before the transfer
Buying part of a business – the part being bought must be capable of separate operation
A series of sales – it may not be possible for one of the parties to carry on the trade
Staged Sales – As long as the overall result is that of business transfer these should qualify for TOGC