Transferring your business to the Ltd Company
On the transfer of business assets to the Limited company there is a chargeable event for Capital Gains Tax.
The assets are being exchanged for shares and/or cash in the company and so have to be valued on transfer. You must transfer all assets excluding cash. Assets will be valued at their market value on the date of transfer.
If goodwill is to be transferred then it will need to be valued. Goodwill will only have value if your business is marketable.
HMRC take the view that the element of goodwill which is personable to an individual i.e. his reputation and skills is not capable of sale.
Capital Gains Liability
The value of the assets transferred will be liable to Capital Gains Tax. If the overall gain is lower than your personal CGT allowance, £10,600 for 2011/12 the gain will be tax free Entrepreneurs relief may be available at a tax rate of 10% if you have owned the business for more than two years prior to disposal – this could apply to any gain over the tax free allowance.
Alternatively, you may be able to defer some or all of the gain arising from the disposal of the “old assets” until such time as you dispose of the “new assets”.
Incorporation Relief
Incorporation Relief is given if:
- Once you are VAT registered you are compelled to charge VAT at the current rate on all invoices generated by your company
- VAT is chargeable not only on the cost of your services but also on any expenses recharged to you client which means there can be instances where you have to pay
- Costs of complying with Legislative Requirements are greater, but these can be offset by tax planning opportunities
- Limited liability may not be the advantage it appears when borrowing money banks can ask for personal guarantees
If you have any queries relating to incorporating your business one of our contractor accountants at Genie Accountancy can talk you through it all. Give them a call on: 01296 468 185
