Tax treatment of Goodwill for computing trading profits?

Clear guidance given in HMRC agent toolkit Capital v Revenue – Page 18.

  1. Sole Trader and partnership : No deduction allowed.
  2. Company: treatment given below:
When was the goodwill acquired?Tax deduction
Before 1 April 2002No deduction allowed.
Between 1 April 2002 to  3 Dec 2014Deduction allowed as per amortization in accounts – under Corporate intangible assets regime ; or
At fixed rate of 4% WDA
Deduction was also allowed for goodwill purchased from related parties.
3 Dec 2014 to 7 July 2015Amortisation allowed but only if goodwill purchased from unrelated party.
From 8 July 2015 to 31 March 2019No deduction allowed
From 1st April 2019 Relief  @ 6.5%  avaliable in certain cases – please see CIRD44050
Where no qualifying IP acquired, no relief.
No relief for goodwill purchased from related parties.

Note:
1. Where deduction is not allowed for trading profits . Deduction should be taken for Capital Gains Tax calculation.
2. Please note rules only allow relief to be claimed when a company acquires a business directly rather than acquiring the shares in the target company. Purchased goodwill can only be recognized on a business acquisition but not on an acquisition of shares.

Moral of the story
HMRC has prepared fantastic tool kits, please use it regularly to avoid mistakes.

Link to tool kits

Small companies , which documents I have to file and where ?

Small companies have to file documents at two places :

 

1 – Companies house ; and

2 – HMRC

 

Companies house : two documents

1 – Annual accounts  – Companies house does not charge for filing this document.

2 – Annual return – Companies house charges a single annual charge, information can be updated for free throughout the year by filing further confirmation statements during the payment period.

 

HMRC : two document

1 – Companies Tax return

2 – Owner tax return

Restaurants – Full Bookkeeping Package

Comprehensive accounting fee for restaurant

Details of our full bookkeeping package:

1 – Full bookkeeping service

2 – Payroll including tronc

3 – HR file maintenance

4 – Annual Accounts and company tax return.

 

Detail given below:

Daily

  • Sales Flash – to monitor sales of the restaurant.
  • Bank Flash – to monitor movement of funds in the bank account

Weekly

  • Document collection from the restaurant.
  • Sales ledger reconciliation – card and cash.

Monthly

  • Management accounts
  • Monitoring Gross profit ratio and Payroll cost.
  • Supplier management – Purchase ledger reconciliations and payment list.
  • Payroll including tronc

Quarterly

  • VAT Returns

Annual

  • Submission of Annual Accounts to Companies House; and
  • Company tax return to HMRC

 

Ongoing tasks

  • HR File maintenance
  • Staff training for better operation management
  • KPI analysis
  • Cash flow management
  • Liaison with HMRC and Banks, if required.
  • Internal control like monitoring Utility bill and Insurance costs.

 

Why choose us ?

Click here to see our client presentation – NHA – About us

 

 

 

 

 

 

Pensions: Banded earnings and savings for employers

Ensure correct pay is used to calculate pension

We recently took a new restaurant client and were reviewing their employee pension arrangements under auto enrollment.

We noticed that the client (employer) was contributing pension on full pay rather than qualifying earnings.

Qualifying earnings  – These are your earnings from employment, before income tax and National Insurance contributions are deducted, that fall between a lower and upper earnings limit that are set by the Government.

Example: CD Ltd has an employee Jane and her monthly salary is £1,500.

Pension on full pay Pension on qualifying earnings
Monthly salary

£1,500

Monthly salary

£1,500

Threshold – full pay

£0

Threshold – lower band

£503

Pensionable pay

£1,500

Pensionable pay

£997

Employer contribution @ 2%

£30

Employer contribution @ 2%

£20

Additional employer’s contribution under full pay method is of £10.

This employer has c30 employees. Thus yearly savings are of c£3,500.

This employer also has couple of employees over upper limit, thus additional savings.

Restaurant trade inherently has a high staff turnover and it’s advisable to postpone staff pension deductions for three months to avoid deducting pension for staff members who work for a short time with the employer. We also implemented at this client which will result in additional savings.

Caution: Please ensure employees are communicated about these changes.

 

 

Employment Allowance

Two changes are being made in Employment Allowance from 6th April 2016.

 

Good news:

Its being increased from £2,000 to £3,000

 

Bad news :

If there is only one employee in the company and that employee is also a director, this employer will not get this allowance.

 

I also wish to bring to attention a must read publication for all HMRC agents doing payroll for their clients,

its called Employer Bulletin (Click here)