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Readers' Forum
Replies to Queries — 3
Don't keep on trucking
Our haulage company client is selling its land (owned by one of the directors personally) for development and will then sell its business assets: goodwill and vehicles.
Our queries are as follows.
- Does it matter if the land is sold before the business?
Readers' Forum
Replies to Queries — 3
Don't keep on trucking
Our haulage company client is selling its land (owned by one of the directors personally) for development and will then sell its business assets: goodwill and vehicles.
Our queries are as follows.
- Does it matter if the land is sold before the business?
- The company will be taxed on the goodwill and the balancing charges on the vehicles. It will then be dissolved and the cash distributed to the shareholders who will claim capital gains tax business asset taper relief. Is there anything we should be doing to mitigate the tax further?
- Is the sale of the business exempt from VAT as a going concern? There are no other employees or premises; the only assets are the goodwill and vehicles.
Readers' comments are welcome.
(Query T16,446) — Trucker.
The problem here is that the company cannot sell land owned by one of its directors. The most it can do is to assign any lease it may hold of it. The following points should be noted with regard to the questions raised by 'Trucker'.
If the director sells to the developer immediately before the disposal of the company's business, he will obtain business asset taper. For him, it may therefore be desirable to trigger a capital gains tax disposal before the company has ceased trading upon or shortly before going into liquidation.
As far as the shareholders are concerned, there may be an abatement of business taper if the liquidator is unable to pay off the creditors (the most material of which will be the Inland Revenue's corporation tax) before the elapse of time creates a mixed taper situation. Arrangements therefore need to be set up in advance under which he will be enabled to make the highest possible interim distribution to shareholders within a few weeks. The temptation to use Extra-statutory Concession C16 in order to save expense and avoid this possibility should be resisted. In law, the sums paid out on account would become repayable to the Crown or, in Cornwall or Lancashire, the relevant Duchy.
The VAT transfer of going concern situation will have to be agreed with Customs, the VAT at stake being held in escrow pending resolution. Presumably the purchaser will be VAT registered. The liquidator is, however, unlikely to be happy with a situation in which the vendor's VAT records are handed over, and so the local VAT office will need to be involved. Assuming that the company does not even have a lease of its premises and that its only drivers have been the directors, it seems likely that the courts would hold that the goodwill (i.e. presumably the company's trading name and customer list) and vehicles will constitute a 'going concern' under Kenmir Ltd v Frizzell [1968] 1 WLR 329.
