The First-tier Tribunal in Richard Villar v HMRC  UKFTT 0117 (TC) has recently been published.
This considered the tax implications of a sale of goodwill by a professional person.
Mr. Villar sold his medical practice client bank to Spire Healthcare Diagnostics Limited for £1 million. On his tax return, Mr. Villar reported the sale as a capital gain. This meant he gained entrepreneurs’ relief, and so he paid capital gains tax of just £80k.
HMRC argued that it wasn’t a sale of a business, and that Mr. Villar should have paid income tax on what was an advance payment for his future professional services - namely introducing his clients.
Being a sole trader means you cannot separate out easily the business from the individual. So you could – like the HMRC - argue you don’t have a business to sell. All you can do is introduce goodwill, and that is assessible to income tax at 40% not entrepreneurs relief under CGT at 10%.
HMRC levied a charge on Mr. Villar and hit him with a bill of more than £800,000, for income tax plus penalties.
The Tribunal disagreed. They said the sale by Mr. Villar was a sale of his business and that the amount received was capital, subject to CGT.
You do not want to face the vagaries and uncertainties of a Tribunal over what could be the biggest financial event in your life.
IFAC say limit your liability and create a going concern.
(A free service to members.)