Have you missed the boat with Incorporation?

Probably one of the more significant aspects of yesterday’s autumn statement that will effect

Dentists is the removal of entrepreneur’s relief when a sale from a sole trader/partnership to a

limited company occurs (owned by the same person).

It has seemed surprising that an initial tax benefit was available on a plate where a firm

(partnership or LLP) converted to a limited company structure by selling its goodwill to a

company owned by the partners. However, as we have seen in recent times the opportunity to

get more revenue from hard working small businesses is the prime objective of the government.

They give with one hand, but then take a lot more with the other.

With the 10% Capital Gains Tax rate due to Entrepreneurs Relief, a reducing corporation tax

rate (main rate 21% down from the 30% of not that many years ago) and high income tax rates,

there has been a tax incentive to transfer a firm’s goodwill to a limited company.

In recent years many dental practices have converted to limited company status to achieve a

tax saving for the partners at the time of the conversion.

The Chancellor has announced that legislation, to be effective for transfers of goodwill made

on or after 3 December 2014, will be introduced that will mean:

Sole traders or partners of a firm converting to limited company status will not get the

benefit of entrepreneurs relief on selling the firm’s goodwill to the company they own.

The limited company will not get corporation tax relief for the write-off of the goodwill

it acquires from a partnership/LLP owned by its shareholders

The new legislation will not affect the taxation of transfers of goodwill made before 3

December 2014. Genuine sales of a firm’s business to 3rd party acquirers are unaffected by

this legislation.

This change was not expected by the wider tax community, however, incorporation can still be

advantageous due to the lower tax rates available compared to sole trader businesses.

If you have any questions on the Autumn Statement or require advice on how this may impact

your firm, please do not hesitate to contact us.

Source: http://samera.co.uk/blog/