[Question] Sale of business - Which taxes to consider (and what rates?)

[J7J]

Hi,

I have a client that is looking to sell their business, which is a franchise. They are operating the franchise within a cc.

What taxes do we need to consider in this regard?

So far, I have the following:

1) VAT: If sold as a going concern the whole transaction would be a zero rated supply. To do this, the member(s) would have to sell their membership in the cc (in other words, sell the cc as a whole to the buyer). If it is not sold as a going concern, but rather the assets are sold out of the cc (the seller keeps the cc but sells the franchise and the related assets), VAT will have to be levied at 14%.

2) CGT: Take the selling price less the purchase price of the franchise and that would give you your capital gain / loss. This capital gain / loss should be included at 50% into the taxable income. In this situation, the transaction produce a capital loss. Should this capital loss be ringfenced and not be off-set against taxable income but can only be off-set against CAPITAL income?

3) Income tax: All the wear and tear allowances, as well as the amortisation of the franchise fee (intangible asset) should be recouped. The challenge here is, the franchise only started operating last year, and Feb 2012 was the first year end where we would have claimed wear and tear and amortisation. The business is in an assessed loss position. So should they claim the wear and tear and amortisation in the IT14 for Feb 2012 and then we recoup it in Feb 2013 (ie. just add back to assessed loss?)

Any input would be appreciated!

[CLIVE-TRIANGLE]

1) No. The cc is the vendor. The cc sells the business as a going concern, zero rated.

2) Assuming depreciation rates were the same as wear and tear and tax values equate book values: proceeds less book value is profit on sale. 50% inclusion rate is capital gain. If this results in a capital loss there is no point ring fencing it. Off hand I can't think of any reason even if it is a gain.

3)You should claim allowances as normal for 2012. If you look at 2 above; I don't see a recoupment of wear and tear?