Other tax issues

It is all too easy to focus exclusively on the potential annual tax savings available by operating as a company. However, other tax issues can be equally, and in some cases more, significant and should not be underestimated. We give you a brief summary of the more important areas below.

Capital gains

Incorporating your existing business will involve transferring at least some of your assets (most significantly goodwill) from your sole trade or partnership into your new company. This can create significant capital gains although there are mechanisms for deferring these gains until any later sale of the company. We will need to discuss in detail with you the most appropriate mechanism for your business but some of the factors to think about are listed below.

Capital gains - factors to think about
  • Do you want to transfer all of your business assets to the company? It may be appropriate to retain personally a valuable property particularly if there is likely future capital appreciation.

  • Be aware that it may be possible to extract some tax-free proceeds from the company by transferring assets in a particular way. Typically the tax-free sum is currently at least £30,000 and if retirement relief is available (see below) may be significantly higher.

  • If you are aged at least 50 and thinking about incorporating, then a further capital gains relief in the form of retirement relief may be available to you although only until 5 April 2003 when it is abolished. See case study two.

Stamp duty

There may be stamp duty charges to consider when assets are transferred to a company. Although goodwill no longer gives rise to a stamp duty charge the transfer of other assets such as land, buildings and debtors may do so.

Income tax

The precise effects of ceasing business in an unincorporated form including ‘overlap relief’ need to be considered.

Capital allowances

Once again the position needs to be carefully considered.