Practical issues
- Be careful to calculate best date for cessation of self-employment – choosing the wrong date may increase tax liability for the final year.
- Some companies in regulated industries may be required to apply for new licences as the status of the business has changed.
- Consider whether it would be more beneficial for cars to be held in the director’s personal name outside of the company – calculation as to benefit in kind and Capital Allowance etc. needed. Company cars are no longer tax efficient now that they must be pooled with other plant sounless the car is of low emission it is probably best to keep the car out of the company.
- Turnover of a company in excess of £6.5m requires audited accounts; this could affect small businesses with large turnovers but low margins, e.g. second-hand car dealers; no such requirement for self-employed.
- Care is needed where there is the prospect of the shares being transferred or disposed of within two years of incorporation (Business Property Relief)
- There may be IR 35 ‘personal service’ legislation issues for ‘knowledge based’ businesses. However these are fairly easy to avoid.
- Consideration is needed as to the method of transfer of business i.e. via use of ‘Incorporation’ relief or ‘Hold Over’ relief or to disapply both reliefs. Many traders are choosing to disapply both reliefs and electing instead to be subject to capital gains tax (hopefully at a 10% if entrepreneurs’ relief is available) on the disposal of the business to the company, the proceeds being left as a director’s loan. This allows cash to be withdrawn without having to declare a dividend or suffer PAYE/NIC deductions, which would give an effective tax charge of 36 to 52% . Even better, if the business was set up post 1 April 2002 the cost for goodwill is allowed to be written off against the company’s taxable profits.
The most difficult issue to deal with is the valuation of goodwill – it is best to use a specialist valuer.