Buying the assets of a business
Discussion
I (a ltd co) have the opportunity to purchase some contracts of ongoing business from another ltd co.
The Ltd Co's director has just revealed that he would like the purchase price paid to him directly. The sum is approx £15k. There would also be a small purchase fee paid between the companies.
I can't really see how that's going to work. I wonder if he thinks I will personally send him the money so he will not have to pay the tax (alarm bells ringing!). If my Ltd Co just pays him the money personally (he invoices us?) then surely HMCE will see this as transferring the assets undervalue.
I assume he wants to avoid the dividend+corp tax.. my first thought is that I should run a mile. It's business that I want, but not at the risk of tax evasion! Any opinions?
The Ltd Co's director has just revealed that he would like the purchase price paid to him directly. The sum is approx £15k. There would also be a small purchase fee paid between the companies.
I can't really see how that's going to work. I wonder if he thinks I will personally send him the money so he will not have to pay the tax (alarm bells ringing!). If my Ltd Co just pays him the money personally (he invoices us?) then surely HMCE will see this as transferring the assets undervalue.
I assume he wants to avoid the dividend+corp tax.. my first thought is that I should run a mile. It's business that I want, but not at the risk of tax evasion! Any opinions?
Well, my concern would be your title to the assets. If you're buying something off someone, generally you have to pay them!
I would suggest if he wants to get you to pay him directly that he backs-to-backs the transaction. E.G. He buys the assets off his business, then you buy them off him 10 minutes later. (Ask to keep support documentation he's sold them to himself.)
Then you can let him worry about whether he declares it properly for tax reasons.
Corrected typo
I would suggest if he wants to get you to pay him directly that he backs-to-backs the transaction. E.G. He buys the assets off his business, then you buy them off him 10 minutes later. (Ask to keep support documentation he's sold them to himself.)
Then you can let him worry about whether he declares it properly for tax reasons.
Corrected typo
Edited by edb49 on Saturday 23 February 16:16
He can't sell you these assets personally as he doesn't actually own them - his company does.
Legal title can only be passed to you by the company sells the assets to you.
At the very least I would insist that a sales invoice (and a VAT invoice if appropriate) be raised in his company's name showing that it is the company selling the assets, not him.
Legal title can only be passed to you by the company sells the assets to you.
At the very least I would insist that a sales invoice (and a VAT invoice if appropriate) be raised in his company's name showing that it is the company selling the assets, not him.
If he buys the assets from the company for say £1, then sells it to my ltd co for £15k, and documents everything, I assume there is no risk to my company..
However, he'd have to pay CGT and I assume the fact they were bought for £1 and sold for more than that would imply they were transferred undervalue..
I'm not interested in a route where I give him cash personally, that's for sure. If nothing else, I end up paying ~40% more to extract the money from my own business!
Looks like ltd co to ltd co is the only option..
However, he'd have to pay CGT and I assume the fact they were bought for £1 and sold for more than that would imply they were transferred undervalue..
I'm not interested in a route where I give him cash personally, that's for sure. If nothing else, I end up paying ~40% more to extract the money from my own business!
Looks like ltd co to ltd co is the only option..
And if his company went into an insolvency procedure then the sale at an undervalue would be challenged by say a liquidator against him and then he may try to rope you into it, saying that you were in it together. Potentially also he could be alleged to be defrauding his company and its creditors, but I doubt if the police would be interested on that sort of amount.
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