Goodwill on incorporation.

[Mr Noble]

I've decided to incorporate my business, and my accountant asked me to read up on the topic of goodwill.


I have spent nearly all day yesterday reading up, but I'm a bit stuck with the differences between what's allowed to be claimed if my business was started before or after the 1st April 2002 when the rules changed.

My business did start before that date so can someone please explain in simple terms what I can claim and how the sum will be taxed.

I think I understand the rules for business' that we're started after this date, but don't know how it differs if started before 1/4/02.

For the examples, let's say I value my goodwill at £100k.

Thanks for any help.

[Mr Noble]

Yes, I am aware of that, but I don't understand what the whole thing means in its entirety.

How do the rules change for a business that was started before and after the 2002 date?

Am I still allowed to draw down on the £100k? Or is the entire goodwill thing not allowed on business' started before 2002?

[Mr Noble]

Thanks guys.


I think I understand the issue over the 2002 change.


So, irrespective of when I started the business, I'm able to "sell" my goodwill to the new LTD company, then draw down on the directors loan each year and effectively "pay" myself that money back. The 2002 issue is just over how much, and what type of tax I have to pay HMRC on the directors loan repayments I make to myself. Is that right?


I do hope I'm not sounding like a total dummy here!! It is all a bit confusing!

[Mr Noble]

Thanks guys. This did all help.


I now fully understand it and have just agreed a figure with my accountant that is fair for all parties including HMRC.


The fog is slowly lifting on this whole incorporation way of life.