Recently a limited company client provided me with his records and spreadsheets for what he thought was the usual company year end 31st December 2013.
He had sold the goodwill of his business in August 2013 for £485,000 with the sale monies being spread over 3 years, so he doesn’t yet have all the money from the purchaser.
He was thinking about making use of pension contributions paid by his company of around £60,000 or so, but I pointed out the Corporation Tax rules would work against him on this as he would have a loss this year (2014) when he made the pension payments, but would not be able to offset this against the prior year goodwill gain. So he wouldn’t get tax relief.
There were all sorts of interacting tax implications and, of course, he didn’t have all the sale funds.
So, I advised shortening the company’s year end from December 2013 to July 2013, i.e. just before the sale of the goodwill. Then the current year would end in July 2014 and he could make pension payments “now” which would be in the same year as the goodwill gain and thus tax relief would be obtained.
The outcome of the advice
Problem solved, tax relief obtained and reduced Corporation Tax overall as marginal rates have come down. It would also give an extended time period to pay the tax on the gain, and give the client time to consider the value of the pension contributions.
The client was delighted!
So, that’s the sort of “out of the box” thinking you get at Fuller Spurling.
If you would like this sort of help and advice, contact us now.