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Dental Tribune United Kingdom Edition

‘It definitely pays to have clear tax advice alongside pensions and investment advice to ensure available reliefs and allowances are fully utilised. Early planning is strong- ly advised’ March 11-17, 201312 Money Matters United Kingdom Edition HANDPIECE REPAIRS FROM ONLY £19.50 Contact us today for more information or FREEPOST envelopes | 01253 404774 | @mcrepairsltd W ith many dental prac- tices now trading as a Limited Company, Jeff Williamson from special- ist dental accountants PFM Townends considers how such status affects your exit strategy from the business. Asset sale For the purposes of this article we are considering a Company that has sold its assets and the Shareholders are contemplat- ing how to deal with the sale proceeds sitting in the Company bank account. Second time around For the vast majority of cases this will have been the second time that you have sold your business, the first being the incorporation of your self-em- ployment business. Indeed the proximity of your business sale as a Company to the date of your original incor- poration is crucial, as it will have a bearing on not only the level of your Director’s loan account that remains outstand- ing but also on whether there has been any appreciation in the value of the Goodwill over that period. Corporation tax The Company will pay corpora- tion tax on the uplift in value of the Goodwill since incorpora- tion. Remember that because you were “connected” at the time of incorporation you have been un- able to claim any tax relief for the annual amortisation or writ- ing down of the Goodwill so your base cost is unaltered for tax pur- poses. If, however, you set up a Lim- ited Company and purchased a Practice from an unconnected third party, you were able to claim tax relief on the annual amortisation of the Goodwill. So when the Company sells its Goodwill it will pay tax on the proceeds less the unamortised amount of the original Goodwill. Options 1Director’s loan account Repaying your Director’s loan ac- count will not incur any tax so do this first. 2Dissolve the Company Extra Statutory Concession C16 is no longer available so you will probably have to undertake a sol- vent liquidation of your Company. You will need a firm of Insolvency Practitioners and the likely cost is £1,500 to £2,500. The reserves paid to you, as the shareholder, will be taxed as capital and so long as you don’t delay, the distribution should qualify for Entrepreneur’s Relief and therefore 10 per cent capi- tal gains tax. This is a second tax charge on the sale proceeds! 3Dividend stream The company could pay the re- serves out to the shareholders over time as dividends. If you are a basic rate tax payer then there is no tax to pay on dividend income, unless of course the dividend pushes you beyond the basic rate tax threshold where you would then pay 25 per cent income tax on the (net) dividend received. So subject to other income levels, dividends may avoid tax altogether but it will take longer to move the money out of the Company. If you retire at 55 you might consider deferring poten- tially taxable pensions until age 60 and drawing dividends for five years. This route can be especial- ly useful where both spouses own shares. 4Reinvestment within the Company You always have the option to keep the Company going and purchase another business or perhaps invest in property with- out suffering the exit tax. You may be able to claim Re- investment Relief if you use the Goodwill sale proceeds to pur- chase new Goodwill of another business and this will enable you to defer the corporation tax aris- ing on the original sale. This can open up several planning opportunities for accu- mulating capital and involving your children as shareholders to begin planning for Inheritance Tax. Conclusion Selling your business is just one component of your retirement plan. It definitely pays to have clear tax advice alongside pen- sions and investment advice to ensure available reliefs and al- lowances are fully utilised. Early planning is strongly advised. DT Selling an incorporated business? How do you get the money out? Jeff Williamson looks at your options... About the author Jeff Williamson is a chartered ac- countant and leads the den- tal team at PFM Townends LLP. PFM Townends LLP provides spe- cialist dental ac- countancy services for associates and practice owners. To contact Jeff and his team call 01904 656083 or visit