Id like to reduce my tax bill. My idea was My existing

Hi

The simplest way would be to fully incorporate your business where you, in effect, sale your trading assets to a company..

Something known as "incorporation relief" will automatically apply when the assets of the sole trader business are transferred in to the company. Incorporation relief ensures that there is no capital gains tax charged on goodwill (or any other capital assets that fall under capital gains relief) - any gain is effectively rolled over in to the shares of the new company and capital gains tax only becomes payable upon any future sale of the shares. In order for incorporation relief to apply all the assets (apart from cash) have to be transferred to the company.

Depending on what assets you hold - eg property that you trade through - it is usually better to personally retain ownership rather than sell these to the limited company. In this case incorporation relief will not apply. However, assuming that you are only selling goodwill the gain on this (if not covered by your annual exemption) will only be taxable at 18% as entrepreneurs relief will apply - only if you have been trading for over a year.

The company will purchase you assets from you and what usually happens is that a directors loan account (DLA) is created - which means that the company owes you this money. You can then, extract this money tax free from the company.

If you are VAT registered you can transfer your VAT registration over to the company - assuming that you have a good VAT compliance history - and no VAT will apply on the sale of assets as this will be a transfer of going concern.

I think your proposal is too complicated and I can see problems arising because you personally have income arising from the granting of a license. This will still be subject to tax. The company will also have a corporation tax liability and at some point will have to acquire the business assets. As you have effectively ceased your trade no incorporation relief will be available on the sale of the goodwill.

If you are wanting to save tax the quickest and most effective way is to incorporate your business - however, you would benefit from using an accountant / tax adviser to help you in this and to implement a tax efficient remuneration package to ensure that your income from the company is received tax free (or near enough).

The general rule of thumb is that incorporation will only produce tax savings if your taxable profits are in the region of £40K - however, this the effective level of profit reduce if income tax rates increase.

You will also need to consider your timings - usually it is beneficial to incorporate at your year end (but this is dependent on what your year end is).

Please do not hesitate to ask me any further questions that you may have.