Changes on the rules when you transfer your freelance business to a company

To date, a freelancer carrying out a trade could transfer his or her business to a Limited company.  The business built up over the previous few years could be valued, not only are the computers, furniture and outstanding amounts from customers assets of the business but also the value of customer lists, web material and other “soft” assets.  For tax these assets are referred to as intangible assets.

Until the Autumn Statement 2014, the intangible asssets of your business could be valued and sold to the new company.  The gain on selling these assets were taxed at 10% once the value exceeded the capital gains tax-free allowance.  This amount could then be paid to you,the shareholder, at any time without any tax.  And finally the intangible assets could be deducted against your company’s corporation tax bill over three to five years.

Clearways Accountants had done this for a number of clients over the years but now this has been stopped.

You can still value your intangible assets but any value greater than the capital gain tax-free band will be taxed at the normal capital gains rate of either 18% (if you are a basic tax payer) or 28% if you are a higher rate tax payer.

Also, the deduction against corporation tax will no longer be a tax deductible expense.

You can still value the intangibles and sell them to your company and leave the purchase price outstanding.  It will be an extra “small” pot of money you can take without any tax consequences.

Transfers of intangible assets to third parties will not be affected.

The government say this will allow incorporated and unincorporated businesses to compete more fairly.

The restriction applies for transfers and incorporations from 3 December 2014.

Image supplied by Vichaya Kaitying-Angsulee through