How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask bigduckontax Your Own Question
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4799
Type Your Tax Question Here...
bigduckontax is online now

I run a highly profitable UK business, a wholly owned subsidiary

This answer was rated:

I run a highly profitable UK business, a wholly owned subsidiary of an NZ company. There is a suggestion that they will close the UK business and transfer it to NZ. However, what is the tax position here? Transfer pricing principles must be considered to ensure that the UK is adequately remunerated for the switch of manufacturing. More importantly, and the question I have, will NZ have to make a compensation payment for the reduction in the UK's profitable activity and will this result in a taxable capital gain in the UK?
Hello, I'm Keith and happy to help you with your question.

Actually any compensation payment to the company for the transfer of business are taxed under the Corporation Tax regime, not the Capital Gains Tax method. HMRC advice is:

'If your business is carried on by a limited company, in which you may be a director or shareholder. Any profits on assets disposed of form part of the total profits of the company on which it pays Corporation Tax.'

Such assets are further defined as follows:

'Typical business assets

Assets that are related to trading or to your business in some way are business assets. They are owned by you or by the business partnership.
They include all forms of:

Land and buildings used as business premises, for example a shop, factory or workshop

Fixtures and fittings, for example shelves or a counter in a shop
plant and machinery, for example a computer or a digger

Goodwill, for example the good name or reputation of a business that it's built up over the years it's been operating (this can have a financial value)

Shares, for example in a personal company

Registered trade marks'

However there is a snag. It all hinges upon the contract(s) between the 2 companies companies relating to the business conducted. There may be terms and conditions relating to the position in the event of such a fundamental change of circumstances. Whether the NZ company will have to pay any compensation at all may well hinge on this contract, if any. Let us say that the NZ has contracted to buy a finite number of goods and services and then decides to change the system then almost certainly an action for breach of contract would follow, but this is a highly complex area and I would advise you to seek professional advice from a solicitor with knowledge of NZ practice.

There may well be a problem over a breach of employment law viz a viz your personal involvement with the UK company, but again this is a matter for a solicitor.

Sorry not to be able to be more helpful.
Customer: replied 4 years ago.

Thanks Keith - it's not really the profit on disposal of assets I'm concerned about, that's a given. It's the payment to the UK business of a compensation payment for reducing its assets and functions - on which there would be a capital gains tax bill to pay



With respect that is covered under the goodwill heading. In any event as I have explained it is subject to Corporation Tax not Capital Gains Tax.
bigduckontax and 2 other Tax Specialists are ready to help you
Thank you for your support.