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bigduckontax, Accountant
Category: Tax
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I am an employee of a partnership. My division is being sold.

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I am an employee of a partnership. My division is being sold. I will receive part of the proceeds from the sale for the clients that I originally brought with me in to the business i.e. My client list. As I am not a partner how will this sum I receive be taxed. The payment I receive will be paid to me directly by the purchaser in 3 instalments. The list of clients I have is recognised in my contract. They are protected by being ring fenced against the normal restrictive covenants that apply. I not sure if this helps or hinders my chances of claiming that the payment I receive is a capital receipt. This would I beleive means I pay cgt rather than income tax. Thanks for your help.
Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.
I am of the opinion that as an employee CGT does not come into the equation. The payments to you will not be a capital payment, but redundancy pay, subject to Income Tax (IT), the tax treatment for which is that the first 30K is tax free, the balance taxed at your marginal rate of tax.
The method of payment gives you some rattle room as if it spills over into another tax year the taxable element may fall to your advantage.
I am so sorry to have to rain on your parade.
Customer: replied 2 years ago.
Thanks Keith I will be working for the new company under TUPE with a slightly revised contract to reflect the fact that my employee list will no longer be recognised in my contract. The new company will pay me 3 instalments of £80k. I think this may change your assessment of me being made redundant but I am still struggling with how I might be taxed. Is my client list an asset? Is there a way of structuring it so that it is a capital payment? Regards philip
Well that throws a spanner in the works Philip! HMRC are almost certain to class the whole 240K as salary, particularly as it is being paid by your new employer, and tax accordingly. Here is the Gov UK advice on TUPE transfers:
'When TUPE applies:
The employees’ jobs usually transfer over to the new company - exceptions could be if they’re made redundant or in some cases where the business is insolvent
Their employment terms and conditions transfer
continuity of employment is maintained
To find out if TUPE applies to your transfer, talk to Acas (the Advisory, Conciliation and Arbitration Service), Citizens Advice or, if you’re an employee, your trade union representative.'
Your client list might indeed be an asset, but the settlement would have to delineate that element separately. If so then that amount might be subject to CGT and Rollover Relief would apply, but that merely postpones the gain to some future, indeterminate date.
Customer: replied 2 years ago.
Thanks Keith very helpful. The purchase agreement will delineate my client list and the terms specify that payment is being made for the list. If so your last paragraph may apply? I don't mind paying cgt at 28% immediately but 45% and presumably employer NI would mean it is not attractive for either party if treated as salary. On balance do you think hmrc will still treat this as salary or as a capital payment? Thanks again
Well certainly the non client list element, I would be inclined to negotiate the payment tranches to tax years to your best advantage. If the client list is classed as capital expenditure there will be no CGT at this stage as Rollover Relief will apply as I explained.
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