In Kubrik and another v Ucar Re Sofra Bakery Limited (in liquidation) [2013] EWCH 1499 (Ch), a non-tax case, a court held that a business owner retained his baker's goodwill personally when he incorporated the business.
The company went into liquidation following incorporation and the liquidator looked to see whether any transactions had been made at an undervalue between company and director. The court found that when the business was incorporated the company did not aquire its goodwill, although it may have created goodwill as a result of its own activites. The evidence showed that no valuation had been made on incorporation and there was no documentation to confirm transfer at that time.
Comment
The case is important because for this type of business HMRC has taken the view that goodwill is not separable from the business which creates it and now it seems that the courts accept the opposite. Goodwill is an asset in its own right that may continue to exist whether owned by the business or any other party.
This is unlikely to affect any cases where HMRC takes the view that some goodwill is not separable from its creator because it is "personal goodwill". This is likely to occur when a professional sole trader such a surgeon, or artist incorporates their business. The problem for HMRC is when surgeons etc. run businesses with other employees; it can become progressively more difficult to argue that the business is incapable for creating goodwill.
In the case of partnership goodwill HMRC has introduced new rules which aim to tackle the transfer of assets and income streams between partners where their different tax attributes create a tax advantage. These new measures aim to counter tax schemes where partners are selling their goodwill or interests to corporate partners by imposing an income tax charge. They will not affect the purchase of goodwill when partners come and go over the normal life of a partnership.
