Valuation basis confirmed

The taxpayers operated a potato processing business as a partnership. In 2011 they incorporated the business by setting up a new company in which they subscribed for £95 000 of shares and then selling the business including the goodwill (but not the land) in exchange for a loan account. £1 119 043 was attributed to the goodwill. 

HMRC opened an enquiry after it discovered that the taxpayers had not included the disposal of the goodwill on their tax returns. Closure notices were issued on the basis that the goodwill was valued at £450 000. That amount was charged to capital gains tax and the balance of the consideration (about £750 000) was taxed as a dividend.