- March 18, 2019
- Posted by: Josiah Hincks Solicitors
- Category: Legal News, News
The distinction between individuals and the namesake businesses that they found can be a very fine one. However, as an entrepreneurial orthopaedic surgeon discovered, it can be absolutely crucial from a tax point of view.
The internationally renowned doctor sold the medical practice that bore his name to a private healthcare group for £1 million with a view to changing his lifestyle and eventually retiring. He accepted that he was liable to pay Capital Gains Tax on the transaction, but claimed the relief available to entrepreneurs who sell their businesses.
HM Revenue and Customs (HMRC), however, took a different view and issued the doctor with assessments to Income Tax, covering a two-year period and totalling more than £800,000. HMRC argued that the doctor had no business or medical practice to sell without himself as its figurehead. In effect, he was the practice, and the £1 million was merely an advance payment for the services he would provide to the healthcare group following the sale.
In upholding the doctor’s challenge to the assessments, the First-tier Tribunal (FTT) found that the commercial reality of the situation was that the healthcare group had paid for the doctor’s business, as a going concern, and not just for his services. There was no evidence that he had entered into the transaction with a view to avoiding or reducing his Income Tax liabilities.
The FTT acknowledged that much of the value of the practice resided in the doctor’s name, and that he had continued to go by that name following the sale. However, that had not prevented him from parting with the goodwill in the business. Not every patient who was treated by the practice was operated on by the doctor himself.
Although he continued to do some work for the practice following the sale, he was no longer involved in its management and was neither a director of nor a shareholder in the company that owned it. It was a term of the sale agreement that he could not work as an orthopaedic surgeon in the UK, other than for the healthcare group, but there was no restriction on him exploiting opportunities abroad.