Can my new limited company buy my TM assets off me?
Thread poster: Tim Parker
Tim Parker  Identity Verified
United Kingdom
Local time: 11:25
Member (2009)
French to English
Jul 28

Hi everyone,
I've just moved back to the UK and set up a sole director/sole shareholder limited company, after 11+ years as a self-employed translator in another country.
I have been in touch with my accountants (Crunch online, who helped me set up the business - can't recommend them strongly enough) to see if I can in effect sell all the TM assets, research, termbases etc. accumulated over these years in my own name, which comes to many gigabytes of data, to my limited company as an intangible asset. Notwithstanding data confidentiality (some data is subject to NDAs so not eligible for any kind of transfer of ownership), this is apparently acceptable in the first year of activity, in some ways akin to acquiring goodwill. In effect, 'my company' uses these assets almost every day. This would enable me to take money out of the company instead of dividends (while already taking a minimum salary) but I imagine it would affect my personal taxable income allowance.
Questions:
Has anyone else done this and what issues did it raise?
What kind of value could you put on 11 years of TM data, termbases, research, corrections, feedback etc?
Any advice, ideas, experience would be most welcome.
Thanks in advance
Tim


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Chris S  Identity Verified
United Kingdom
Swedish to English
+ ...
Why? Jul 28

The question that springs to mind is why?

I can't see why you couldn't sell these assets to the company, but as you point out you would presumably be taxed on the proceeds. So what is your motivation here?

PS Based on what my accountant has told me, you'd probably be better off self-employed anyway these days, even if you exploit the ever-decreasing dividend loophole to the max.


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Tim Parker  Identity Verified
United Kingdom
Local time: 11:25
Member (2009)
French to English
TOPIC STARTER
other benefits Jul 28

Hi Chris
I chose the limited company structure over being self-employed mainly because it makes financial sense (for me in my situation); my company can make personal pension contributions on my behalf and generate tax relief too. I want to use a personal capital gains tax allowance of £11,300 to sell my assets to the company and not pay any CGT, yet to take the same amount in dividends I would end up paying 7.5% dividend tax in the lower tax band or otherwise pay 19% corporation tax... does that answer your question?


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The Misha
Local time: 06:25
Russian to English
+ ...
There's nothing stopping you from doing just that - but tread carefully Jul 28

In the US, the IRS would immediately see this for what it is - a tax-saving trick - and treat it accordingly. I don't know much about the UK but I suspect your tax folks are just about as bad if not worse. The problem here is that limited company or not, you seem to be a one-man operation, and in such cases the corporate veil isn't particularly strong. What I would suggest instead is establishing a general pattern of how much you take out of the company as a salary subject to employment taxes and how much as a dividend that is not - and MAINTAIN it more or less constant. Back at the time I operated a US S-corporation (two of them, actually, across half a dozen separate states), I have always tried to maintain that ratio at 50:50. What really matters though is consistency: no one knows the ins and outs of your particular business, so if you maintain a semblance of consistency over a long enough period of time, it goes to credibility. As a veteran NYC accountant once told me - in a "moment of truth" yet still looking around his shoulder, and not completely in jest either - it need not be the truth, but it has to look like the truth. See where I am getting with this?

In any case, I am afraid you are asking a wrong crowd in a wrong place. Ask you accountant. Preferably in person rather than online.

Good luck with your business.


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philgoddard
United States
German to English
+ ...
If you can sell the contents of your TM to yourself... Jul 28

Why not sell the contents of your brain as well?

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Chris S  Identity Verified
United Kingdom
Swedish to English
+ ...
Ah Jul 28

Tim Parker wrote:

I chose the limited company structure over being self-employed mainly because it makes financial sense (for me in my situation); my company can make personal pension contributions on my behalf and generate tax relief too. I want to use a personal capital gains tax allowance of £11,300 to sell my assets to the company and not pay any CGT, yet to take the same amount in dividends I would end up paying 7.5% dividend tax in the lower tax band or otherwise pay 19% corporation tax... does that answer your question?


Ah, I thought you'd ruled out any CGT allowance. Now I get it.

So basically you just want to avoid some tax. I wouldn't attempt this myself for ethical reasons, but the issue now is whether it's worth it. Even if you could argue that your memories are worth £5000 you'd only save £375...

But what The Mischa says is right: an accountant is the best person to do those sums. (But the Revenue aren't like the IRS; they do seem to let people get away with murder...)


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Tim Parker  Identity Verified
United Kingdom
Local time: 11:25
Member (2009)
French to English
TOPIC STARTER
thanks Jul 28

thanks to everyone for their opinions, all points are valid. Please consider these points:
I spent 11 years paying 50% of my earnings to the French government in one form or another and am keen to make best use of all possible, legal and ethical ways to retain as much of my earnings for myself now that I'm in the UK, and if it's only a couple of hundred quid - why not? If both an accountant and a solicitor advised me to do it, why would it be considered dishonest or unethical?
Remember that it's a new company (in this country) not an ongoing concern, and purchasing intellectual property assets to create a solid foundation for a business is a logical and financially-sound act!
Companies buy mailing lists, email lists, technology, data, knowledge all the time. Why should a new limited company not buy a TM from someone who has spent years adding to it?
Just a few points to ponder.


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enrfer
Norway
Local time: 12:25
Member (Jan 2017)
English to Norwegian (Bokmal)
+ ...
It really makes sense Jul 28

First of all, it really makes sense.

I you establish a business that does translation, the business will need the hardware and software to perform such activity. In our case this involves the CAT. The productivity increases with a better database, so acquiring data makes sense for the company. It is just another investment.

You could let the firm use it for free, but that would actually be the strange thing to do. You are no longer a freelancer, you run a company that employs you. The company provides the means and you provide the labour.

The flip side is that the firm would need to cover these expenses. And as you know, these costs are deductible. In terms of investments, the cost is capitalized and deducted over a number of years. In the UK it is typically only 4% of the value that is tax deductible per year.

How to price it? A rule of thumb is to figure out the annual benefit and multiply by 10. Annual benefit would be the revenues generated using the data multiplied by the productivity increase you expect. Say you believe your productivity increases 10% by using TM and you do business for 25 000, then the value would be 25 000 (10%*25 000*10=25 000).

The tax effect would be only minor per year. It would let you deduct £1000 per year, reducing company taxes by a mere £190. So, the company would need to spend 25 000 after-tax pounds to make this purchase, and it would only save around £190 in taxes per annum. The investment has to be paid by "retained earnings", i.e. money earned and taxed. An alternative would be to "lend" the firm this money - but that would complicate matters.


I would assume that you as a person would be able to cash in without paying any taxes. It is an asset you hold and that have generated taxable income for you. It would be as if you sold an old computer.




[Edited at 2017-07-28 17:57 GMT]


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RobinB  Identity Verified
Germany
Local time: 12:25
German to English
Valuation Jul 28

Tim,

One problem might be that HMRC could expect you to produce an independent valuation of those intangibles (you could face the same problem if you were trying to contribute them as capital to your new company). There's no real problem with purchased intangibles, because you will have an invoice to show. But internally generated intangibles are notoriously difficult to value (which is why most accounting and tax systems refuse to recognise them). What exactly is the fair market value of these (claimed) assets? If they didn't have an assessed value under French GAAP, you'll be hard pressed to convinced your new tax lords that these "assets" can actually be measured for tax purposes. And if your UK entity does purchase those assets, HMRC could inform the French tax authorities under the existing exchange of information regime, which may result in back taxes in France for you. A nice prospect?

For information, a long, long time ago (i.e. back in the late 1990s), I wrote an expert opinion (for a large corporation in Germany) that the fair market value of a long-form entry (6 to 8 fields) in a two-language term base was - if my memory serves me correctly, which is getting increasingly debatable - about ECU 6.50. Note the now obsolete monetary unit. Allowing for inflation, this probably means at least EUR 10.00 per term pair. My valuation was based on a lot of published academic research, as well as some information published by the then SdT (now DG Translation at the European Commission). Somewhat to my astonishment at the time, my valuation was accepted by the German companies buying and selling the (very large) term base.

You're free to quote me, but not to rely on me

I do think, though, that you might wish to obtain a second opinion from another tax accountant, possibly one with some cross-border experience.

Robin
PS: At least we have a generous tax regime in Germany. One of life's little miracles.

Tim Parker wrote:

Hi everyone,
I've just moved back to the UK and set up a sole director/sole shareholder limited company, after 11+ years as a self-employed translator in another country.
I have been in touch with my accountants (Crunch online, who helped me set up the business - can't recommend them strongly enough) to see if I can in effect sell all the TM assets, research, termbases etc. accumulated over these years in my own name, which comes to many gigabytes of data, to my limited company as an intangible asset. Notwithstanding data confidentiality (some data is subject to NDAs so not eligible for any kind of transfer of ownership), this is apparently acceptable in the first year of activity, in some ways akin to acquiring goodwill. In effect, 'my company' uses these assets almost every day. This would enable me to take money out of the company instead of dividends (while already taking a minimum salary) but I imagine it would affect my personal taxable income allowance.
Questions:
Has anyone else done this and what issues did it raise?
What kind of value could you put on 11 years of TM data, termbases, research, corrections, feedback etc?
Any advice, ideas, experience would be most welcome.
Thanks in advance
Tim


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