If a sole trader also has a limited company, is the limited company allowed to invoice the sole trader business for services? Also, is it legal for the sole trader business to be disposed to the limited company – the only sole trader asset is goodwill – is this eligible for business asset disposal relief and hence a lower capital gains tax rate? 

Arthur replies: 

In earlier versions of its Employment Status Manual at ESM4022, HMRC stated: ‘It is perfectly possible for an employee or a director of a company to provide services quite legitimately to that company in a separate capacity. For example, the individual could be carrying on an established business as a solicitor, estate agent, accountant or some sort of consultant whereby services are supplied to the company on terms similar to those given to other customers. In these cases, the payment for the services would not be income from an office or employment assessable under Schedule E/chargeable as employment income or subject to Class 1 NICs.’ You can find this in the government archives. However, in the current version of ESM4022, HMRC states: ‘This guidance has been withdrawn.’ Regarding your second question, it is legal for the sole trader business to be disposed to the limited company. However, business asset disposal relief is not available to you on the disposal of your goodwill because it is not a relevant business asset, since it is disposal of goodwill to a close company.