A new tax relief will be less effective if the government insist on limiting it to firms with assets worth £100,000 or less, warn tax experts.

The view comes from the Association of Taxation Technicians (ATT) in their response to HMRC on the draft Finance Bill provisions for a new Disincorporation Relief - designed to enable businesses to change their legal form from a limited company to self-employed without suffering a tax disadvantage.

ATT president, Yvette Nunn explained: 'In practice, the £100,000 limit will mean only companies with qualifying assets worth safely less than that will even consider using the new relief. Otherwise, a company risks transferring its business to its shareholders and then finding out later that HMRC's idea of the value means that the £100,000 limit has been breached.

'This could very easily happen in relation to goodwill. Many small companies will not have given any thought to the real value of their goodwill and, even with proper advice, it will be impossible for the shareholders to know in advance what valuation will be acceptable to HMRC. If the limit is breached, no relief is due and suddenly the company has a completely unexpected Corporation Tax bill.

'It's difficult to see why the Treasury thinks that there is so much greater risk of a loss of tax when the transfer is going to the individual(s) than when a sole trader or a partnership transfers its business into a limited company. There is no limit at all in that case.'

Nunn added: 'We are urging the government to scrap the cap or at least to explain why one is needed and consult on its structure.