Corporation tax - goodwill and customer-related intangibles

Corporation tax – goodwill and customer-related intangibles

Thu 27 Jun 2019

HMRC has added guidance to its CIRD manual on the new 6.5% per annum writing down allowance (WDA) in respect of goodwill and related intangibles (referred to collectively as “relevant assets”). To qualify for the relief, relevant assets must either be created on or after 1 April 2019 or be acquired by a company as part of a post-1 April 2019 business acquisition which also involves the acquisition of “qualifying IP” (FA 2019 Sch9).

The introduction of the new WDA means that there are now five different treatments for goodwill and related intangibles, depending on when and how they were acquired.  For a further discussion of the tax treatment of goodwill and related intangibles, or intangible assets more generally, please get in touch with a member of the Mazars corporate tax team.

The five different categories of corporate intangibles

Due to the rule changes that have taken place between 2002 and 2019, there are now five different possible treatments for goodwill and customer-related intangibles acquired or created by companies:

  1. treatment under the corporate capital gains rules (pre-April 2002 assets);
  2. post April 2002 and pre 8 July 2015 assets – can take accounting depreciation; or
  3. elect for 4% WDA;
  4. Acquired between 8 July 2015 and 31 March 2019 – no tax deductions are available for accounting amortisation or impairment;
  5. Acquired 1 April 2019 or later with qualifying IP – obliged to take 6.5% tax writing down allowance.

A broad overview of the 6.5% WDA

The main policy design elements for allowing debit relief in respect of goodwill and relevant assets are:

  • Relief for the cost of post-FA 2019 relevant assets is given at a fixed rate of 6.5% per annum under chapter 3, part 8 of CTA09.
  • For acquisitions, relief is limited to a maximum of 6 times the cost of any “qualifying IP” acquired as part of a business. Where no qualifying IP is acquired, no relief is available.
  • A full restriction applies in relation to relevant assets acquired on or after 1 April 2019 as part of a related party incorporation, similar to the restriction previously provided by s849B CTA09.
  • Similarly, no relief is available under chapter 3 or Chapter 15 for relevant assets acquired or created between 8 July 2015 and 31 March 2019. Any debit (loss) arising on the realisation of such assets is always treated as non-trading debit.

What are relevant assets and qualifying IP?

Relevant assets are goodwill and those assets that were typically consumed within goodwill under old UK GAAP (FRS10). These include customer information and relationships, unregistered trademarks and signs used in the business and a licence in respect of the above.

Qualifying IP includes:

  • Patents, registered designs, copyright and design rights and plant breeders rights,
  • A similar right under the law of a country or territory outside the UK, or
  • A licence or other right in respect of the above.

It must be IP that is dealt with for tax purposes under part 8 CTA 2009. So, for example, an item which was acquired from a third party before 1 April 2002 would not qualify. It must also be acquired for use by the company on a continuing basis in the course of the company’s activities. Computer software licences are excluded from being qualifying IP where the licence does not permit the manufacture, adaptation or supply of the software.