A new form of corporation tax relief applies to intangible assets, including goodwill, created or acquired on or after 1 April 2019. However, there are some restrictions. What do you need to advise your clients?
Goodwill rollercoaster
Rule changes made in December 2014 and July 2015 saw tax relief for companies on the cost of goodwill attacked twice. The first change blocked relief for goodwill where it was internally generated, i.e. built up by the business rather than purchased from someone else, but only if it was transferred to the company by someone related to it. The second change scrapped all relief for new goodwill with effect from 8 July 2015.
Pre-July 2015 goodwill
If your company client purchased or created goodwill between 1 April 2002 and 8 July 2015 it can continue to claim relief under the old rules until the value of the goodwill in question is entirely written off. Relief is allowed for the amount shown as an amortisation cost in the company’s accounts or as 4% of the cost per year on a straight-line basis.
Pro advice. If you have a client that created or purchased goodwill between 1 April 2002 and 8 July 2015, but hasn’t yet claimed a deduction, a claim can still be made in the usual way, i.e. by entering it on the corporation tax (CT) return. If it’s too late to do this you can make a claim using the overpayment relief procedure (see Follow up ).
New relief
The loss of relief for CT purposes was criticised heavily, as it appeared to have the hallmarks of an overreaction that punished ordinary companies.
As a result, a new form of relief was introduced as part of Finance Act 2019 (see Follow up ). The relevant legislation is at Schedule 9. The new relief is in the form of a fixed rate writing down allowance for goodwill (and other customer-related intangible assets) created or acquired by companies on or after 1 April 2019. Originally, following HMRC’s consultation, the proposal was to reinstate the old amortisation/4% relief but the published legislation allows for a fixed rate annual allowance of 6.5% of the cost. However, there are restrictions.
Small print
The new relief will only be available where the relevant asset is acquired as part of the purchase of a business which includes other qualifying intellectual property (IP) such as patents, registered designs, copyright, design rights and plant breeders’ rights. The relief will also be capped at six times the expenditure incurred on the qualifying IP assets.
Pro advice. Computer software licences are excluded from being qualifying IP if the licence prohibits the manufacture, adaptation or supply of the underlying software.
Older goodwill
If you have clients that are still claiming amortisation for pre-8 July 2015 goodwill they can continue to do so. The new relief is distinct and separate to that concession.
Pro advice. As an additional condition, the relevant assets must be included in the company accounts.
Further information is available from the Corporate Intangibles Research and Development manual at CIRD44060 (see Follow up ).
Advise clients that to qualify the goodwill has to be acquired as part of the acquisition of a business with qualifying intellectual property. Ensure any claim is capped at six times the cost of this intellectual property. Advise that the new relief doesn’t affect the right to claim relief for pre-8 July 2015 goodwill either.
Follow up
HMRC guidance – CIRD44060
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Finance Act 2019
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Overpayment relief guidance
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