Amortisation of intangible fixed assets
Produced in partnership with Anne Fairpo of Temple Tax Chambers
Amortisation of intangible fixed assets

The following Tax practice note Produced in partnership with Anne Fairpo of Temple Tax Chambers provides comprehensive and up to date legal information covering:

  • Amortisation of intangible fixed assets
  • Accounting treatment of the acquisition of third party generated intangible fixed assets
  • UK generally accepted accounting practice (UK GAAP)
  • International Accounting Standards (IAS)
  • Accounting treatment of internally-generated intangible fixed assets
  • UK GAAP
  • IAS
  • Tax treatment of amortisation and impairments—the general rule
  • Tax treatment of amortisation and impairments—adjustments to the general rule
  • Impairment on initial valuation
  • More...

Where a company acquires (or otherwise incurs capitalised expenditure upon) an intangible fixed asset that falls within the corporate intangible fixed asset regime (IFA regime):

  1. no capital allowances are available in respect of that intangible fixed asset (since the IFA regime is an exclusive regime), but

  2. the company will be able to claim a tax deduction for amortisation of the intangible fixed asset

The amount of the tax deduction will generally be the accounts amortisation but where there is no amortisation in the accounts, where certain reliefs are available or where the company elects for a fixed rate deduction the amount recognised for tax purposes may vary from the accounts.

Accounting treatment of the acquisition of third party generated intangible fixed assets

UK generally accepted accounting practice (UK GAAP)

Where expenditure is incurred by a company on acquiring an intangible fixed asset within the IFA regime that has an enduring benefit for the business, the expenditure will be capitalised in the company’s balance sheet.

Where accounting standards allow, the capitalised expenditure will be written down to the profit and loss account over a period of time through amortisation. That period of time is the useful economic life of the asset, estimated on acquisition.

For example, if a company acquires a patent for £100,000 with a useful economic life of 20 years, it will be entitled to a deduction

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