Goodwill and other IP

By Tolley
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The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Goodwill and other IP
  • Trade and assets sale
  • Share sale
  • Companies leaving a group
  • Related parties
  • Valuations of goodwill and other IP

This document covers these rules in detail, along with the surrenderable amounts; payments; overseas companies; effective use of losses; trapped losses; maximum relief; Non-coterminous periods; company joining/leaving a group; transfer arrangements; commercial arrangements with public authorities; accelerated payments; and group relief restriction.

 

Sales or acquisitions of businesses are likely to include the transfer of intangible fixed assets (IFAs) such as goodwill and / or other intellectual property.

The accounting definition of IFAs is set out in FRS 102, s 18 and is ‘an identifiable non-monetary asset without physical substance’. IFAs have a continuing use in the company’s trade.

Goodwill is dealt within FRS 102, s 19. Goodwill is measured at cost, defined as the excess of the cost of the business over the acquirer’s interest in the net amount of identifiable assets, liabilities and contingent liabilities, measured in accordance with the rules within that section.

Goodwill may be personal, connected with the premises (for example a hotel), or associated with the brand or trade name. There are many other types of intellectual property such as patents, know-how, designs, processes and customer lists.

This guidance considers some of the relevant tax issues arising on a transaction structured either as a transfer of trade and assets, or as the sale of shares.

Trade and assets sale

For IFAs acquired from an unconnected party after 1 April 2002, companies are taxed on debits and credits in the accounts arising from those assets. However, for goodwill and customer-related intangibles acquired on or after 8 July 2015 and before 1 April 2019, tax relief has been severely curtailed, as relief is denied for any amortisation or impairment of those assets. From 1 April 2019, there is limited relief where the goodwill or customer-related asset is acquired as part of a business which includes other qualifying IP assets but these types of IP are fairly narrow. For further details, see the Goodwill and other customer-related intangible assets guidance note. This hugely reduces the attraction of a purchase of trade and assets from the perspective of the purchasing company. There is no deduction for internally generated goodwill or

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