The rules permitting tax relief for the amortisation of intangible fixed assets (IFAs) have changed many times since they were introduced into the UK corporation tax regime in 2002. ICAEW members are reminded to check the latest rules when finalising computations for their clients.
That’s one of the common errors highlighted by HMRC in its Agent Update 91.
The Tax Faculty produced a detailed TAXguide for Tax Faculty and Faculties Online members and subscribers in 2020 setting the different ways that a revenue deduction can be claimed for IFAs used by a company in a taxable business. The guide covers the restrictive changes relating to deductions for goodwill in 2014 and 2015, fixed-rate relief from 2019 and also the changes to assets acquired from related parties on or after 1 July 2020. The date that the asset was acquired will, among other factors, determine which incarnation of the rules need to be applied.
Other difficulties that HMRC highlights in its update include:
- Correctly identifying assets eligible for relief, including obtaining legal advice to properly identify legal and intellectual property rights.
- Remembering that goodwill cannot be recognised for IFA purposes if the company concerned has not acquired a business with it.
- Applying an appropriate valuation to assets acquired from related parties or apportioned between goodwill and other assets where there has been a business acquisition. HMRC recommends that companies obtain at least one professional independent valuation of all assets.
- Keeping sufficient documentary evidence of asset and business transfers in case of an enquiry. HMRC expects related parties to document transactions and agreements as if they were with an unrelated third party. Records should be kept for at least six years from the end of the financial year to which they relate.
This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.
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