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Q: Can capital allowances be claimed on the purchase software rights?

Q: A limited company has bought some software rights. Can it claim capital allowances on these?

A: Expenditure on computer software (which includes website costs) is an intangible fixed asset so the tax treatment for the company initially follows the accounting treatment. However, as relief is available more quickly under capital allowances rules (i.e. if 100% AIA is claimed), HMRC allow companies to elect out of the intangibles rules and into capital allowances. The election is made under s815(1) CTA 2009 within 2 years of the end of the accounting period in which the expenditure was incurred. Details of what you need to include in the election can be found at https://www.gov.uk/hmrc-internal-manuals/corporate-intangibles-research-and-development-manual/cird25180.

On a disposal of the asset, the capital allowances disposal proceeds are limited to the original cost. Any amount over that is still taxed as an intangible fixed asset receipt. https://www.gov.uk/hmrc-internal-manuals/corporate-intangibles-research-and-development-manual/cird25190 has more details on the tax treatment on disposal.