SEPTEMBER 2015 - Goodwill Hunting - No More
Following the summer budget, legislation has been introduced which results in the amortisation of goodwill no longer being an allowable deduction in the corporation tax computation. This follows on from the removal of the corporation tax deduction for goodwill on the incorporation of a business effective from December 2014.
The original legislation allowing a deduction for amortisation was introduced in the Finance Act 2002. Companies which acquired goodwill after 1 April 2002 were able to claim a CT deduction for the amortisation or impairment of that goodwill. However the chancellor has announced that as of 8 July 2015, no deduction will be allowed for goodwill amortisation or impairment.
It is important to note that the changes only apply to goodwill acquired on or after 8 July 2015, unless there was an unconditional obligation to purchase before that date. The regime is unchanged for purchased goodwill post 1 April 2002 and for businesses which are currently claiming a deduction for goodwill amortisation nothing will change.
Any acquisitions post 8 July 2015 will require to be distinguished to ensure a deduction is only claimed for amortisation in respect of the earlier acquired goodwill.
The new legislation is introduced in Cl 32 of the summer Finance Bill which was published on 15 July 2015. It provides for the inclusion of a new section 816A into CTA 2009 and refers to a “relevant asset”.
A “relevant asset” is defined as:
b) an intangible fixed asset that consists of information which relates to customers or potential customers of a business,
c) an intangible fixed asset that consists of a relationship (whether contractual or not) between a person carrying on a business and one or more customers of that business,
d) an unregistered trade mark or other sign used in the course of a business, or
e) a licence or other right in respect of an asset within any of paragraphs (a) to (d).
From the above, the removal of the relief isn’t restricted just to goodwill. However in practice these other categories would likely be treated as goodwill in any event.
Upon disposal or realisation of goodwill acquired post 8 July 2015, any loss or debit arising is to be treated as a non-trading debit meaning that whilst it is available for offset against total profits of the accounting period in which it arises, it can only be carried forward and used against non-trading profits of future accounting periods.
The new legislation only affects the “relevant assets” as noted above. The position is unchanged for other intangible assets.