Out-Law News | 20 Jul 2015 | 4:11 pm | 1 min. read
From 8 July 2015 tax relief is no longer available for companies trying to write-off the cost of purchased "goodwill" and certain customer related intangible assets. Relief will still be available if the goodwill is sold, although any loss arising on the sale will be treated as a non-trading debit and, therefore, cannot be included when calculating trading losses.
The stated policy objective of removing corporation tax relief for business goodwill amortisation is to remove the "artificial incentive" to structure a business acquisition as an asset, rather than a share, purchase and bring the UK regime in line with other major economies.
Tax expert Eloise Walker of Pinsent Masons, the law firm behind Out-law.com, said that this objective "is fair enough … [but the] downside to short drafting is scope for confusion."
"First, the change doesn’t just apply to goodwill – it applies to any intangible linked to customer information or relationships, without any explanation, yet, on how those limbs are to be interpreted," said Walker. "So if you’re in outsourcing for example and have been capitalising certain customer-related transaction costs to take a deduction over time under these rules, you appear to fall foul of this change, which is well outside the scope of the stated policy objective."
Walker said that there is also confusion regarding the implementation date: "Section 816A(9) says it affects accounting periods beginning on or after 8 July: this is contradicted by section 816A(11) which pro ratas current accounting periods – it applies from 8 July full stop."
"Whilst there is grandfathering – for acquisitions pre 8 July or under unconditional contracts – the new legislation is silent on how this interacts with other provisions in the tax code," said Walker. "For example, what effect will an intra-group transfer have? In theory – none: the new section applies to the acquisition or creation of an asset and intra-group transfers explicitly are deemed not to involve an acquisition - see section 776 of the Corporation Tax Act of 2009. But the position could be clearer.”
Walker said that the drafting is "surprising" because it repeals legislation concerning the transfers of goodwill between related companies that was only introduced in the first Finance Bill of 2015.