Following consultation, Finance Act 2019 has reintroduced a new form of tax relief for companies acquiring goodwill and customer related intangibles, where they are acquired alongside qualifying intellectual property assets.
The tax treatment of corporate intangibles has changed a number of times in recent years. Most notably, since July 2015, there has been no corporation tax relief available for amortisation on goodwill or other customer related intangibles.
Changes with effect from 1 April 2019
Companies will be delighted to hear that, on or after 1 April 2019, where relevant assets are acquired as part of a business acquisition, the company will be treated as having made an irrevocable election to write down the costs of these assets at a fixed rate of 6.5% per annum.
This relief will be partially restricted if the amount of the company’s expenditure on qualifying intellectual property, multiplied by six, is less than its expenditure on the relevant assets acquired.
Goodwill and customer related intangibles acquired prior to 1 April 2019 will continue to be subject to the prevailing tax treatment at the time of acquisition.
Calculation of the deduction
As mentioned above, relief is restricted when the expenditure on qualifying IP multiplied by 6 is less than the expenditure on relevant assets (see definition below)
Cost of relevant assets: £9,000,000
Qualifying intellectual property expenditure: £1,000,000
Formula: £1,000,000 x 6 = 6,000,000 i.e 2
This means that only 2/3rd of the company’s expenditure on relevant assets will be eligible for tax relief at a rate of 6.5% per annum.
- a patent,
- registered design,
- design right,
- plant breeders’ rights; or
- a licence which was not acquired prior to April 2002.
- goodwill; and
- customer related intangibles (e.g. customer information, customer relationships, unregistered trademarks, licences).
Companies who have acquired intangibles should check which regime is applicable and whether a deduction is available.
Companies planning on acquiring intangibles should seek further advice in order to maximise future deductions.