Understanding the corporation tax treatment of goodwill and other customer-related intangibles is essential when preparing accounts and tax computations. The UK rules have been revised several times since 2002, so the date of acquisition determines what relief (if any) is available.

General Rules for IFAs

Under CTA 2009, ss.721–728, income and expenses relating to intangible fixed assets (IFAs) — such as royalty receipts or payments for patents and copyrights — are brought into account for tax purposes when they are recognised under GAAP in determining the company’s profit or loss.

Key points:

• Trading vs non-trading: Whether IFA credits/debits are treated as trading depends on whether the assets are used for trade purposes.
• Deductions: For most IFAs, a company can either:
  • Deduct the amortisation/impairment charged in the accounts, or
  • Elect for a 4% straight-line deduction per annum on cost.

These rules are significantly modified for goodwill and customer-related intangibles.

Tax Treatment of Goodwill

The treatment of goodwill and customer-related intangibles has changed several times in recent years. The rules currently depend on when the goodwill was acquired or created:

1. Acquired before 1 April 2002

• Gains and losses are subject to capital gains rules.
• No corporation tax deduction for amortisation/impairment.

2. Acquired between 1 April 2002 and 7 July 2015

• Treated as an IFA under and companies may:
  • Deduct the amortisation/impairment charged in the accounts, or
  • Elect to claim 4% straight-line relief per annum on cost.

This was the most favourable regime for corporation tax relief on goodwill.

3. Acquired between 8 July 2015 and 31 March 2019

• No corporation tax relief is available for amortisation or impairment of goodwill or customer-related intangibles.
• Debits on disposal of such assets are treated as non-trading debits, which limits the ways they can be offset.
• Credits (gains) are taxed as trading or non-trading income, depending on how the asset is used.

4. Acquired from 1 April 2019 onwards

• Tax relief is restored, but only where goodwill is acquired as part of the acquisition of a business in which qualifying intellectual property (IP) is also acquired.
• The allowable deduction is:
  • 6.5% of cost per annum (pro-rated for short periods)
  • Cost cap: deduction is limited to six times the value of the qualifying IP acquired.
• If no qualifying IP is acquired, no deduction is available.

5. Qualifying IP includes:

• Patents
• Registered designs
• Copyrights and design rights

Connected Party Acquisitions

Where goodwill is acquired from a connected party:

• If the transferor acquired pre-1 April 2002, the asset remains outside CTA 2009, Part 8 and no corporation tax deduction for amortisation is available.
• If the transferor acquired within the Part 8 regime, the transferee inherits the transferor’s tax written down value and continues Part 8 treatment.

Summary Table

Speak to an Expert

Tax relief on goodwill and other intangible fixed assets can be complex, particularly given the different rules depending on acquisition dates, types of assets, and whether qualifying intellectual property is involved. Companies considering business acquisitions, preparing accounts, or planning amortisation strategies should seek advice from a qualified tax professional.

Our team can help assess your specific circumstances, determine which assets qualify, and advise on the correct treatment in your corporation tax computations. Contact us today to discuss your situation and ensure you are maximising any available relief while remaining fully compliant.