Intangible fixed asset regime
The measure
Legislation will be introduced in Finance Bill 2009 to specifically support HMRC's long-held view that, for the purposes of the intangible fixed asset rules, goodwill includes internally-generated goodwill. Further, it will confirm that goodwill of a business which commenced before 1 April 2002 is excluded from the regime unless and until the business is acquired by an unrelated party.
The legislation will also confirm that for the purposes of the regime, all goodwill is treated as created in the course of carrying on the business in question.
The legislation will confirm HMRC's current view that debits in respect of goodwill are not deductible where a business, which commenced before 1 April 2002, has been acquired from a related party before 22 April 2009, for example, through an intra-group transfer.
The announcement also stated that some amendments will be made to the definition of intangible assets and to the rules determining whether assets representing non-qualifying expenditure are treated as being created before or after 1 April 2002.
Who will be affected?
Companies applying the corporate intangible regime to goodwill or other internally generated assets.
When?
The legislation will have effect on or after 22 April 2009 and be treated as having always had effect.
There has been much debate with HMRC about the application of the rules relating to intangible fixed assets to goodwill. In particular the accounting treatment that only permits purchased goodwill to be recognised on the balance sheet (and not internally generated) has spawned controversy about when and whether goodwill has been 'created' in acquisition situations.
The steps taken in the Budget strengthen HMRC's hand in this debate by legislating their view of the existing law. The precise details of the change will not be known until publication of the draft legislation.
The unspecified changes to the definition of an intangible asset, and to the rules relating to whether an asset such as a brand or trademark is deemed to fall within the rules giving tax relief are rather ominous given the retrospective aspect of the proposed legislation.
