I started a thread last October which Ruddles so kindly replied to promptly. I have tried adding to the original thread thinking it might appear back at the top of the list again but it doesn't seem to have done hence the reason for a new thread. Apologies if this is the wrong way to go about this.
Company acquired a shop in 2011 including goodwill and property. They also have acquired several other shops since within the same company. The first shop is now being sold - with a loss on goodwill. Can anyone please explain the treatment of this loss - can it be written off as a P&L expense against all trading profits for all shops? Only against the shop being sold? Or only against non-trading profits? Other answers online are a bit ambiguous so hope someone can help!
I assume that the goodwill was acquired from an unconnected party and that tax relief has been claimed for amortisation (with no fixed rate election).
Whether or not amortisation has been claimed, the goodwill will have a tax written down value, which will form the basis of your tax gain/loss on disposal. Gain or loss is treated as a trade item and therefore treated as income or expense in computing trading profits/losses, ie tax should effectively follow the accounts.
Now ... there are a couple of issues still confusing me as client has asked me to double check the treatment.
If the goodwill was acquired pre-July 2015, is that alone enough to be able to claim any loss on goodwill (in my case probably around 130,000) against trading profits? Presumably there is no limit?
Reading various related websites does not make it clear - for example one says that goodwill acquired from an unrelated party "after 1 April 2002 but before 8 July 2015, disposal gives rise to trading profit and loss" - whereas another says "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" but does not differentiate between pre or post July 2015 acquired goodwill.
The HMRC "Corporation tax: restriction of CT relief for business goodwill amortisation" says "Part 8 CTA 2009 will also be amended to treat any debits arising on a realisation of a relevant asset as a non-trading debit. This is to limit how these debits can be relieved. In particular the debit will not be included in the calculation of trading losses. This amendment will apply to all disposals occurring on or after 8 July 2015 of goodwill and customer related intangible assets that are subject to the new rules" - so is a business only "subject to the new rules" if the goodwill was acquired post July 2015?
Any feedback would be much appreciated, as would a link to something that I can send to the client which explains it unambiguously!