Fungible goodwill, 2002 and all that

Fungible goodwill, 2002 and all that

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We have a partnership which commenced prior to 2002 which incorporated in 2010 and sold its goodwill and intellectual property rights to the company.  The intellectual property subject to these rights were developed wholly after 2002.  The business has only ever conducted one continuous trade.

Has anyone in like circumstances managed to have part of this goodwill treated as a "new-style" intangible asset on which the amortisation can be claimed as a deduction against trading profits in the company?

I am aware of the general resistance to this by HMRC, but of course they are not the final arbiters, and I was wondering if there has been any movement in goalposts in recent years.

Are there important features in the paper trail that tip the issue?  Does it make a difference if there are patents on the intellectual property?

With kind regards

Clint Westwood

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Teignmouth
By Paul Scholes
15th Jul 2011 19:31

It's in the statute

Hi - In order to knock this on the head, S884 - TA 2009 states that goodwill is treated as created before 1.4.2002 if the business was carried on at any time before that date by the company or a related party.  So don't think so.

Out of interest did you go through the HMRC approval procedure (CG34 I think).  I'm just about to send one in for a similar case.

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By Anne Fairpo
20th Jul 2011 21:38

Related party issues

Assuming that this was effectively incorporation of the partnership, the connection between the partnership and the company will be what kills it for the non-goodwill IP – the intangible asset regime applies to intangible fixed assets [created before 1 April 2002] that are acquired by a company from a person who, at the time of acquisition, is not a related party in relation to the company (s882(1), CTA 2009).

Patents etc are separate intangible assets from goodwill, but unregistered trademarks etc will almost certainly be treated as part of the overall goodwill for IP law (and so for tax) purposes.  Where there is no connection between the acquiring company and the vendor, and the intangibles are separately identifiable (and so can be separately valued) from goodwill under IP law principles, then amortisation should be available on the IP intangibles.  The transaction documents should make it clear that the IP is a separate asset to the goodwill, and consideration allocated specifically to it – but talk to an IP specialist about what can and can't be distinguished from IP!

The most recent case on goodwill (Greenbank) is on a slightly different aspect, but makes it clear that HMRC are challenging attempts to get goodwill into the corporate intangibles regime where it relates to a [connected] business that existed at midnight on 31st March 2002.

Edited (edits in square brackets) with thanks to the subsequent poster, as I didn't note the distinction applying to pre-1 April 2002 assets as clearly as I could have done.

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By nogammonsinanundoubledgame
21st Jul 2011 07:51

Lest anyone reading this thread gets confused ...

... it should perhaps be pointed out that chapter 16 CTA 2009 (containing s.882) applies only in relation to goodwill that was in existence prior to 01 April 2002.  One reading the first paragraph of the foregoing post might not appreciate this.

Had there been no connection between the parties, then whether one form of IP is distinguishable from another form of goodwill would be rendered irrelevant.  The fact that the transfer takes place after 31 March 2002 would bring either transaction, separately or combined, into the Intangibles regime.

With kind regards

Clint Westwood

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