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Intellectual Property Know How

Intellectual Property Know How


I have come across an Accountant advising that an amount can be claimed on setting up a company for intellectual property. More specifically "Know How" based on knowledge obtained whilst the director and shareholder was in employment prior to setting up their own company. The value considered looks to be 2/3rds of the salary earned whilst in employment.

The director has never been self employed and therefore has nothing I believe that would attract any goodwill. In my opinion I can not see how a payment by the Company for this "know how" can be justified as a capital payment. Would this be the general consensus or am I missing something?



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10th Dec 2012 15:10

Seems unlikely

This sounds unlikely to succeed if challenged by HMRC, or possibly to cost more than intended - know-how is intended to be something like industrial trade secrets, not just generic business knowledge.  A purchase of genuine know-how by a company is a capital transaction which can be amortised (assuming it meets the post-1 April 2002 criteria), but it does have to be 'real' know-how. 

The value in know-how derives from the legal protection which is given to trade secrets in general law - if there is valuable know-how transferred by an individual that was obtained in that individual's employment, there's a fairly good chance that using it will get someone sued. This may be on the employment contract etc - but IP protection is wider than a non-compete clause, particularly if it's clear that the employer intended the information to be kept secret. If the employer didn't clearly intend that, it could be argued that there's no value to the know-how. 

But all that depends on there actually being valuable know-how - it can't be just assumed to exist as a result of any employment!

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10th Dec 2012 15:23

We generally amortise...

... life experiences over a period of twenty years.

We think they last longer, but accounting standards and all that!

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10th Dec 2012 17:41

Know How

Thank you for your comments. What type of valuation do you put on the life experiences? Do you treat this as capital income on the director/shareholder? Have HMRC not queried it?

It seems strange that an additional capital payment can be made for this type of intellectual property when I would have thought that an individual’s expertise / knowledge is what you are paying a salary for?


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