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bigduckontax
bigduckontax, Accountant
Category: Tax
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can you amortise goodwill purchased from an overseas group

Customer Question

can you amortise goodwill purchased from an overseas group company and claim a corporation tax deduction for this

Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question. Yes, you can, but there are strict limits.
Taxamortisation.com has the following advice:
'For every intangible asset, companies in the UK can decide[2] between:
deducting the amount amortised in their accounts as long as their treatment is in accordance with GAAP, or
applying a fixed rate deduction of 4% regardless of its accounting treatment. This option might be of interest in case of assets that have a very long useful lifetime or are not amortised in the accounts.
In basic terms, yes, at 4% per annum. I do hope this helps.
Use of GAAP method requires the prior pproval of HMRC whilst the 4% method is always acceptable.'
Customer: replied 2 years ago.

Hi - many thanks for your reply

My understanding is that transfers of goodwill between group companies are tax neutral and the company buying would inherit the base cost from the other group company so when an overseas parent company in the same group sells goodwill to the other UK group company, then it is still fine to amortise the intangible at 4% of cost and take a corporation tax deduction for it?? - so are you saying in this instance the goodwill is whatever it was purchased for even though the purchaser is a related party and within an overall group?

This company has been amortising at 4% for two years, but has never claimed a tax deduction - what is the position relating to the amount they have not claimed in previous years?

Expert:  bigduckontax replied 2 years ago.
To claim contact HMRC and revise the company's Corporation Tax returns for the relevant periods. This may be possible on line, but don't count on it.
I do not dispute that the transfer of goodwill between group companies is tax neutral, but once the goodwill is amortised then 4% per annum is allowable against Corporation Tax.
Please be so kind as to rate me before you leave the Just Answer site.
Customer: replied 2 years ago.

Many thanks - one final point to clarify -- is this only relevant if the goodwill was created after 2002?

thanks again for your help I will most certainly rate you

Expert:  bigduckontax replied 2 years ago.
Here is the view of krwaccountants [Chartered Accountants and Tax Advisers]:
'However, no Corporation Tax relief is permitted for the amortisation of any goodwill that is purchased from a related party if that goodwill existed prior to April 2002. As a result if your company buys a business from a related party that commenced trading prior to April 2002 then no Corporation Tax relief will be given on the goodwill amortisation, even if it can be demonstrated that the majority of the current goodwill value has been generated since that date.'
Thus if this is pre 2002 goodwill then the rules I explained in my original answer do not apply.
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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