The Finance Act 2019 created relief for intangible assets including goodwill. The new relief applies to qualifying expenditure incurred on or after 1 April 2019. Will your clients qualify if they acquired the asset prior to this?
Recap - relief lost for goodwill
Rule changes made in December 2014 and July 2015 saw tax relief for companies on the cost of goodwill attacked twice. The first change blocked relief for goodwill where it was internally generated, i.e. built up by the business rather than purchased from someone else, but only if it was transferred (sold) to the company by someone related to it. The second change scrapped all relief for goodwill with effect from 8th July 2015.
Relief still available
Companies that purchased or created goodwill between 1st April 2002 and 8th July 2015 were entitled to continue to claim relief under the old rules until the value of the goodwill in question was entirely written off.
Relief is allowed for the amount shown as an amortisation cost in the company's accounts or, as an alternative, 4% of the cost per year on a straight-line basis.
Tip - If a client's company created or purchased goodwill between 1st April 2002 and 8th July 2015, but hasn't yet claimed a deduction, a claim can still be made in the usual way, i.e. by entering it on the corporation tax (CT) return. If it's too late to do this you can make a claim using the over-payment relief procedure.
A change of heart
The loss of CT relief for goodwill was widely condemned and smacked of HMRC paranoia over tax avoidance rather than sensible fiscal policy. Therefore, following outside pressure it wasn't long before CT relief for goodwill was back on the table. Following a consultation in early 2018, the Budget included a measure to reintroduce it and became law in the Finance Act 2019.
The new goodwill relief
The new relief is given as a fixed rate writing down allowance for goodwill (and other customer-related intangible assets) created or acquired by companies on or after 1st April 2019.
Originally, following HMRC's consultation, the proposal was to reinstate the old amortisation 4% relief. However, the legislation allows for a fixed rate annual allowance of 6.5% of the cost subject to conditions.
Conditions and small print
The new relief is only available where the asset is acquired as part of the purchase of a business which includes other qualifying intellectual property (IP) such as patents, registered designs, copyright, design rights and plant breeders' rights. The relief is also capped at six times the expenditure incurred on the qualifying IP assets.
Old and new
The new relief only applies to goodwill acquired on or after 1st April 2019. Therefore, if you're claiming relief for goodwill acquired under the pre-2014 and 2015 changes, you can continue to do so. But if you weren't entitled to relief, this won't change because of the new rules.