In Rajendrakumar Patel v HMRC [2018] T6735 the FTT granted an application for a closure notice. A self assessment enquiry into goodwill and licence fees had drifted on aimlessly and HMRC acknowledged that they were not able to raise an assessment on the taxpayer under review. 

  • The taxpayer was an accountant who had built up a successful practice and then incorporated it.
  • He charged his new accountancy practice company. Ashley King Ltd (AK) a fee paid under the terms of a license for the use of the practice name, business contacts and web domains. He claimed that he owned these assets separately.
  • He declared the licence fees as income for Self Assessment.
  • HMRC enquiry opened an enquiry into his Self Assessment return in November 2016 it was limited to three aspects, the remittance basis change, critical illness payments and licence fees.
  • HMRC was unsure about the tax aspects of the licence fees, these became the sticking point and were the subject of the appeal.
  • HMRC's specialists at Share and Asset valuation told the taxpayer that “goodwill can only exist in relation to a trade and since the trade was carried on by AK, the licence could not have been effective. Guidance was to be found in the CG Manual and in the case referred to there of IRC v Muller (sic) Margarine. The specialist suggested that the fees should be taxable and subject to Class 1 NICs as employment income.
  • The officer in charge of the enquiry had continued to contacting various specialist colleagues, and by 27 April 2018 said that HMRC had not at this time come to a conclusion and needed further information, it issued a schedule 36 Information notice.

The taxpayer appealed the notice and eventually gave up with HMRC's indecision by applying to the FTT for a Closure Notice, to terminate the enquiry.

The FTT Judge Thomas found that:

  • HMRC were not alleging that the licence agreement was a sham.
  • HMRC was unable to show how the payments were not “truly” fees for licensing goodwill and other intangibles. Nor how they could show that “construing” the agreement to pay such fees could result in their being salary instead.
  • If Class 1 NICs and PAYE were payable then it was AK that would be liable to pay them and so no adjustment was required to the taxpayer's self assessment.

The FTT directed that HMRC must issue a notice to the appellant giving the conclusions of their enquires into the appellant's tax returns for 2014-15 and 2015-16


  • The judge noted that SAV is still relying on the 1901 stamp duty case of Muller Margarine, and seems to be ignoring later cases on intellectual property, see Goodwill and intangibles.
  • In terms of the closure notice, it is curious that HMRC continued this enquiry when it could have enquired into the taxpayer's company and tried to assessed NICs instead.  It appears to demonstrate HMRC's own considerable technical uncertainty surrounding licence fees and it may not wish to take the risk and incur further costs.

Useful and topical guides

Goodwill & incorporation: tax issues

Goodwill & the intangibles regime: companies

PAYE & NIC & regulation 80 etc

External links

Rajendrakumar Patel v HMRC [2018] T6735

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