In Armstrong & Haire Ltd v HMRC [2020] TC7780, the First Tier Tribunal (FTT) refused a Corporation Tax deduction for goodwill amortisation. The pre-incorporation businesses had been carried on before April 2002.
No tax deduction is available for the cost of purchased Goodwill acquired from a related sole trader or partnership on or after 1 April 2002 when the goodwill already existed at that date.
Goodwill is treated as being created.
The appellant acquired the assets on the Incorporation of two dentistry businesses on 1 December 2010.
- The predecessor businesses had been carried on separately since 1996 by two Self-employed Dentists operating from the same site with shared overhead costs.
- The dentists owned the new company equally and both were directors.
- The company accounts for the period ended 30 November 2011 recognised goodwill as an intangible fixed asset to be written off over a five-year period. A tax deduction was claimed for the amortisation for the 2011, 2012 and 2013 accounting periods.
- HMRC disallowed the deductions for goodwill amortisation on the grounds that the goodwill was acquired from related parties that carried on the same business prior to 1 April 2002.
- A Closure Notice was issued for 2013 with consequential amendments for 2012 and 2013.
- The consequential amendments were withdrawn by HMRC following a Statutory Review and a Discovery Assessment issued for 2012.
- The company Appealed to the FTT.
The FTT firstly considered whether a tax deduction was available for the goodwill under the corporate intangibles regime, it agreed it was not.
- When considering when ‘the business in question’ was carried on, this must be the acquired business and not the business carried on by the company. Goodwill cannot be acquired independently from the business in which it was created.
- On that basis, there was no need to consider whether the business carried on by the company should be regarded as a new business or a continuation of the two businesses acquired.
On the question of a valid discovery had been made:
- The inclusion of the date of commencement of the businesses in the shareholders’ tax returns was not information provided to a hypothetical officer of HMRC. It was not contained in any relevant return, claim, accounts, statement or accompanying documents made or provided by the company.
- The discovery was not stale, 15 months had passed between the discovery and the date the assessment was issued.
- The discovery was valid.
The appeal was dismissed.
Links
Goodwill and the intangibles regime
How does the Corporation Tax intangible regime work? What is the treatment of goodwill for Corporation Tax? Do companies account for goodwill differently?
Goodwill & Tax: Changes under the new UK GAAP, FRS102
Companies can obtain a tax deduction for qualifying goodwill purchased in the period commencing on or after 1 April 2002 and ending before 8 July 2015.
Valuation: Goodwill
What valuation methods are suitable for valuing a business? What are the issues with goodwill and other intangibles? What does HMRC suggest? What do the courts think?
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