In Beadnall Copley Ltd v HMRC [2022] TC8508 the First Tier Tribunal (FTT) denied corporation tax deductions for the amortisation of goodwill. It had not been acquired from the sole trader’s partner prior to incorporation and was pre-2002 goodwill.

Mr Beadnall had been in partnership with Mr Copley running an estate agency since 1991.

  • Mr Copley retired in 2010 and the partnership ceased, acrimoniously.
  • Mr Beadnall continued operating as a sole trader and Incorporated the trade in 2013.
  • A deed of retirement had been signed in 2011 which referred to a transfer of partnership property, described as 50% of the market value of the business, to Mr Beadnall in return for a payment of £450,000. Partnership property was defined as including ‘goodwill which was used by the partnership for the purposes of the business’.
  • Mr Beadnall recognised £900,000 of goodwill in his company accounts treating 50% of this as pre-2002 goodwill not eligible for amortisation. He amortised the other 50% claiming a Corporation Tax deduction on the basis that it was an acquisition of Mr Copley’s goodwill.
  • HMRC issued Closure notices for five accounting periods disallowing the deductions for goodwill amortisation and Mr Beadnall Appealed

The FTT dismissed his appeal.

  • The assets of a partnership, individually and collectively, are described as partnership property. A partner has a beneficial interest in every asset of the partnership.
  • Mr Copley and Mr Beadnall had a beneficial interest in the assets of the partnership including goodwill but did not own the underlying assets (including the goodwill) prior to the dissolution of the partnership.
  • When Mr Copley retired and the Partnership was dissolved, the ownership of the goodwill did not vest in the individual partners.
    • Mr Copley’s interest remained a beneficial interest in his share of the Partnership Property. Mr Beadnall did not, therefore, acquire goodwill from Mr Copley.
    • The goodwill in question was not created after 2002, was not acquired from an unrelated party and was not otherwise acquired from a related party.

Useful guides on this topic

Goodwill & Tax: Changes under the new UK GAAP, FRS102
How is Goodwill treated under UK GAAP and FRS102? What are the tax implications?

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 & incorporation: Tax issues
What are the tax issues in respect of intangible property (IP) assets, such as goodwill, on incorporation? What tax reliefs apply if you buy and sell goodwill and IP? What are the valuation and clearance procedures?

Incorporating an existing business
How to transfer an existing sole trader's business by incorporation into a company.

External link

Beadnall Copley Ltd v HMRC [2022] TC8508

 

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