In Ripe Limited v HMRC [2025] TC09735, the First Tier Tribunal (FTT) found that acquiring a client list and related data was correctly treated as an Intangible Fixed Asset (IFA) eligible for amortisation deductions. This was despite the absence of written documentation and the fact that the asset was held in a different entity from the one utilising it.
On 24 April 2007, the taxpayer, Ripe Limited, was incorporated. The two directors, Mr and Mrs Glazer, also incorporated a Limited Liability Partnership (LLP) on 19 April 2007, with themselves as members. The LLP was established to operate as an accountancy business.
- On 31 May 2007, the two directors retired from another accountancy firm of which Mr Glazer was an equity partner. Notice of Mr Glazer's intended retirement was given on 8 June 2006.
- As part of his exit terms, Mr Glazer had proposed that he take his portfolio of clients with him.
- The terms of the exit became a source of dispute, and this was ultimately referred to the Institute of Chartered Accountants in England and Wales (ICAEW) for arbitration.
- On 31 May 2007, the retirement terms were settled by the arbitrator. Mr Glazer could take clients with him, but had to pay for the client list and data.
- Although the partnership agreement contained a restrictive covenant, the arbitrator considered it to be poorly drafted and difficult to enforce in court.
- A settlement agreement was eventually signed on 23 June 2010. It included a clause that prohibited any party from assigning any rights under it.
- The previous firm transferred the files and data of the relevant clients to Ripe Limited, and the LLP commenced trading on 1 June 2007.
- Mr Glazer sold the Intangible Fixed Asset (IFA) to Ripe Limited via a credit to his Director's loan account.
- The LLP serviced the clients and made payments to Ripe Limited for using the IFA.
- On 1 September 2007, another accountant joined the LLP but did not become a director or shareholder of Ripe Limited.
- The agreement ring-fenced the respective client portfolios.
- The new accountant subsequently resigned from the LLP (on 31 May 2008).
- In the 30 April 2008 accounts, Ripe Limited's balance sheet showed an IFA and an amortisation charge. The accounts described the IFA as 'goodwill' and continued to do so until 2018.
- Tax relief was claimed on the amortisation cost each year.
- On 1 April 2009, Ripe Limited became a member of the LLP and began receiving a profit share (instead of fees).
- On 10 January 2018, HMRC opened an enquiry into Ripe Limited's 30 April 2016 return.
- HMRC concluded that amortisation relief had been incorrectly claimed. Assessments for the four years 2012 to 2015, and closure notices for the years 2016 and 2017 were issued.
- HMRC considered that:
- The payment was compensation for breach of a restrictive covenant, not for a licence to use the client list.
- There was a lack of written evidence for a grant of a licence to Mr Glazer, and no evidence that Ripe Limited acquired it or could acquire it. They noted the settlement agreement, which prohibited Mr Glazer from assigning any rights.
- If there was a licence, Ripe Limited did not have control over the expected future benefits from the licence.
- Ripe Limited Appealed to the First Tier Tribunal (FTT).
The FTT found that:
- The asset met the definition of an IFA as described by the Financial Reporting Standard for Smaller Entities (FRSSE), and the amortisation deductions were correct.
- The IFA was accounted for correctly despite being misdescribed as 'goodwill' in the accounts.
- A licence was created and then transferred to Ripe Limited. A written document was not required to evidence that.
- Ripe Limited's payment, albeit via a director's loan, demonstrated the acquisition.
- It was reasonable for the asset to be held by Ripe Limited rather than the LLP because the directors were concerned about ring-fencing clients.
- Providing permission to the LLP in exchange for a fee (and later a profit share), even though it was not documented, demonstrated sufficient control over the asset.
- The clause in the settlement agreement was irrelevant because the acquisition and exploitation of the asset had already occurred. An agreement made years later could not change that.
- The payment was compensation to the previous firm for losing the business of those clients who would transfer to the LLP. It was not based specifically on the restrictive covenant.
- The payment had been based on the average fee income that would be lost.
- The arbitrator's doubts about the enforceability of the restrictive covenant also suggested the payment was not linked to the covenant.
- HMRC were outside the standard four-year time limit to issue assessments for 2012 and 2013.
- These would only been within the six-year time limit permitted by a discovery if the loss of tax had resulted from Ripe Limited's Careless behaviour. The FTT did not consider that Ripe Limited had been careless.
The appeal was allowed.
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