Until the Summer Budget 2015, when you purchased a business (not it's shares) from an unrelated party you could write off the goodwill against your
corporation tax but that has now changed and you can't. Another tax relief bites the dust!
The Policy Statement reads as follows...
In accounting terms, purchased goodwill is the balancing figure between the purchase price of a business and the net value of the assets acquired. Goodwill can therefore be thought of as representing the value of a
business's reputation and customer relationships.
This measure removes the tax relief that is available when structuring a business acquisition as a business and asset purchase so that goodwill can be recognised. This advantage is not generally available to companies who purchase the shares of the target company. The
current rules allow corporation tax profits to be reduced following a merger or acquisition of business assets and can distort commercial practices and lead to manipulation and avoidance. Removing the relief brings the UK regime in line with other major economies,reduces distortion and levels the playing field for merger and acquisition transactions.
Intangibles acquired before 8 July 2015 will continue to be treated under the old rules, so a corporation tax deduction will continue to be available for amortisation of goodwill acquired before that date, and any loss on disposal will be treated as part of the company’s trading profit or loss for the year of disposal.
So what
does this mean in practice? Well its a bit like the chipping away at dividend relief. To fund the reduction in the headline rate of corporation tax the Chancellor is removing certain - less well known - tax reliefs.
And I'd be interested to know what my solicitor readers make of it. Surely the allocation of consideration will come under even more
scrutiny. Goodwill? Never!
Noel Guilford
