Corporation Tax Bill

House of Commons

Session 2008 - 09
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 1 — Introduction
346

(g)
Chapter 17 (insurance companies).
Basic definitions
712
“Intangible asset”
(1)
In this Part “intangible asset” has the meaning it has for accounting purposes.
(2)
In particular, “intangible asset” includes intellectual property.
5
(3)
For this purpose “intellectual property” means—
(a)
any patent, trade mark, registered design, copyright or design right,
plant breeders’ rights or rights under section 7 of the Plant Varieties Act
1997 (c. 66),
(b)
any right under the law of a country or territory outside the United
10
Kingdom corresponding or similar to a right within paragraph (a),
(c)
any information or technique not protected by a right within paragraph
(a) or (b) but having industrial, commercial or other economic value, or
(d)
any licence or other right in respect of anything within paragraph (a),
(b) or (c).
15
(4)
This section is subject to Chapter 10 (excluded assets).
713
“Intangible fixed asset”
(1)
In this Part an “intangible fixed asset”, in relation to a company, means an
intangible asset acquired or created by the company for use on a continuing
basis in the course of the company’s activities.
20
(2)
In this Part “intangible fixed asset” includes an option or other right—
(a)
to acquire an intangible asset that would be a fixed asset if it were
acquired, or
(b)
to dispose of an intangible fixed asset.
(3)
This Part applies to an intangible fixed asset whether or not it is capitalised in
25
the company's accounts.
(4)
Subsection (3) is subject to any indication to the contrary.
(5)
This section is subject to any such provision of regulations under section 854
(finance leasing etc) as is mentioned in section 855(1) (assets to be treated as
intangible fixed assets of finance lessor).
30
714
“Royalty”
In this Part “royalty” means a royalty in respect of the enjoyment or exercise of
rights that constitute an intangible fixed asset.
Goodwill
715
Application of this Part to goodwill
35
(1)
This Part applies to goodwill as it applies to an intangible fixed asset.
(2)
Subsection (1) is subject to any indication to the contrary.

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 1 — Introduction
347

(3)
In this Part “goodwill” has the meaning it has for accounting purposes.
Accounting rules and definitions
716
“Recognised” amounts and “GAAP-compliant accounts”
(1)
References in this Part to an amount “recognised” in determining a company’s
profit or loss for a period are to—
5
(a)
an amount recognised in—
(i)
the company’s profit and loss account, income statement or
statement of comprehensive income for that period,
(ii)
the company’s statement of total recognised gains and losses,
statement of recognised income and expense, statement of
10
changes in equity or statement of income and retained earnings
for that period, or
(iii)
any other statement of items brought into account in calculating
the company’s profits and losses for that period, and
(b)
an amount that would have been so recognised if such an account or
15
statement had been drawn up for that period in accordance with
generally accepted accounting practice.
(2)
An amount that in accordance with generally accepted accounting practice is
shown as a prior period adjustment in any such statement as is mentioned in
subsection (1) must be brought into account for the purposes of this Part in
20
calculating the company’s profits and losses for the period to which the
statement relates.
(3)
Subsection (2) does not apply to an amount recognised for accounting
purposes by way of correction of a fundamental error.
(4)
In this Part “GAAP-compliant accounts” means accounts drawn up in
25
accordance with generally accepted accounting practice.
(5)
In the case of a company that is a member of a group, see also section 718.
717
Companies without GAAP-compliant accounts
(1)
If a company—
(a)
draws up accounts that are not GAAP-compliant accounts, or
30
(b)
does not draw up accounts at all,

this Part applies as if GAAP-compliant accounts had been drawn up.
(2)
References in this Part to amounts recognised for accounting purposes are
references to the amounts which would have been recognised if GAAP-
compliant accounts had been drawn up for the period of account in question
35
and any relevant earlier period.
(3)
For this purpose a period of account is relevant to a later period if the accounts
for the later period rely to any extent on amounts derived from the earlier
period.
718
GAAP-compliant accounts: reference to consolidated group accounts
40
(1)
In determining whether a company’s accounts are GAAP-compliant, reference
may be made to any view about—

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 2 — Credits in respect of intangible fixed assets
348

(a)
the useful life of an asset, or
(b)
the economic value of an asset,

taken for the purposes of consolidated group accounts prepared for any group
of companies of which the company is a member.
(2)
This section does not apply if the consolidated group accounts—
5
(a)
are drawn up using a different accounting framework from that used
for the company’s individual accounts, and
(b)
as a result are prepared on a basis that, in relation to the matters
mentioned in subsection (1), substantially diverges from the basis used
in the company’s individual accounts.
10
(3)
This section does not apply so far as the consolidated group accounts are
prepared—
(a)
in accordance with the requirements of the law of a country outside the
United Kingdom, and
(b)
on a basis that, in relation to the matters mentioned in subsection (1),
15
substantially diverges from generally accepted accounting practice.
719
Accounting value
In this Part “accounting value”, in relation to an asset, means the net book value
(or carrying amount) of the asset recognised for accounting purposes.
Chapter 2
20
Credits in respect of intangible fixed assets
720
Introduction
(1)
This Chapter provides for credits to be brought into account by a company for
tax purposes in respect of—
(a)
receipts in respect of intangible fixed assets that are recognised in
25
determining the company’s profit or loss as they accrue (see section
721),
(b)
receipts in respect of royalties, so far as the receipts do not give rise to
a credit under section 721 (see section 722),
(c)
revaluation of an intangible fixed asset (see section 723),
30
(d)
credits recognised for accounting purposes in respect of negative
goodwill (see section 724), and
(e)
the reversal of previous accounting debits in respect of an intangible
fixed asset (see section 725).
(2)
This Chapter does not apply in relation to amounts brought into account in
35
connection with the realisation of an intangible fixed asset within the meaning
of Chapter 4 (see section 734).
(3)
For the rules about those amounts, see that Chapter.
721
Receipts recognised as they accrue
(1)
If in a period of account a gain representing a receipt in respect of an intangible
40
fixed asset is recognised in determining the company’s profit or loss, a
corresponding credit must be brought into account for tax purposes.

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 2 — Credits in respect of intangible fixed assets
349

(2)
The amount of the credit is the same as the amount of the gain recognised by
the company for accounting purposes.
(3)
Subsection (2) is subject to any adjustments required by this Part or Schedule
28AA to ICTA (provision not at arm’s length).
722
Receipts in respect of royalties so far as not dealt with under section 721
5
(1)
So far as a receipt in respect of any royalty does not give rise to a credit under
section 721 in the period of account in which it is received or in a subsequent
period of account, a credit must be brought into account for tax purposes.
(2)
The credit must be brought into account in the accounting period in which the
receipt is recognised for accounting purposes.
10
(3)
The amount of the credit is equal to so much of the amount of the receipt as
does not give rise to a credit under section 721.
723
Revaluation
(1)
If in a period of account there is an increase in the accounting value of an
intangible fixed asset on a revaluation, a credit must be brought into account
15
for tax purposes.
(2)
The amount of the credit is the lesser of—
(a)
the amount corresponding for tax purposes to the increase (see
subsection (3)), and
(b)
the net total of relevant previous tax debits (see subsection (4)).
20
(3)
The amount corresponding for tax purposes to the increase is—

where—
I is the increase,
WDV is the tax written-down value of the asset immediately before the
revaluation, and
25
AV is the accounting value of the asset by reference to which the
revaluation is carried out.
(4)
The net total of relevant previous tax debits is—

where—
D is the total debits previously brought into account for tax purposes in
30
respect of the asset, and
C is the total credits so brought into account.
(5)
For the purposes of this section “revaluation” includes—
(a)
the valuation of an asset for which a value is shown in the company’s
balance sheet, but which has not previously been the subject of a
35
valuation, and
(b)
the restoration of past losses.

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 3 — Debits in respect of intangible fixed assets
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(6)
This section does not apply to an asset in respect of which an election has been
made under section 730 (writing down at fixed rate: election for fixed-rate
basis).
724
Negative goodwill
(1)
If in a period of account a gain is recognised in determining the company’s
5
profit or loss in respect of negative goodwill arising on an acquisition of a
business, a corresponding credit must be brought into account for tax
purposes.
(2)
The amount of the credit is so much of the gain recognised for accounting
purposes as, on a just and reasonable apportionment, is attributable to
10
intangible fixed assets.
725
Reversal of previous accounting loss
(1)
This section applies if—
(a)
in a period of account a gain is recognised in determining the
company’s profit or loss (“the recognised gain”),
15
(b)
the gain wholly or partly reverses a loss recognised in a previous period
of account (“the reversed loss”), and
(c)
a debit was brought into account for tax purposes under Chapter 3
(debits in respect of intangible fixed assets) in respect of that loss (“the
tax debit”).
20
(2)
A corresponding credit must be brought into account for tax purposes.
(3)
The amount of the credit is—

where—
RG is the recognised gain,
D is the tax debit, and
25
RL is the reversed loss.
(4)
This section does not apply to a gain on a revaluation within the meaning of
section 723 (see subsection (5) of that section).
Chapter 3
Debits in respect of intangible fixed assets
30
726
Introduction
(1)
This Chapter provides for debits to be brought into account by a company for
tax purposes in respect of—
(a)
expenditure on an intangible fixed asset that is written off for
accounting purposes as it is incurred (see section 728),
35
(b)
writing down the capitalised cost of an intangible fixed asset—
(i)
on an accounting basis (see section 729), or
(ii)
on a fixed-rate basis (see sections 730 and 731), and

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 3 — Debits in respect of intangible fixed assets
351

(c)
the reversal of a previous accounting gain in respect of an intangible
fixed asset (see section 732).
(2)
This Chapter does not apply in relation to amounts brought into account in
connection with the realisation of an intangible fixed asset within the meaning
of Chapter 4 (see section 734).
5
(3)
For the rules about those amounts, see that Chapter.
727
References to expenditure on an asset
(1)
References in this Part to expenditure on an asset are to any expenditure
(including abortive expenditure)—
(a)
for the purpose of acquiring or creating, or establishing title to, the
10
asset,
(b)
by way of royalty in respect of the use of the asset, or
(c)
for the purpose of maintaining, preserving or enhancing, or defending
title to, the asset.
(2)
No account may be taken of capital expenditure on tangible assets in
15
determining for the purposes of this Part the amount of expenditure on an
intangible asset.
(3)
In subsection (2) “capital expenditure” has the same meaning as in CAA 2001.
(4)
If expenditure is incurred partly as mentioned in subsection (1) or (2) and
partly otherwise, any necessary apportionment must be made on a just and
20
reasonable basis.
728
Expenditure written off as it is incurred
(1)
If in a period of account expenditure on an intangible fixed asset is recognised
in determining a company’s profit or loss, a corresponding debit must be
brought into account for tax purposes.
25
(2)
The amount of the debit recognised for tax purposes is the same as the amount
of the loss recognised by the company for accounting purposes.
(3)
Subsection (2) is subject to any adjustments required by this Part or Schedule
28AA to ICTA (provision not at arm’s length).
(4)
This section does not apply if the loss represents previously capitalised
30
expenditure.
(5)
Nothing in section 59 (patent royalties) prevents a debit from being brought
into account in accordance with this section, and so given effect under Chapter
6 of this Part.
729
Writing down on accounting basis
35
(1)
If in a period of account a loss is recognised in determining a company’s profit
or loss in respect of capitalised expenditure on an intangible fixed asset—
(a)
by way of amortisation, or
(b)
as a result of an impairment review,

a corresponding debit must be brought into account for tax purposes.
40

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 3 — Debits in respect of intangible fixed assets
352

(2)
The reference in subsection (1) to an “impairment review” does not include the
valuation of an asset for the purpose of determining the amount of expenditure
to be capitalised in the first place.
(3)
In the period of account in which expenditure on an asset is capitalised the
amount of the debit for tax purposes in respect of the expenditure is—
5

where—
L is the amount of the loss recognised for accounting purposes,
E is the amount of expenditure on the asset that is recognised for tax
purposes, and
CE is the amount capitalised in respect of expenditure on the asset.
10
(4)
For the purposes of subsection (3), subject to any adjustments required by this
Part or Schedule 28AA to ICTA (provision not at arm’s length), the amount of
expenditure on the asset that is recognised for tax purposes is the same as the
amount of expenditure on the asset capitalised by the company.
(5)
In a subsequent period of account the amount of the debit for tax purposes in
15
respect of the expenditure on an asset is—

where—
L is the amount of the loss recognised for accounting purposes,
WDV is the tax written-down value of the asset (see section 742)
immediately before the amortisation charge is made or, as the case may
20
be, the impairment loss is recognised for accounting purposes, and
AV is the value of the asset recognised for accounting purposes
immediately before the amortisation charge or, as the case may be, the
impairment review.
(6)
In this section “capitalised” means capitalised for accounting purposes.
25
(7)
This section does not apply to an asset in respect of which an election is made
under section 730.
730
Writing down at fixed rate: election for fixed-rate basis
(1)
A company may elect to write down the cost of an intangible fixed asset for tax
purposes at a fixed rate.
30
(2)
The election may be made whether or not the asset is written down for
accounting purposes.
(3)
The election may only be made—
(a)
in writing,
(b)
to an officer of Revenue and Customs, and
35
(c)
not later than 2 years after the end of the accounting period in which the
asset is created or acquired by the company.
(4)
The election applies to all expenditure on the asset that is capitalised for
accounting purposes.