Intangible assets revisited

20 April 2018

The world has changed dramatically since 2002 when the UK introduced its intangible fixed assets (IFA) tax regime for companies.

Intellectual property has become increasingly valuable, whilst rapid advances in technology have meant that the business world is more inter-connected than ever before. 

As the UK competes to ensure it remains an attractive location for business to operate, it is no surprise that after 16 years the Government is consulting on changes to the UK’s IFA tax code.

What is the current position?

Broadly speaking, the IFA tax regime entitles a company to a deduction for third party expenditure  on IFAs as that expenditure is charged against profit in the company’s financial statements. 

There are some notable exclusions from the IFA tax regime, including old assets that existed prior to the introduction of the  regime  and which have not subsequently changed hands and, since 2015, certain ‘customer related’ intangibles including goodwill following the acquisition of a trade and assets. 

Where no tax relief for IFA expenditure is expected to be obtained through amounts recognised in the financial statements, for example if an asset is likely to hold or increase value, an election is available to spread relief over a 25 year period via a 4 per cent annual writing down allowance.

What areas are being consulted on?

There are four main areas that are being reviewed.

1. Pre 2002 assets – The consultation suggests bringing old assets into the IFA tax code, as the distinction between old and new assets is somewhat complex and can lead to unfairness by treating apparently similar assets differently for corporation tax purposes.

There may be winners and losers from such a change. The winners may include corporate groups currently carrying old IFAs with a significant residual value on which relief may be available after the change, whilst the loser camp could include groups with carried forward capital losses which may not be available for relief against profits from the disposal of IFAs that would no longer fall into the capital gains regime.

2. Customer related intangibles – The consultation seeks to ‘explore the impact’ that the 2015 changes have had on business. It is possible that this could lead to the reinstatement of an element of relief that has recently been denied, which would be a positive development.

Our earlier article on the 2015 changes can be found here.

3. De-grouping charges – Since 2011 there has been a difference between the IFA tax regime and the rules for capital gains assets which means that there may be a higher corporation tax bill arising from a corporate disposal that includes assets in the IFA tax regime rather than pre-2002 assets. The consultation invites views on how to close this gap , which again would be a positive development.

4. The 4 per cent writing down allowance – The consultation also asks for views on whether relief over 25 years by election remains competitive in an international context.

What does this all mean? 

We welcome the news that the Government is seeking to engage with business on changes to the IFA tax code. It is hoped that positive changes will flow from the process and that these will continue to support the UK as an attractive place to do business.

The consultation  runs until 11 May 2018, with draft legislation most likely published later in the year for enactment in 2019.

The IFA tax code is important for UK corporate groups and those affected should consider responding to the consultation . Please get in touch if you wish to discuss the position and, in any case, watch this space for developments.

For more information please get in touch with Dan Robertson, or your usual RSM contact.