The corporation tax rules dealing with goodwill have chopped and changed over the years, the advice below is solely in relation to goodwill acquired in 2011, for a full overview of the different tax treatment of goodwill over the years please see 723-305 on Croner-i.
A transfer between a sole trader and the company in which they control is a related party transfer under the intangible fixed asset (IFA) regime. A related party is defined under s.835 CTA09.
Where an intangible fixed asset is acquired from a related party then the tax treatment of the intangible fixed asset for the company acquiring the asset is determined by how the intangible fixed asset was treated by the related party disposing of the asset.
If the intangible fixed asset was an IFA of the related party disposing of the asset, then it will be treated as an IFA of the acquiring company.
If the intangible fixed asset was treated as a pre-FA 2002 IFA by the related party disposing of the asset on incorporation of the sole trade business, then it will continue to be treated as a pre-FA 2002 IFA of the acquiring company. In other words, it will continue to be taxed under the capital gains regime rather than the IFA regime.
The amortisation relief being available will ultimately depend on when the sole trade business started, if the business started prior to April 2002 then once it incorporated in 2011 no relief would be given as the legislation under s.882 CTA09 would treat the asset as a non-IFA for CT purposes.
If the sole trade started AFTER April 2002 and incorporated between the 1st of April 2002 and the 2nd of Dec 2014, then the company would take on the asset under the IFA regime, meaning tax relief would be applicable.
It is not known when the sole trade commenced as this has not been stated above, if it did start trading after April 2002 the company would have been entitled to a tax debit in line with s.729 CTA09 on incorporation, which would give relief in line with the accounting treatment subject to the modification in s.729(3) CTA09.
If the goodwill has been fully amortised then no relief could be claimed now unless this is within the time limit for amending the corporation tax return being 12 months from the filing date. The only alternative reclaim method is an overpayment relief claim, which must be made within four years of the end of the relevant accounting period.
The overpayment relief claim provisions are contained in Sch18, part VI, para 51 FA98. This form of relief applies where tax is overpaid or over-assessed and is subject to a few conditions:
- The overpayment relief claim must be made in writing, HMRCs manual SACM12150 explains the format of the claim and what is required for it to be accepted
- The claim must be made within four years of the end of the relevant accounting period
- In the case of a claim for tax paid, the relevant accounting period is;
– where the amount paid is excessive by reason of a mistake in a return, the accounting period to which the return relates,
– otherwise, the accounting period in respect of which the amount was paid. - The exclusions listed in para 51A must not apply, a full list of them can be found at HMRCs manual SACM12070.
If it can be established that the sole trade commenced after April 2002 and that the incorporation date was before December 2014, then any remaining goodwill which had been amortised within the last four relevant accounting periods could be claimed via an overpayment relief claim, if accepted by HMRC.
