Goodwill Capital Allowance

[Archangel]

Hi Accountancy Gurus!

If my Ltd company buys another Ltd company (unconnected) and there is a 50k purchase of goodwill, AIUI we can amortise the goodwill over 20 years. Does this mean we can reduce our corporation tax by 2.5k in year 1 (5% of 50000), 2.25k in year 2 (5% of 45k) etc?

Any links to HMRC docs greatfully recieved.

[northernladuk]

This sounds like a really interesting and complicated high level business question of which I would have loved to partake at your level of understanding to further my reputation with my fine upstanding colleagues on this board.... unfortunately all I can offer is that you spelt gratefully wrong at the end... Sorry

[TheFaQQer]

This sounds like a really interesting and complicated high level business question of which I would have loved to partake at your level of understanding to further my reputation with my fine upstanding colleagues on this board.... unfortunately all I can offer is that you spelt gratefully wrong at the end... Sorry

[ASB]

Hi Accountancy Gurus!

If my Ltd company buys another Ltd company (unconnected) and there is a 50k purchase of goodwill, AIUI we can amortise the goodwill over 20 years. Does this mean we can reduce our corporation tax by 2.5k in year 1 (5% of 50000), 2.25k in year 2 (5% of 45k) etc?

Any links to HMRC docs greatfully recieved.

I believe you can write the goodwill off whenever you want. Question of course is the tax charge.

IN the example you give I believe you will find that the value written off can be allocated against profit not against tax, thus the tax saving will be your marginal CT rate * amount written off.

This might get you started on ascertaining how it all ties into you specific situation.

http://www.hmrc.gov.uk/manuals/prpumanual/3600/3646.htm
http://www.hmrc.gov.uk/manuals/cirdmanual/CIRD30510.htm

[Darren@UptonAccountants]

Capital Allowances

If your company has acquired another, it has purchased the shares in the other company.

As such this is not goodwill, just purchase of shares and no capital allowances are available.

If on the other hand you've acquired a business from say a sole trader or partnership for example, different matter and the capital allowances available will depend on the split of the acquisition between goodwill, fixtures/fittings, etc. In essense however, CA's not available on goodwill....I'd strongly recommend you speak to your accountant before completing the acquisition in case you need to make any tweaks to the purchase contract.

[Archangel]

Thanks for the replies so far.

My company has acquired the assets of another ltd company (i.e. goodwill, fixtures and fittings and SAV).

So no cap allowance on goodwill, ho hum.

So what is the point of amortising it?

[Darren@UptonAccountants]

Goodwill

Amortisation of goodwill is part of an accounting standard. If the value of the goodwill does not reduce, then you can amend the accounting policy in your company accounts.

[THEPUMA]

Thanks for the replies so far.

My company has acquired the assets of another ltd company (i.e. goodwill, fixtures and fittings and SAV).

So no cap allowance on goodwill, ho hum.

So what is the point of amortising it?

You get tax relief on the amount amortised, provided the amortisation policy is reasonable.

[Hex]

You get tax relief on the amount amortised, provided the amortisation policy is reasonable.

Hello PUMA. Nice to see you again.

[Archangel]

You get tax relief on the amount amortised, provided the amortisation policy is reasonable.

Thanks Thepuma, that;s what I thought.

The reply above from Darren confused me

In essense however, CA's not available on goodwill