188体育

CTA09/PART8/S780(3) and S785(4)

Example 1

Facts

Assume an intangible asset with an estimated ten year life, is purchased by group company A for 拢10,000 and tax deductions for amortisation are allowed to it following the accounts for accounting periods (APs) 1-3 of 拢1000 per AP. At the beginning of AP4 the asset is transferred to group company B for its book value of 拢7000 (though it has a market value of 拢9000 at the time). B continues to write down the asset in APs 4 and 5 by拢1000 per AP and obtains tax deductions accordingly, on the basis of the tax-neutral treatment described in CIRD40300. B leaves the group at the end of AP5.

Computation when B leaves group

• B is deemed to have realised and reacquired the asset for 拢9000; that gives rise to a taxable credit of 拢2000, representing the excess of the market value at the time of the transfer (拢9000) over the tax written down value at that time (拢7000).
• B鈥檚 amortisation deduction for AP4 is adjusted to reflect an acquisition cost of 拢9000, not 拢7000. So, applying the rules described in CIRD12755 onwards, the deduction due for AP4 is:
• 拢1000 x 拢9000 / 拢7000 = 拢1286.
• The extra deduction for that period of 拢286 (拢1286 - 拢1000) and the taxable credit of 拢2000 are netted off and brought to account in AP5 as if they had arisen immediately before B left the group.
• The deductible debit for AP5 itself is 拢1286 (拢7714 / 拢6000 x 拢1000).
• The tax written down value when B leaves the group is therefore 拢6428.

Example 2

Facts

Assume that at the beginning of AP1 company A transfers its business as a going concern to company B for its book value. The business is successful and its market value is more than its book value. The difference (say 拢10000) is the value of its goodwill (which cannot appear on A鈥檚 balance sheet because it is internally generated).

Company B leaves the group at the end of AP3.

Computation when B leaves group

• B is deemed to have realised and reacquired the asset for 拢10000; that gives rise to a taxable credit of 拢10000 (as B inherits A鈥檚 nil acquisition cost).
• B obtains deductions for sums written off the asset as if it had been capitalised in the accounts at its market value on acquisition (拢10000), see CIRD12780.
• If, for example, it is assumed that the goodwill has a ten-year life (reflecting the judgement that by which time other businesses will have succeeded in eroding its competitive edge) then deductible debits for amortisation of the asset will be 拢1000 per annum.
• On that assumption the adjustment under the degrouping rules for AP3 will be the taxable credit of 拢10000 less amortisation debits referable to AP1 and AP2 of 拢1000 per period, giving a net taxable credit of 拢8000.
• An amortisation debit of 拢1000 is also given for AP3.
• The tax written down value of the asset when B leaves the group is therefore 拢7000.

Classification of adjustment in CT computation

In this case the adjustment would be treated as a receipt of B鈥檚 trade (see CIRD40520).