CIRD70410 - Telecommunications licences and rights: how the legislation works: receipts from disposals

When a taxpayer disposes of a licence or right to which the rules apply the receipt will be treated as a revenue item if:

  • it may be credited in calculating the profit or loss for accounting purposes,
  • this is in accordance with GAAP, and
  • this is how it has been credited in any statutory accounts of the taxpayer.

Example

On 1 January 2001 Bari and Partners (a firm) acquires an IRU for 拢20 million. In its accounts it amortises the expenditure at 拢1 million a year. Assume that this is in accordance with GAAP.

On 1 January 2005 when the IRU has been written down to 拢16 million Bari and Partners sells the IRU for 拢18 million. In the year ended 31 December 2005 the firm credits a profit on disposal of 拢2 million in calculating its profit for accounting purposes. Assume that this is in accordance with GAAP.

Bari and Partners are trading and the profit on disposal of 拢2 million will form part of its trading profits for tax purposes for the year ended 31 December 2005.

Meaning of 鈥榙isposal鈥�

For the purposes of FA00/SCH23, 鈥榙isposal鈥� also includes:

  • The cancellation or restriction of rights attached to an existing right.
  • The granting of a derivative right or the extension of derivative rights.