By Ola Sulaimon
THERE are different ways that business owners use to expand their business.
One such is acquiring a new business, most times the business acquired is usually assets both tangible such as computers, vans, etc. and intangible such as goodwill.
Before 1 April this year, the business owners acquiring these items, specifically goodwill, were able to claim amortisation claim against the acquisition.
Amortisation is a tax relief given over a period of time to the business owner.
However, this relief was removed in 2015 where the business owners could no longer claim the relief that could lead to reduction in the tax paid.
Since 1 April 2019, business owners acquiring new business have been able to claim tax relief on goodwill and relevant assets. This sounds like good news but certain conditions have to be met before such relief can be claimed.
1. It only applies to acquisitions made after April 2019 and business owners cannot back date it.
2. Business owners can only claim relief on their goodwill and relevant asset purchased if intellectual property is included in the purchase. This is a critical condition that has to be met to claim this relief. Examples of qualifying intellectual property are patent, registered design, copyright or design right, plant breeder’s right, licences, etc.
3. The business claiming this relief must be under corporation tax and therefore liable to tax under the Corporation Tax Act rather than income tax for non-registered companies, essentially a company.
4. The relevant asset used in the business including the goodwill acquired must be included in the company’s account.
These are very strict rules and for business owners to be able to claim this relief they must meet the conditions stated above.
Under the old regime the relief that the business owner could claim was tax relief of four per cent yearly of the cost of the relevant asset acquired. However, this has been increased to a fixed rate of 6.5 per cent which is applied on the lower of the costs of relevant assets or six times the cost of any of the qualifying intellectual property assets in the new business.
The advice, if you are planning to acquire new business, is that if commercially possible it should be purchased with intellectual properties so as to enjoy this tax relief.
To find out more contact Ronzl Accountants Ltd, 51 Billing Road, Northampton. Call 01604 965826 or see the website at www.ronzlaccountants.co.uk