Goodwill and Corporation Tax

Goodwill is rarely mentioned in legislation. Most people would settle on a simple definition which would be based on the ‘extra’ value of a business over and above its tangible assets.

In the vast majority of cases when a business is sold a significant proportion of the sale price will be for the intangible assets or goodwill of the company. This is essentially a way of placing a monetary value on the business's reputation and customer relationships. Or as HMRC say in their guidance, in accounting terms, purchased goodwill is the balancing figure between the purchase price of a business and the net value of the assets acquired. Valuing goodwill is complex and there are many different methods which can be used and that vary from industry to industry.

The Corporation Tax relief restriction rules for certain acquisitions of goodwill and relevant assets changed on 1 April 2019.

Businesses can now claim Corporation Tax relief on purchases of goodwill made on or after 1 April 2019 if the:

• goodwill and relevant assets are purchased when you buy a business with qualifying intellectual property (IP)
• business is liable to Corporation Tax
• relevant assets (including goodwill) are included in the company accounts

If relief is available, it is at a fixed rate of 6.5% a year on the lower of the cost of the relevant asset or 6 times the cost of any qualifying IP assets in the business purchased. Relief is given yearly until the limit is reached and a claim is made using the Company Tax Return.