Office of Public Sector Information
Section 84(1)
1 (1) A company’s gains in respect of intangible fixed assets are chargeable to corporation tax as income in accordance with this Schedule.
(2) This Schedule also has effect for determining how a company’s losses in respect of intangible fixed assets are brought into account for the purposes of corporation tax.
(3) Except where otherwise indicated, the amounts to be brought into account in accordance with this Schedule in respect of any matter are the only amounts to be brought into account for the purposes of corporation tax in respect of that matter.
2 (1) In this Schedule “intangible asset” has the meaning it has for accounting purposes.
(2) References in this Schedule to an intangible asset include, in particular, any intellectual property.
For this purpose “intellectual property” means—
(a) any patent, trade mark, registered design, copyright or design right, plant breeders' rights or rights under section 7 of the Plant Varieties Act 1997 (c. 66),
(b) any right under the law of a country or territory outside the United Kingdom corresponding to, or similar to, a right within paragraph (a),
(c) any information or technique not protected by a right within paragraph (a) or (b) but having industrial, commercial or other economic value, or
(d) any licence or other right in respect of anything within paragraph (a), (b) or (c).
(3) This paragraph is subject to Part 10 (excluded assets).
3 (1) In this Schedule an “intangible fixed asset”, in relation to a company, means an intangible asset acquired or created by the company for use on a continuing basis in the course of the company’s activities.
(2) References in this Schedule to an intangible fixed asset include an option or other right—
(a) to acquire an intangible asset that if acquired would be a fixed asset, or
(b) to dispose of an intangible fixed asset.
(3) Unless otherwise indicated, the provisions of this Schedule apply to an intangible fixed asset whether or not it is capitalised in the company’s accounts.
(4) This paragraph is subject to any such provision of regulations under paragraph 104 (finance leasing etc) as is mentioned in sub-paragraph (2)(a) of that paragraph (assets to be treated as intangible fixed assets of finance lessor).
4 (1) Except as otherwise indicated, the provisions of this Schedule apply to goodwill as to an intangible fixed asset.
(2) In this Schedule “goodwill” has the meaning it has for accounting purposes.
5 (1) If a company does not draw up accounts in accordance with generally accepted accounting practice (“correct accounts”)—
(a) the provisions of this Schedule apply as if correct accounts had been drawn up, and
(b) the amounts referred to in this Schedule as being recognised for accounting purposes are those that would have been recognised if correct accounts had been drawn up.
(2) If a company draws up accounts that rely to any extent on amounts derived from an earlier period of account for which the company did not draw up correct accounts, the amounts referred to in this Schedule as being recognised for accounting purposes in the later period are those that would have been recognised if correct accounts had been drawn up for the earlier period.
(3) The provisions of this paragraph apply where the company does not draw up accounts at all as well as where it draws up accounts that are not correct.
6 (1) In determining whether a company’s accounts are correct, reference may be made to any view as to—
(a) the useful life of an asset, or
(b) the economic value of an asset,
taken for the purposes of consolidated group accounts prepared for any group of companies of which the company is a member.
(2) In sub-paragraph (1)—
“consolidated group accounts” means group accounts that satisfy the requirements of—
section 227 of the Companies Act 1985 (c. 6), or
in Northern Ireland, Article 235 of the Companies (Northern Ireland) Order 1986 (SI 1986/1032 (N.I. 6)),
or the corresponding requirements of the law of a country outside the United Kingdom; and
“group of companies” means a group as defined in—
section 262(1) of that Act, or
in Northern Ireland, Article 270(1) of that Order,
or the corresponding provision of the law of a country outside the United Kingdom.
(3) This paragraph does not apply if or to the extent that the consolidated group accounts are prepared—
(a) in accordance with the requirements of the law of a country outside the United Kingdom, and
(b) on a basis that, in relation to the matters mentioned in sub-paragraph (1), substantially diverges from generally accepted accounting practice.
7 (1) This Part provides for debits to be brought into account by a company for tax purposes in respect of—
(a) expenditure on an intangible fixed asset that is written off for accounting purposes as it is incurred (see paragraph 8);
(b) writing down the capitalised cost of an intangible fixed asset—
(i) on an accounting basis (see paragraph 9), or
(ii) on a fixed-rate basis (see paragraphs 10 and 11); and
(c) the reversal of a previous accounting gain in respect of an intangible fixed asset (see paragraph 12).
(2) This Part does not apply in relation to amounts brought into account in connection with the realisation of an intangible fixed asset (see Part 4).
8 (1) Where in a period of account expenditure on an intangible fixed asset is recognised in a company’s profit and loss account, a corresponding debit shall be brought into account for tax purposes.
(2) Subject to any adjustment required for tax purposes, the amount of the debit recognised for tax purposes is the same as the amount of the loss recognised by the company for accounting purposes.
(3) Nothing in—
section 74(1)(m) or (p) of the Taxes Act 1988 (annual payments and patent royalties not to be deducted in computing profits under Case I or II of Schedule D), or
section 817(1)(b) of that Act (annual payments not to be deducted in arriving at the amount of profits or gains for tax purposes),
has effect to prevent a debit being brought into account for tax purposes by a company in accordance with this paragraph (and given effect accordingly under Part 6).
(4) This paragraph does not apply to a loss that represents previously capitalised expenditure.
9 (1) Where in a period of account a loss is recognised in the company’s profit and loss account in respect of capitalised expenditure on an intangible fixed asset—
(a) by way of amortisation, or
(b) as a result of an impairment review,
a corresponding debit shall be brought into account for tax purposes.
(2) The reference in sub-paragraph (1) to an “impairment review” does not include the valuation of an asset for the purpose of determining the amount of expenditure to be capitalised in the first place.
(3) The amount of the debit for tax purposes in respect of expenditure on an asset is, in the period of account in which the expenditure is capitalised:
where—
Accounting Loss is the amount of the loss recognised for accounting purposes,
Tax Cost is the amount of expenditure on the asset that is recognised for tax purposes, and
Accounting Cost is the amount capitalised in respect of expenditure on the asset.
(4) Subject to any adjustment required for tax purposes, the amount of the expenditure on the asset that is recognised for tax purposes is the same as the amount of expenditure on the asset capitalised by the company.
(5) The amount of the debit for tax purposes in respect of expenditure on an asset is, in a subsequent period of account:
where—
Accounting Loss is the amount of the loss recognised for accounting purposes,
Tax Value is the tax written down value of the asset immediately before the amortisation charge is made or, as the case may be, the impairment loss is recognised for accounting purposes, and
Accounting Value is the value of the asset recognised for accounting purposes immediately before the amortisation charge or, as the case may be, the impairment review.
(6) In this paragraph “capitalised” means capitalised for accounting purposes.
10 (1) A company may elect to write down the cost of an intangible fixed asset for tax purposes at a fixed rate.
(2) An election to that effect may be made whether or not the asset is written down for accounting purposes.
(3) An election under this paragraph must be made—
(a) in writing,
(b) to the Inland Revenue,
(c) no later than two years after the end of the accounting period in which the asset is created or acquired by the company making the election.
(4) An election under this paragraph in relation to an asset has effect in relation to all expenditure on the asset that is capitalised for accounting purposes.
(5) An election under this paragraph is irrevocable.
(6) Paragraph 9 (writing down on accounting basis) does not apply to an asset in respect of which an election is made under this paragraph.
11 (1) Where an election is made for writing down at a fixed rate, a debit equal to—
(a) 4% of the cost of the asset, or
(b) if less, the balance of the tax written down value,
shall be brought into account for tax purposes in each accounting period beginning with that in which the relevant expenditure is incurred.
(2) If the accounting period is less than 12 months, the amount mentioned in sub-paragraph (1)(a) above shall be proportionately reduced.
(3) The cost of the asset means the cost recognised for tax purposes.
(4) Subject to any adjustment required for tax purposes, the cost of the asset recognised for tax purposes is the same as the amount capitalised for accounting purposes in respect of expenditure on the asset.
(5) After a part realisation of the asset the reference in sub-paragraph (1)(a) to the cost of the asset shall be read as a reference to—
(a) the cost recognised for tax purposes in respect of the value of the asset recognised for accounting purposes immediately after the part realisation, and
(b) the cost so recognised of any subsequent expenditure on the asset that is capitalised for accounting purposes.
(6) On a further part realisation, sub-paragraph (5) applies again.
12 (1) Where in a period of account a loss is recognised in the company’s profit and loss account reversing (in whole or in part) a gain recognised in a previous period of account in respect of which a credit was brought into account for tax purposes under Part 3 (credits in respect of intangible fixed assets), a corresponding debit shall be brought into account for tax purposes.
(2) The amount of the debit to be brought into account for tax purposes is:
where—
Accounting Loss is the amount of the loss recognised for accounting purposes,
Accounting Gain is the amount of the gain that is (in whole or in part) reversed, and
Previous Credit is the amount of the credit previously brought into account for tax purposes in respect of the gain.
(3) References in this paragraph to the recognition of a loss reversing a gain recognised in a previous period of account do not include a loss recognised by way of amortisation, or as a result of an impairment review, of an asset that has previously been the subject of a revaluation within the meaning of paragraph 15.
13 (1) This Part provides for credits to be brought into account by a company for tax purposes in respect of—
(a) receipts in respect of intangible fixed assets that are recognised in the profit and loss account as they accrue (see paragraph 14),
(b) revaluation of an intangible fixed asset (see paragraph 15),
(c) credits recognised for accounting purposes in respect of negative goodwill (see paragraph 16), and
(d) the reversal of previous accounting debits in respect of an intangible fixed asset (see paragraph 17).
(2) This Part does not apply in relation to amounts brought into account in connection with the realisation of an intangible fixed asset within the meaning of Part 4.
14 (1) Where in a period of account a gain representing a receipt in respect of an intangible fixed asset is recognised in the company’s profit and loss account, a corresponding credit shall be brought into account for tax purposes.
(2) Subject to any adjustment required for tax purposes, the amount of the credit recognised for tax purposes under this paragraph is the same as the amount of the gain recognised by the company for accounting purposes.
15 (1) Where in a period of account the accounting value of an intangible fixed asset is increased on a revaluation, a credit shall be brought into account for tax purposes.
(2) The amount of the credit for tax purposes is—
(a) the amount corresponding for tax purposes to the increase in value (see sub-paragraph (3)), or
(b) if less, the net aggregate amount of relevant tax debits previously brought into account (see sub-paragraph (4)).
(3) The amount corresponding for tax purposes to the increase in value is:
where—
Accounting Adjustment is the amount of the increase in the accounting value of the asset,
Tax Value is the tax written down value of the asset immediately before the revaluation, and
Accounting Value is the accounting value of the asset by reference to which the revaluation is carried out.
(4) The net aggregate amount of relevant tax debits previously brought into account is:
PreviousDebits - Previous Credits
where—
Previous Debits is the total amount of debits previously brought into account for tax purposes in respect of the asset under paragraph 9 (writing down on accounting basis), and
Previous Credits is the total amount of any credits previously brought into account for tax purposes in respect of the asset under this paragraph.
(5) For the purposes of this paragraph a “revaluation” includes—
(a) the valuation of an asset for which a value is shown in the company’s balance sheet but which has not previously been the subject of a valuation, and
(b) the restoration of past losses.
(6) This paragraph does not apply to an asset in respect of which an election has been made under paragraph 10 (election for writing down at fixed rate).
16 (1) Where in a period of account a gain is recognised in the company’s profit and loss account in respect of negative goodwill arising on an acquisition of a business, a corresponding credit shall be brought into account for tax purposes.
(2) The amount of the credit is so much of the gain recognised for accounting purposes as, on a just and reasonable apportionment, is attributable to intangible fixed assets.
17 (1) Where in a period of account a gain is recognised in the company’s profit and loss account reversing (in whole or in part) a loss recognised in a previous period of account in respect of which a debit was brought into account for tax purposes under Part 2 (debits in respect of intangible fixed assets), a corresponding credit shall be brought into account for tax purposes.
(2) The amount of the credit to be brought into account for tax purposes is:
where—
Accounting Gain is the amount of the gain recognised for accounting purposes,
Accounting Loss is the amount of the loss that is reversed (in whole or in part), and
Tax Debit is the amount of the tax debit brought into account in respect of the loss.
(3) This paragraph does not apply to a gain on a revaluation within the meaning of paragraph 15.
18 This Part provides for credits or debits to be brought into account for tax purposes on the realisation by a company of an intangible fixed asset.
19 (1) References in this Schedule to the realisation of an intangible fixed asset are to a transaction resulting, in accordance with generally accepted accounting practice—
(a) in the asset ceasing to be recognised in the company’s balance sheet, or
(b) in a reduction in the accounting value of the asset.
For this purpose a “transaction” includes any event giving rise to a gain recognised for accounting purposes.
(2) In relation to an intangible fixed asset that has no balance sheet value (or no longer has a balance sheet value), sub-paragraph (1) applies as if it did have a balance sheet value.
(3) References in this Schedule to a “part realisation” are to a realisation falling within sub-paragraph (1)(b).
20 (1) This paragraph applies where there is a realisation of an intangible fixed asset in respect of which debits have been brought into account for tax purposes—
(a) under paragraph 9 (writing down on accounting basis), or
(b) under paragraphs 10 and 11 (writing down at fixed rate).
(2) Where this paragraph applies—
(a) if the proceeds of realisation exceed the tax written down value of the asset, a credit equal to the excess shall be brought into account for tax purposes;
(b) if the proceeds of realisation are less than the tax written down value of the asset, a debit equal to the shortfall shall be brought into account for tax purposes; and
(c) if there are no proceeds of realisation, a debit equal to the tax written down value shall be brought into account for tax purposes.
(3) References in this paragraph to the tax written down value of an asset are to its tax written down value immediately before the realisation.
21 (1) This paragraph applies where there is a realisation of an intangible fixed asset for which a value is shown in the company’s balance sheet but which is not within paragraph 20 (asset written down for tax purposes).
(2) Where this paragraph applies—
(a) if the proceeds of realisation exceed the cost of the asset, a credit equal to the excess shall be brought into account for tax purposes;
(b) if the proceeds of realisation are less than the cost of the asset, a debit equal to the shortfall shall be brought into account for tax purposes; and
(c) if there are no proceeds of realisation, a debit equal to the cost of the asset shall be brought into account for tax purposes.
(3) The cost of the asset means the cost recognised for tax purposes.
(4) Subject to any adjustment required for tax purposes, the cost of the asset recognised for tax purposes is the same as the amount of expenditure on the asset capitalised by the company for accounting purposes.
(5) After a part realisation of the asset the references in sub-paragraph (2)(a), (b) and (c) to the cost of the asset shall be read as a reference to—
(a) the cost recognised for tax purposes in respect of the value of the asset recognised for accounting purposes immediately after the part realisation, and
(b) the cost so recognised of any subsequent expenditure on the asset that is capitalised for accounting purposes.
(6) On a further part realisation, sub-paragraph (5) applies again.
22 (1) In the case of a part realisation the references in paragraph 20 to the tax written down value of the asset, or, as the case may be, the references in paragraph 21 to the cost of the asset, shall be read as references to the appropriate proportion of that amount.
(2) That proportion is given by:
where—
Reduction in Accounting Value is the difference between the accounting value immediately before the realisation compared with that immediately after the realisation; and
Previous Accounting Value is the accounting value immediately before the realisation.
23 (1) This paragraph applies where there is a realisation of an intangible fixed asset in relation to which neither paragraph 20 (asset written down for tax purposes) nor paragraph 21 (asset shown in balance sheet but not written down) applies.
(2) Where this paragraph applies, a credit equal to any proceeds of realisation shall be brought into account for tax purposes.
24 (1) In this Schedule the “proceeds of realisation” of an asset means the amount recognised for accounting purposes as the proceeds of realisation, reduced by the amount so recognised as incidental costs of realisation.
(2) The amounts referred to in sub-paragraph (1) are subject to any adjustment required for tax purposes.
25 The preceding provisions of this Part have effect subject to Part 7 (relief in case of reinvestment).
26 (1) Where in a period of account—
(a) a loss is recognised in the company’s profit and loss account in respect of expenditure by the company for the purposes of a transaction that would constitute a realisation of an intangible fixed asset, but
(b) the transaction does not proceed to completion,
a corresponding debit shall be brought into account for tax purposes.
(2) Subject to any adjustment required for tax purposes, the amount of the debit recognised for tax purposes is the same as the amount of the loss recognised by the company for accounting purposes.
27 (1) For the purposes of this Schedule the tax written down value of an intangible fixed asset to which paragraph 9 applies (writing down on accounting basis) is given by:
TaxCost - Debits + Credits
where—
Tax Cost is the cost of the asset recognised for tax purposes;
Debits is the total amount of the debits previously brought into account for tax purposes in respect of the asset under paragraph 9; and
Credits is the total amount of any credits previously brought into account for tax purposes in respect of the asset under paragraph 15 (revaluation).
(2) Subject to any adjustment required for tax purposes, the cost of the asset recognised for tax purposes is the same as the amount of the expenditure on the asset that is capitalised for accounting purposes.
(3) This paragraph has effect subject to paragraph 29 in the case of an asset that has been the subject of a part realisation.
28 (1) For the purposes of this Schedule the tax written down value of an intangible fixed asset in respect of which an election has been made under paragraph 10 (election for writing down at fixed rate) is given by:
TaxCosts - Debits
where—
Tax Cost is the cost of the asset recognised for tax purposes; and
Debits is the total amount of the debits previously brought into account for tax purposes in respect of the asset under paragraph 11 (writing down on fixed-rate basis: calculation).
(2) Subject to any adjustment required for tax purposes, the cost of the asset recognised for tax purposes is the same as the amount of the expenditure on the asset that is capitalised for accounting purposes.
(3) This paragraph has effect subject to paragraph 29 in the case of an asset that has been the subject of a part realisation.
29 (1) The tax written down value of an intangible asset that has been the subject of a part realisation is determined as follows.
(2) The tax written down value of the asset immediately after the part realisation is given by:
where—
Previous Tax Value is the tax written down value of the asset immediately before the part realisation;
New Accounting Value is the accounting value of the asset immediately after the part realisation; and
Previous Accounting Value is the accounting value immediately before the part realisation.
(3) Subsequently, the tax written down value of the asset is determined in accordance with paragraph 27 or 28—
(a) taking the cost of the asset recognised for tax purposes to be the tax written down value given by sub-paragraph (2) above together with the cost recognised for tax purposes of subsequent expenditure on the asset that is capitalised for accounting purposes; and
(b) taking account only of debits and credits brought into account for tax purposes after the part realisation.
(4) On a further part realisation, the preceding provisions of this paragraph apply again.
30 (1) Credits and debits to be brought into account for tax purposes under this Schedule are given effect in accordance with this Part.
(2) Credits and debits in respect of assets held for the purposes mentioned in—
(a) paragraph 31(assets held for purposes of trade), or
(b) paragraph 32 (assets held for purposes of property business) or
(c) paragraph 33 (assets held for purposes of certain concerns taxed under Case I of Schedule D),
are given effect in accordance with the paragraph in question.
(3) Other credits and debits (“non-trading credits and debits”) are given effect in accordance with paragraphs 34 and 35.
(4) Any apportionment necessary where an asset is held for purposes falling within more than one of the provisions mentioned above shall be made on a just and reasonable basis.
(5) The provisions mentioned in this paragraph have effect subject to paragraph 36 (special provisions relating to insurance companies).
31 Credits and debits to be brought into account in any accounting period in respect of an asset held by the company for the purposes of a trade carried on by it in that period are given effect by treating—
(a) credits as receipts of the trade, and
(b) debits as expenses of the trade,
in calculating the profits of the trade for tax purposes.
32 (1) Credits and debits to be brought into account in any accounting period in respect of an asset held by the company for the purposes of a property business carried on by it in that period are given effect by treating—
(a) credits as receipts of the business, and
(b) debits as expenses of the business,
in computing the profits of the business for tax purposes.
(2) A “property business” means—
(a) an ordinary Schedule A business,
(b) a furnished holiday lettings business, or
(c) an overseas property business.
(3) In this paragraph—
“ordinary Schedule A business” means a Schedule A business except in so far as it is a furnished holiday lettings business; and
“furnished holiday lettings business” means a Schedule A business in so far as it consists of the commercial letting of furnished holiday accommodation (as defined in section 504 of the Taxes Act 1988) in the United Kingdom.
(4) Section 503 of the Taxes Act 1988 (letting of furnished holiday accommodation treated as separate, single trade) applies for the purposes of this Schedule.
Finance Act 2002