Removing the Goodwill
The Chancellor has introduced significant restrictions on the corporation tax relief available for the cost of 'goodwill' – removing the incentives to take advantage of the knowledge based economy first introduced in 2002. The change, which affects acquisitions made on or after 8 July 2015, removes the corporation tax deduction previously available when the cost of acquired goodwill was written off in the company accounts.
As a result, tax relief for the cost of acquiring goodwill is only available when the goodwill is disposed of or sold. Even then, relief has been restricted in the manner in which any losses can be used against other profits of the company.
A similar change was introduced in December 2014, for those businesses which were incorporating as a limited company. The Chancellor described that measure as tackling tax avoidance whereas this time round it is to provide a fair tax outcome!
Whether or not is it fair, the result is an increase in the corporation tax companies pay following business acquisitions and increases the need for good tax advice early in the acquisition process.
If you have any questions, contact Simon on 020 8545 7600.