News
September 2009
Tax Update
Taxation of Intellectual Property
Intellectual Property is a phrase that appears to have become more prominent in recent times, with the growth in the use of the internet in business, as well as of computers and IT systems and the related information in the last decade.
Intellectual Property is something that exists but cannot necessarily be seen. In accounting speak it is an 'intangible asset', not something tangible that can be seen and touched. It includes such items as:
- Patents;
- Trade marks;
- Copyrights;
- Know-how; and
- Licences.
Due to its nature, intellectual property can go unrecognised; the knowledge used by a business may not be identified and may be just taken as a given. So you may have an asset that you didn't appreciate you had!
Whilst this may be nice, to show on the balance sheet, there are of course accounting rules that must be applied before an asset can be recognised and these should be referred to accordingly.
Since Finance Act 2002, intangible assets have been recognised for corporation tax purposes, reflecting their greater prominence. Tax relief may therefore apply to expenditure on intangible assets on their:
- Creation;
- Acquisition;
- Enhancement;
- Preservation; and
- Maintenance.
Abortive expenditure may also be claimable.
Expenditure on research and development has its own special tax reliefs and is therefore excluded from the intangible fixed asset rules.
The other intangible asset that should not be forgotten is our friend 'Goodwill'.
Broadly, the rules operate in a similar way to the loan relationship principles. They allow gains and losses on intangible fixed assets to be treated as Revenue items in the profit and loss account and to be offset against each other, with any remaining losses being off-settable against general profits of the year.
In most cases intangible fixed assets will be depreciated. Such depreciation is an allowable deduction for tax purposes making it worthwhile identifying any intangible fixed assets brought into existence since April 2002, when the Finance Act implemented these rules.
So have a think, do you have any intangible assets you had not considered valuing? Perhaps there is opportunity for the UK company to acquire a licence from its non-UK parent and benefit from a UK tax deduction. We would be happy to review the position with you and consider your tax efficient options.
