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HMRC internal manual

Capital Allowances Manual

Plant and Machinery Allowances (PMA): meaning of plant and machinery: customer lists

If you receive a claim for plant and machinery allowances on expenditure on acquiring a customer list, refuse the claim. A customer list is commercial know-how rather than plant or machinery. Where a person buys a customer list what is being acquired is not just a list of customers like a directory but rather the connections with the customers. That is part of the goodwill of the business.* In IRC v Muller & Co Margarine Ltd (1901) AC217*, (see CG68010), Lord MacNaghten described goodwill as being

the benefit and advantage of the good name, reputation and connections of the business. It is the attractive force that brings in custom. It is the one thing which distinguishes the old established business from a new business at its first start.

The goodwill is a separate asset. To the extent that expenditure on the customer lists is attributable to goodwill rather than the acquisition of the chattel that is the list, it does not qualify for plant and machinery allowances. In practice, the expenditure to be attributed to the chattel is likely to be either nil or negligible.

The taxpayer may claim that the list is plant because it has been written down or is on floppy disk. Most types of intangible assets are either always committed to paper or are capable of being committed to paper - including for instance a franchise agreement, licence, quota, patent, design, trademark and technical or commercial know-how. None of these qualify for plant and machinery allowances. There are specific allowances under separate codes for patents and technical know- how, from which commercial know-how is specifically excluded.

You should also look at how the actual list is used in the business. Although it is likely that the physical list of customers will be used as a tool of the business, it is not necessarily the case. The list may for instance be of little or no future use in a fast changing or demand led business. You should also check whether the two-year test CA21100 is satisfied, particularly where the information held on the list is of transient value and/or held in a non-permanent form, such as in an electronic data-base.