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HMRC internal manual

Capital Gains Manual

From
HM Revenue & Customs
Updated
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Goodwill: know-how

Technical know-how

Sums received in return for imparting or disclosing technical know-how accumulated in the course of a trade, such as manufacturing techniques, technical knowledge or secret processes, are generally treated as trading receipts, see CA72000+.

For this purpose “know-how” is defined in ITTOIA05/S192(1) as:

any industrial information or techniques likely to assist in -

  1. manufacturing or processing goods or materials,
  2. working a source of mineral deposits (including searching for, discovering or testing mineral deposits or obtaining access to them), or
  3. carrying out any agricultural, forestry or fishing operations.

A similar definition applies in relation to companies in ICTA88/S533(7).

Where, however, a trade or part of a trade is transferred as a going concern any consideration attributable to technical know-how is treated as part of the consideration paid for goodwill except that this does not apply where the buyer and the seller make a joint election to that effect or, in relation to the buyer, where before the acquisition the trade was carried on wholly outside the UK.

Commercial know-how

Payments received in return for imparting or disclosing commercial know-how such as market research, customer lists and sales techniques may fall to be taken into account as trading receipts on ordinary income tax principles. To the extent that they are chargeable to income tax or are taken into account in calculating income profits, gains or losses they must be excluded from the consideration to be taken into account for CG purposes in accordance with TCGA92/S37(1).

Payments for imparting or disclosing commercial know-how during the course of a trade which are not excluded from being taken into consideration for CG purposes will normally be treated as capital sums derived from goodwill under TCGA92/S22, see CG68050.

Where a trade or part of a trade is transferred as a going concern any consideration attributable to commercial know-how will be treated as part of the consideration paid for the disposal of goodwill.