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HMRC internal manual

Corporate Intangibles Research and Development Manual

Core computational rules: deductible debits: relief for capitalised expenditure on an intangible asset: deemed to be acquired at book value



S863 deals with three types of circumstance where an intangible asset previously outside CTA09/PART8 in the hands of a company becomes a ‘chargeable intangible asset’ (see CIRD20035) in its hands for the first time. These are where:

  • a company holding intangible fixed assets becomes resident in the UK (see CIRD47020);
  • an asset begins to be used by a company not resident in the UK for the purposes of a permanent establishment in the UK through which it carries on a trade (see CIRD47020); and
  • an asset ceases to be used for the purposes of a mutual trade (CTM40950 onwards) carried on by a company and begins instead to be used for a non-mutual business (see below).

(FA03/S153 (1) substituted the words ‘permanent establishment’ for ‘branch or agency’ effective for all accounting periods beginning on or after 1 January 2003.)

Asset ceases to be used for mutual trade

An intangible asset is excluded from CTA09/PART8 while it is used for the purposes of a mutual trade. See CIRD25120.

Where a company ceases to use an asset in this way (for example because its trade ceases to be undertaken on a mutual basis) then, for the purposes of Part 8, the company is regarded as acquiring the asset for its accounting value immediately after it ceases to be used for the mutual trade and begins to be used for a non-mutual business; that is the net book value or carrying amount in the company’s accounts.

Points to note

  • If an asset fails the FA02 rule described in CIRD11500 onwards, for example because it was held by the company prior to 1 April 2002, it does not qualify as a chargeable intangible asset in its hands (because no taxable credit within Part 8 would arise on its realisation - see CIRD20035) and therefore the treatment set out above does not apply.
  • Most internally generated goodwill and intangible assets cannot be capitalised and therefore have a book value of nil.
  • The effect of deeming the asset to be acquired when it comes within Part 8 makes it possible for a company to meet the requirement for reinvestment relief purposes that the ‘old asset’ should be a chargeable intangible asset throughout the period the asset was held by it (CIRD20035).
  • See CIRD13270 for the case where a chargeable intangible asset begins to be used for a mutual trade.