Telecommunications licences and rights: how the legislation works: receipts from disposals
When a taxpayer disposes of a licence or right to which the rules apply the receipt will be treated as a revenue item if:
- it may be credited in calculating the profit or loss for accounting purposes,
- this is in accordance with GAAP, and
- this is how it has been credited in any statutory accounts of the taxpayer.
On 1 January 2001 Bari and Partners (a firm) acquires an IRU for £20 million. In its accounts it amortises the expenditure at £1 million a year. Assume that this is in accordance with GAAP.
On 1 January 2005 when the IRU has been written down to £16 million Bari and Partners sells the IRU for £18 million. In the year ended 31 December 2005 the firm credits a profit on disposal of £2 million in calculating its profit for accounting purposes. Assume that this is in accordance with GAAP.
Bari and Partners are trading and the profit on disposal of £2 million will form part of its trading profits for tax purposes for the year ended 31 December 2005.
Meaning of ‘disposal’
For the purposes of FA00/SCH23, ‘disposal’ also includes:
- The cancellation or restriction of rights attached to an existing right.
- The granting of a derivative right or the extension of derivative rights.