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Tax relief and goodwill

Source: HM Revenue & Customs | | 05/09/2017

Goodwill is usually defined as the ‘extra’ value attributable to a business over and above its tangible assets.

In the vast majority of cases, when a business is sold a significant proportion of the sale price will be for this type of intangible asset: the goodwill of the company. This places a monetary value on the business's reputation and customer relationships, or as HMRC says in their guidance, in accounting terms, purchased goodwill is the balancing figure between the purchase price of a business and the net value of the assets acquired. Valuing goodwill is complex and there are many different methods which can be used and that vary from industry to industry.

The tax treatment of goodwill has changed in recent years. Until July 2015, a company which bought goodwill and certain other customer related intangible assets could claim corporation tax relief for the payment. This was done by writing off the cost of the goodwill over a period of years, otherwise known as ‘amortising’ the goodwill.

Planning note:

From 8 July 2015, no corporation tax deduction is available for the cost of purchased goodwill.

If you are looking at purchasing or selling a business we would be happy to advise you on the issues relating to the acquisition or sale. We can also help you structure the deal to maximise any available tax reliefs still available.

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