Income and Corporation Taxes Act 1988

531 Provisions supplementary to section 530. U.K.

(1) M1 Subject to subsection (7) below, where, after 19th March 1968, [F1 a company] disposes of know-how which has been used in a trade carried on by [F2 the company], and continues to carry on the trade after the disposal, the amount or value of any consideration received by [F2 the company] for the disposal shall—

(a) if it is received in respect of the disposal of know-how after 31st March 1986, so far as it is not brought into account [F3 as a disposal value under section 462 of the Capital Allowances Act], nor is chargeable to [F4 corporation tax] as a revenue or income receipt;

(b) in any other case, so far as it is not chargeable to [F4 corporation tax] as a revenue or income receipt,

be treated for [F5 the purposes of corporation tax] as a trading receipt.

[F6 (2) Subject to subsection (3) below, where—

(a) a person carrying on a trade receives consideration for the disposal of know-how which has been used in the trade, and

(b) the know-how is disposed of as part of the disposal of all or part of the trade,

the consideration shall for the purposes of corporation tax be treated as a payment for goodwill in relation both to the person making the disposal and to the person acquiring the know-how (if that person provided the consideration).]

(3) Subsection (2) above shall not apply—

(a) [F7 if, in the case of the person disposing of the know-how being within the charge to corporation tax, that person and the person acquiring the know-how (whether or not within the charge to corporation tax) elect for that subsection not to apply] by notice given jointly to the inspector within two years of the disposal, or

(b) to the person acquiring the know-how if the trade in question was, before the acquisition, carried on wholly outside the United Kingdom;

F8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F9 (3A) If—

(a) an election is made under section 194 of ITTOIA 2005 (provision corresponding to subsections (2) and (3) of this section for the purposes of income tax), and

(b) the person making the acquisition mentioned in that section is within the charge to corporation tax,

the persons making the election under that section are treated as also making an election under subsection (3) of this section (even though the person disposing of the know-how is not within the charge to corporation tax).]

(4) M2 Subject to subsections (5) and (7) below, any consideration received by a [F10 company] for the disposal of know-how shall—

(a) if it is received in respect of the disposal of know-how after 31st March 1986 and is not brought into account [F11 as a disposal value under section 462 of the Capital Allowances Act], or

(b) if it is neither chargeable to [F12 corporation tax] under subsection (1) above or otherwise as a revenue or income receipt, nor dealt with in relation to [F13 the company] as a payment for goodwill as mentioned in subsection (2) above, (whether the disposal took place before or after 31st March 1986),

be treated as a profit or gain chargeable to [F12 corporation tax] under Case VI of Schedule D.

(5) M3 Where the [F14 company] concerned has incurred expenditure wholly and exclusively in the acquisition or disposal of the know-how, the amount which would apart from this subsection be treated as a profit or gain chargeable to [F15 corporation tax] under Case VI of Schedule D shall be reduced by the amount of that expenditure; but a deduction shall not be twice made in respect of the same expenditure, whether under this subsection or otherwise.

(6) F16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7) Subsections (1) and (3) to [F17 (5)] above F18 . . . shall not apply on any sale of know-how where the buyer is a body of persons over whom the seller has control, or the seller is a body of persons over whom the buyer has control, or both the seller and the buyer are bodies of persons and some other person has control over both of them; and subsection (2) above shall apply in any such case with the omission of the words “Subject to subsection (3) below”.

In this subsection references to a body of persons include references to a partnership.

(8) M4 Where in connection with any disposal of know-how a person gives an undertaking (whether absolute or qualified, and whether legally valid or not) the tenor or effect of which is to restrict his or another’s activities in any way, any consideration received in respect of the giving of the undertaking or its total or partial fulfilment shall be treated for the purposes of this section as consideration received for the disposal of the know-how.

Textual Amendments

F1 Words in s. 531(1) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 207(2)(a) (with Sch. 2)

F2 Words in s. 531(1) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 207(2)(b) (with Sch. 2)

F3 Words in s. 531(1) substituted (with effect in accordance with s. 579 of the amending Act) by Capital Allowances Act 2001 (c. 2), Sch. 2 para. 48(1)

F4 Words in s. 531(1) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 207(2)(c) (with Sch. 2)

F5 Words in s. 531(1) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 207(2)(d) (with Sch. 2)

F6 S. 531(2) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 207(3) (with Sch. 2)

F7 Words in s. 531(3)(a) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 207(4) (with Sch. 2)

F8 Words in s. 531(3) repealed (with effect in accordance with s. 579 of the repealing Act) by Capital Allowances Act 2001 (c. 2), Sch. 2 para. 48(2), Sch. 4

F9 S. 531(3A) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 207(5) (with Sch. 2)

F10 Word in s. 531(4) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 207(6)(a) (with Sch. 2)

F11 Words in s. 531(4)(a) substituted (with effect in accordance with s. 579 of the amending Act) by Capital Allowances Act 2001 (c. 2), Sch. 2 para. 48(3)

F12 Words in s. 531(4) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 207(6)(c) (with Sch. 2)

F13 Words in s. 531(4)(b) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 207(6)(b) (with Sch. 2)

F14 Word in s. 531(5) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 207(7)(a) (with Sch. 2)

F15 Words in s. 531(5) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 207(7)(b) (with Sch. 2)

F16 S. 531(6) repealed (6.4.2005 with effect in accordance with s. 883(1) of the repealing Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 207(8), Sch. 3 (with Sch. 2)

F17 Word in s. 531(7) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 207(9) (with Sch. 2)

F18 Words in s. 531(7) repealed (with effect in accordance with s. 579 of the repealing Act) by Capital Allowances Act 2001 (c. 2), Sch. 2 para. 48(4), Sch. 4

Modifications etc. (not altering text)

C1 S. 531(2)(7) excluded (8.11.1995) by Atomic Energy Authority Act 1995 (c. 37), Sch. 3 para. 19(2)

Marginal Citations

M1 Source-1970 s.386(2); 1985 s.65(3)(a)

M2 Source-1970 s.386(4); 1985 s.65(3)(b)

M3 Source-1970 s.386(4)-(6)

M4 Source-1970 s.386(8); 1985 Sch.18 Part II 8