SCHEDULES
C1C2SCHEDULE 29Gains and losses of a company from intangible fixed assets
Sch. 29 modified (5.10.2004) by Energy Act 2004 (c. 20), s. 198(2), Sch. 9 para. 28 (with s. 38(2)); S.I. 2004/2575, art. 2(1), Sch. 1
Part 2Debits in respect of intangible fixed assets
7Introduction
1
This Part provides for debits to be brought into account by a company for tax purposes in respect of—
a
expenditure on an intangible fixed asset that is written off for accounting purposes as it is incurred (see paragraph 8);
b
writing down the capitalised cost of an intangible fixed asset—
i
on an accounting basis (see paragraph 9), or
ii
on a fixed-rate basis (see paragraphs 10 and 11); and
c
the reversal of a previous accounting gain in respect of an intangible fixed asset (see paragraph 12).
2
This Part does not apply in relation to amounts brought into account in connection with the realisation of an intangible fixed asset (see Part 4).
8Expenditure written off as it is incurred
1
Where in a period of account expenditure on an intangible fixed asset is recognised in a company’s profit and loss account, a corresponding debit shall be brought into account for tax purposes.
2
Subject to any adjustment required for tax purposes, the amount of the debit recognised for tax purposes is the same as the amount of the loss recognised by the company for accounting purposes.
3
Nothing in—
section 74(1)(m) or (p) of the Taxes Act 1988 (annual payments and patent royalties not to be deducted in computing profits under Case I or II of Schedule D), or
section 817(1)(b) of that Act (annual payments not to be deducted in arriving at the amount of profits or gains for tax purposes),
has effect to prevent a debit being brought into account for tax purposes by a company in accordance with this paragraph (and given effect accordingly under Part 6).
4
This paragraph does not apply to a loss that represents previously capitalised expenditure.
9Writing down on accounting basis
1
Where in a period of account a loss is recognised in the company’s profit and loss account in respect of capitalised expenditure on an intangible fixed asset—
a
by way of amortisation, or
b
as a result of an impairment review,
a corresponding debit shall be brought into account for tax purposes.
2
The reference in sub-paragraph (1) to an “impairment review” does not include the valuation of an asset for the purpose of determining the amount of expenditure to be capitalised in the first place.
3
The amount of the debit for tax purposes in respect of expenditure on an asset is, in the period of account in which the expenditure is capitalised:
where—
Accounting Loss is the amount of the loss recognised for accounting purposes,
Tax Cost is the amount of expenditure on the asset that is recognised for tax purposes, and
Accounting Cost is the amount capitalised in respect of expenditure on the asset.
4
Subject to any adjustment required for tax purposes, the amount of the expenditure on the asset that is recognised for tax purposes is the same as the amount of expenditure on the asset capitalised by the company.
5
The amount of the debit for tax purposes in respect of expenditure on an asset is, in a subsequent period of account:
where—
Accounting Loss is the amount of the loss recognised for accounting purposes,
Tax Value is the tax written down value of the asset immediately before the amortisation charge is made or, as the case may be, the impairment loss is recognised for accounting purposes, and
Accounting Value is the value of the asset recognised for accounting purposes immediately before the amortisation charge or, as the case may be, the impairment review.
6
In this paragraph “capitalised” means capitalised for accounting purposes.
10Writing down at fixed rate: election for fixed-rate basis
1
A company may elect to write down the cost of an intangible fixed asset for tax purposes at a fixed rate.
2
An election to that effect may be made whether or not the asset is written down for accounting purposes.
3
An election under this paragraph must be made—
a
in writing,
b
to the Inland Revenue,
c
no later than two years after the end of the accounting period in which the asset is created or acquired by the company making the election.
4
An election under this paragraph in relation to an asset has effect in relation to all expenditure on the asset that is capitalised for accounting purposes.
5
An election under this paragraph is irrevocable.
6
Paragraph 9 (writing down on accounting basis) does not apply to an asset in respect of which an election is made under this paragraph.
11Writing down at fixed rate: calculation
1
Where an election is made for writing down at a fixed rate, a debit equal to—
a
4% of the cost of the asset, or
b
if less, the balance of the tax written down value,
shall be brought into account for tax purposes in each accounting period beginning with that in which the relevant expenditure is incurred.
2
If the accounting period is less than 12 months, the amount mentioned in sub-paragraph (1)(a) above shall be proportionately reduced.
3
The cost of the asset means the cost recognised for tax purposes.
4
Subject to any adjustment required for tax purposes, the cost of the asset recognised for tax purposes is the same as the amount capitalised for accounting purposes in respect of expenditure on the asset.
5
After a part realisation of the asset the reference in sub-paragraph (1)(a) to the cost of the asset shall be read as a reference to—
a
the cost recognised for tax purposes in respect of the value of the asset recognised for accounting purposes immediately after the part realisation, and
b
the cost so recognised of any subsequent expenditure on the asset that is capitalised for accounting purposes.
6
On a further part realisation, sub-paragraph (5) applies again.
12Reversal of previous accounting gain
1
Where in a period of account a loss is recognised in the company’s profit and loss account reversing (in whole or in part) a gain recognised in a previous period of account in respect of which a credit was brought into account for tax purposes under Part 3 (credits in respect of intangible fixed assets), a corresponding debit shall be brought into account for tax purposes.
2
The amount of the debit to be brought into account for tax purposes is:
where—
Accounting Loss is the amount of the loss recognised for accounting purposes,
Accounting Gain is the amount of the gain that is (in whole or in part) reversed, and
Previous Credit is the amount of the credit previously brought into account for tax purposes in respect of the gain.
3
References in this paragraph to the recognition of a loss reversing a gain recognised in a previous period of account do not include a loss recognised by way of amortisation, or as a result of an impairment review, of an asset that has previously been the subject of a revaluation within the meaning of paragraph 15.
Sch. 29 applied (with modifications) (15.8.2002) by S.I. 2002/1967, regs. 3-6