Tax treatment of Goodwill for computing trading profits?

Clear guidance given in HMRC agent toolkit Capital v Revenue – Page 18.

  1. Sole Trader and partnership : No deduction allowed.
  2. Company: treatment given below:
When was the goodwill acquired?Tax deduction
Before 1 April 2002No deduction allowed.
Between 1 April 2002 to  3 Dec 2014Deduction allowed as per amortization in accounts – under Corporate intangible assets regime ; or
At fixed rate of 4% WDA
Deduction was also allowed for goodwill purchased from related parties.
3 Dec 2014 to 7 July 2015Amortisation allowed but only if goodwill purchased from unrelated party.
From 8 July 2015 to 31 March 2019No deduction allowed
From 1st April 2019 Relief  @ 6.5%  avaliable in certain cases – please see CIRD44050
Where no qualifying IP acquired, no relief.
No relief for goodwill purchased from related parties.

Note:
1. Where deduction is not allowed for trading profits . Deduction should be taken for Capital Gains Tax calculation.
2. Please note rules only allow relief to be claimed when a company acquires a business directly rather than acquiring the shares in the target company. Purchased goodwill can only be recognized on a business acquisition but not on an acquisition of shares.

Moral of the story
HMRC has prepared fantastic tool kits, please use it regularly to avoid mistakes.

Link to tool kits

Self employed – Car expenses

You must own the the car in your name.

For claiming expenses of the car , as you are self-employed you can either use either:

  1. Actual Method

2. Simplified Method

Actual Method

You could claim a proportion of all running actual costs of the car including repairs, restricted to the business use.

That is, suppose you spend £100 on your car in a month and business use is 70%. You can claim £70 as business expense.

Under this method you will need to keep all expense receipts for 6 years.

More details

Simplified Method

You can use the simplified method of 45p per mile for 10000 miles and 25p per mile thereafter which would also cover all running costs. You do not need to keep the expense receipts.

More details

Under both methods it’s advisable to maintain a log of your journeys – attached.

Which method to use  ?

You will need to ascertain which method is most beneficial to you.
Please use this calculator to make the decision – Calculator

Its usual to chose Simplified expenses as there is no need to keep expense receipts.

Whichever method once chosen will be used till that particular vehicle is disposed.

There is no need to take the decision when buying the car you may collect all the information and take the decision at year when filing tax return.

Leasing

Claim business proportion of monthly expenses plus actual monthly running costs. Example: Your leasing expenses are £200 per month and actual running expenses £100. Business use 50%. You can claim £150 as business expenses.

Please note if CO2 emission is over 100g/Km2 you reduce your lease by 15%.

Further information

Please also see a helpful HMRC Webinar , enter your details and webnair will start.