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

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