What is the tax treatment of intangible assets and amortisation?

Full Explanation

For corporation tax, the treatment differs between acquired and internally developed intangibles. Acquired intangible assets (through M&A) are typically tax-deductible over their useful life. For example, a £2M customer list valued with 5-year life yields £400K annual amortisation, which is tax-deductible. Goodwill, however, is not tax-deductible under UK law (despite being balance-sheet-recognised). This creates a mismatch: a company acquiring a business at a premium records goodwill (non-deductible) but cannot offset it against taxable income. Internally developed intangibles face stricter criteria: R&D costs are generally deductible when incurred (rather than capitalised), except under specific conditions (ASC 350 for software, ASC 730 for general R&D). This asymmetry favours acquisition-focused companies over organically growing companies. Transfer pricing rules (important for multinational companies) require that intangible asset ownership and allocation be documented and defensible. Poor transfer pricing documentation can trigger HMRC assessments. For tax planning, the allocation of IP ownership between entities (UK parent, overseas subsidiary) is material: licensing technology from a low-tax jurisdiction to a UK operating company can shift UK taxable profits overseas (though anti-avoidance rules limit this). Professional tax advice is essential for companies with significant intangible assets or international structures.

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