Intangible Asset Regime – Bean Counters

My name is TTF and I am addicted to coffee. Not your namby pamby cappuccino, I am addicted to the hard stuff.  Black, no sugar straight from the bean.  Some people in the office have suggested that I give coffee up as a new years resolution. I just treat this statement with the contempt it deserves. They may as well have suggested that I give up oxygen.

Leyton Orient Coffee Cups

I’m not sure where it started but I know it wasn’t at Orient.  When the old West Stand was in place we used to get a cup of hot water.  We were then left to help ourselves with a stained tea-spoon attached to a chain which was sitting in a cup of brown water.  Still it was only 10p and you got your iron intake from the rust on the spoon!

For my birthday (a national holiday in Brazil) Mrs TTF bought me a coffee machine which I suspect was an attempt to curve a large part of the household expenditure being spent on takeaway Americano.  I am therefore trying to stay away from the siren sounds of the Batistas of Starbucks.

Don’t get me wrong I’m not adverse to a visit to Starbucks (I can hear you boo hissing from here).  The problem is that Jabo (#1 son) has developed a taste for babyccinos.  Before you run off to social services these small latte drinks contain no caffeine.  If they did I would be wrestling them out of his hand for my own consumption.  His limited vocabulary now consists of “babyccino please” which confuses the barristers when they can’t see him below the counter.  This is cute for maybe the first two occasions but it gets embarrassing after the fourth.

Starbucks has received a lot of bad press at late for its tax mitigation.  I have heard a lot about how the small coffee shops cannot take advantage of similar tax planning.  This is true to some extent but there are still some elements of the planning used by Starbucks which could apply to smaller businesses.

The Tax Bit

Allegedly one of the ways that Starbucks (legally) reduces its profits is by paying royalties to its parent company.  This is effectively taking advantage of intangible assets i.e. assets of a company that you cannot touch.    If the circumstances are appropriate it is possible for all companies (not just the big multinationals) to take advantage of tax deductions for intangible assets.

Goodwill

If a company acquires an existing business the amount paid will normally be for more than the tangible assets of the company (stock, office equipment, motor vehicles etc).  The excess is attributed to goodwill and should be recognised in the balance sheet as an intangible asset.

Like most assets goodwill should be reviewed to see if its value has decreased overtime which would normally be the case.  If all the conditions under the intangible asset regime are met then it is possible to claim an annual deduction for the impairment against the company’s profits for tax purposes.

As always there are various matters to consider including the fact that a company is unable to obtain tax relief on goodwill where it was acquired from a connected person if that person set up the business before March 2002.  In addition any value attributed to goodwill and amortisation policy must be fully supportable in the event of a HMRC enquiry.  You should therefore always ensure that you obtain advice from a qualified chartered tax advisor before progressing.

In essence if you own a company that has bought a business have you claimed relief for intangible assets?  If not ask your accountant.

I’m off to the local AA meeting…I hear they do free coffee.

By Peter Cross

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