CIRD11170 - Intangible assets within FA02/SCH29: asset conditions: requirement that asset must be fixed

FA02/SCH29/PARA3

Link with accounting practice

As outlined in CIRD11100 the general rule is that only intangible assets that are fixed come within Schedule 29. Paragraph 3 defines such an intangible fixed asset held by a company as one that is acquired or created by it for use on a continuing basis in the course of its activities.

This definition is similar in all essential respects to the notion of a fixed asset as a matter of accountancy. Intangible assets within the scope of FRS10 are necessarily fixed assets although this is not necessarily true for assets within the scope of IAS38 (see CIRD11120). The definition makes the point clear on the face of the legislation: only intellectual property and other intangible assets that are fixed come within Schedule 29.

An asset which is acquired or created for use in this way remains a fixed asset even though the purpose for which it is held changes, for example because the company decides to sell an asset or ceases to use it at all.

Assets which do not appear as fixed assets on balance sheet

FA02/SCH29/PARA3 (3) puts beyond doubt that an asset does not have to appear on a company’s balance sheet to make it a fixed asset. Most internally generated fixed assets cannot be capitalised in this way. Similarly, a licence acquired to exploit an intangible asset on a continuing basis will be a fixed asset even though it is not capitalised in the accounts (where no lump sum is paid for the licence and the consideration given wholly takes the form of royalties).

On the other hand, assets acquired as dealing or trading stock do not satisfy the definition. Nor does pre-paid expenditure.

Link with capital status for tax purposes

More generally, while it can be assumed that intangible assets which are capital for tax purposes (applying the tests developed by case-law) will count as fixed assets under the definition described above, an asset which is held on revenue account under those tests may well be a fixed asset under the definition.

Exception

There is an exception to the requirement that intangible assets need to be ‘fixed’ in relation to options to acquire or dispose of intangible fixed assets (see CIRD11175).