CIRD11670 - Intangible assets within CTA09/PART8: FA02 rule: general conditions: time when asset treated as created or acquired: scope of rules

CTA09/PART8/S883 - 889

These rules only apply for the purpose of determining to what extent an asset is ‘created on or after 1 April 2002’ or ‘acquired on or after that date’ for the purpose of the FA02 rule.

Expenditure incurred rule

Subject to exceptions concerned with the creation of assets, an asset is created or acquired on or after 1 April 2002 for the purposes of Part 8 if and when expenditure on its creation (CIRD11675) or acquisition (CIRD11690) is ‘incurred on or after that date’. The date when any expenditure is incurred is linked to the provisions determining when expenditure is incurred under the corporation tax rules which otherwise apply to the asset.

Example - licence granted by a related party

From section 712 (3)(d) it is clear that licenses can be intangible assets. However, the FA02 rule in section 882 governs whether a licence comes within Part 8 for the licensee.

When a licence is granted to the licensee by a related party:

• S882(1)(a) cannot apply as the licensee has not created anything
• S882(1)(b) cannot apply because the licensor and licensee are related
• S882(1)(c) may apply only if Cases A, B or C are satisfied:

• • Case A (s882(3)) cannot apply as the license was never a chargeable intangible asset in the hands of the licensor
  • Case B (s882(4)) cannot apply as the licensor did not acquire the license
  • Case C (s882(5)) cannot apply, as neither the licensor nor the licensee has ‘created’ the license for the purposes of Part 8.

Section 883 specifies that an intangible fixed asset is ‘created on or after 1 April 2002’ for the purposes of section 882 if and when expenditure is incurred on its creation on or after 1 April 2002.

The licence is derived wholly from the underlying asset, and so granting the licence involves no expenditure on creation. Any lump sum paid by the licensee is expenditure on acquiring the licence. The licence has not been ‘created on or after 1 April 2002’, within the specific meaning of that term for the purposes of Part 8. Therefore, Case C cannot apply.

(Though, a licence acquired from a related party by assignment can be within Part 8, if the licence was a chargeable intangible asset in the hands of the transferor and the transferee incurs expenditure on its acquisition - see Case A.)

Note that, where the licence is treated as a pre-FA 2002 asset (CIRD11505) any royalties will still fall under Part 8 (CIRD10150).

Apportionment

Under these rules expenditure on the ‘creation’ or ‘acquisition’ of an intangible fixed asset may be incurred over a period that straddles 1 April 2002. Where in those circumstances the timing of expenditure determines when an asset is created or acquired two separate assets are regarded as created or acquired, one to which Part 8 applies and one to which they do not. Any apportionment of the expenditure between the two assets should be made on a just and reasonable basis.

This provision is to be adopted not only for the purpose of applying Part 8 to the asset represented by expenditure incurred on or after 1 April 2002 but also in the application of whatever other corporation tax rules are in point to the second asset.