CIRD11685 - Intangible assets within FA02/SCH29: time test: general conditions: time when asset created or acquired: exceptions to expenditure incurred rule: assets other than goodwill not qualifying for capital allowances

FA02/SCH29/PARA122

Background

Like the rule for internally generated goodwill in CIRD11680 this paragraph addresses the difficulty in identifying expenditure (usually of a revenue nature) on the creation of an internally generated asset. Paragraph 122 addresses the case of an internally generated asset held by a company, other than goodwill, which does not qualify for capital allowances (for example a brand name or a magazine title).

Rule

Such an asset is regarded as wholly created before 1 April 2002 if the asset was held by the company, or a ‘related party’ ( CIRD45105 onwards), prior to that date.

The extension of this rule to the case where a related party held the asset before 1 April 2002 will be relevant in applying the provision described in CIRD11650. That is because for the purpose of that provision it will be necessary to determine when the related party from which it was subsequently acquired created the asset.

Apportionment

Where expenditure on the creation of an intangible fixed asset partly falls within paragraph 122 and partly outside, two separate assets are regarded as created. Any apportionment of the expenditure between the two assets should be made on a just and reasonable basis.

Example

The apportionment rule may be in point if part of the expenditure on an internal software development project (leading to the creation of an intangible fixed asset) would be revenue for tax under the relevant case-law (see BIM35800 onwards) and part would qualify for capital allowances. In those circumstances the expenditure would be regarded as giving rise to two separate assets and for the purpose of applying the time test:

• the time when the deemed asset created out of the revenue expenditure is created would be determined under paragraph 122 (see above);
• the time when the deemed asset created out of the expenditure qualifying for capital allowances is created would be determined under FA02/SCH29/PARA125 (see CIRD11670).

This apportionment of expenditure to separate assets is also to be adopted in applying any other corporation tax provisions, apart from Schedule 29, which may be in point.

Where valuation of intangible assets is an issue see CIRD10240.