In accordance with case law, profits and losses of a mutual trade are excluded from the computation of income for CT (see CTM40950 onwards). But capital assets of a mutual trade, including intangible fixed assets and goodwill, remain within the CG code. These assets could have been excluded altogether from the scope of CT had they been brought into an income regime by virtue of Schedule 29.
Paragraph 79 ensures that the status quo is preserved. Capital
assets remain subject to the CG rules. And both incoming and
outgoing royalties arising in the course of a mutual trade remain
income matters, falling within the case law exclusion for mutual
profits.
Since the income from mutual life assurance business is
already within the charge to CT it is outside paragraph 79 and
therefore subject to the separate exclusion in paragraph 78 (see
CIRD25115).
The rule in paragraph 79 extends to a mutual ‘business’ as well as a mutual ‘trade’ and therefore in terms could apply to a mutual property business within Schedule A. But ICTA88/S21C requires the profits of a mutual Schedule A business to be computed as if the relationship of mutuality between the parties to the business did not exist. The goodwill and intangible fixed assets of such a business therefore fall within Schedule 29 in the ordinary way.
FA02/SCH29/PARA108 and PARA110 make special provision for the case where goodwill or intangible fixed assets cease or begin to be held for a mutual trade or business. See CIRD12745 and CIRD13270.
