CIRD11070 - Intangible assets within CTA09/PART8: asset conditions: goodwill
The statute provides that ‘goodwill’ carries the same meaning as it does ‘for accounting purposes’, that is its meaning under ‘GAAP’, terms defined in ICTA88/S832 (1) and FA04/S50 (see CIRD30020).
As a matter of accountancy, goodwill is simply the difference between the price at which a business changes hands and the aggregate value of the individual assets of that business after deducting the value of the liabilities taken over.
“Goodwill” encompasses internally-generated goodwill. This was confirmed in the decision of Greenbank Holidays Ltd v HMRC Commissioners  UK FTT 109 (TC) (“Greenbank”) and upheld by the Upper Tribunal in Greenbank Holidays Ltd v HMRC Commissioners  UKUT B11 TCC.
FA09/S70 amended CTA09/S715 (3) to confirm that, for the purposes of the regime, goodwill includes internally-generated goodwill. CTA09/S715 (4) was added to confirm that, for the purposes of the regime, goodwill is treated as created in the course of carrying on the business in question.
The FA09 amendments merely clarified the position in relation to the pre FA09 legislation, which is that goodwill includes internally-generated goodwill; it did not change the rule. The FA09 amendments were confirmed as clarifications in the Greenbank decisions at the First-Tier and Upper Tribunals.
Where a company takes over a business by acquiring shares in the target company and the consideration given for the shares exceeds the ‘fair value’ (CIRD12735) of the net assets of the target company the excess is treated as goodwill in the consolidated group accounts. Goodwill of this kind does not appear in any company-level balance sheet and is outside the scope of Part 8.
As in the legislation itself, references to intangible assets in the part of this manual dealing with the rules in Part 8 should be read as including goodwill except where it is clear from the context that is not the case.
Usually the price of the business will exceed that aggregate value but that is not always the case. Where the aggregate value of the assets exceeds the price paid for the business the difference is known as ‘negative goodwill’, a credit entry in a company’s balance sheet. Negative goodwill is not itself within Part 8 but sums written off negative goodwill may be taxable credits, where, exceptionally, the negative goodwill is referable to intangible assets within Part 8, see CIRD13080.
Application of statutory exclusions to goodwill
Section 715 (1) provides that Part 8 applies to goodwill ‘as it applies to an intangible fixed asset’. Goodwill could in principle therefore fall within the categories of excluded assets described at CIRD25000 onwards in relation to intangible fixed assets proper.
In practice the following exclusions are most likely to be relevant to goodwill:
- CTA09/PART8/S803 (b) - assets held for the purpose of activities not within the charge to corporation tax (see CIRD25090)
- CTA09/PART8/S810 (1) - assets held for the purpose of a mutual trade or business (see CIRD25120)
- CTA09/PART8/S902 (1) - assets held for the purpose of life assurance business (see CIRD25115)