Legal loopholes concerning the accounting of a company's intangible assets were closed with immediat...
Legal loopholes concerning the accounting of a company's intangible assets were closed with immediate effect on Friday (22nd June) under changes to corporate tax rules announced by Paymaster General Dawn Primarola.
Corporation tax rules which are designed to give tax relief on intangible assets such as patents, trademarks and intellectual property are now being altered because the Inland Revenue believes companies are abusing the system by including other assets in their claim, and not paying the capital gains tax.
Moreover, the Revenue says it has evidence to suggest firms are marketing tax avoidance schemes which "exploit a perceived mismatch between the definition of a related party in the new intangible rules and the definition of a group for capital gains tax purposes".
Under Schedule 29 rules of the Finance Act 2002, companies are allowed to claim tax relief either as part of their assets in their accounts or as a deduction of 4% of the value of the asset for every year until it is fully written down.
But Revenue officials have been seeking to, close this hole because the government body believes, under existing rules, this allows companies to transfer assets within a group without paying the capital gains and instead claim the tax relief as intangible assets for up to 25 years.
Because the assets are still seen as 'unrelated parties', the asset effectively moves into the intangible assets category, says the Revenue,
Specifically, the changes which will be officially added to the Finance Bill at the Report Stage amend the definition of a "related person" under the intangible asset rules to include cases where two companies are members of the same group.
Companies will still be able to claim under these loophole for the days and months of the accounting period if their accounting period started before Friday 20th June. But this will stretch only up to today as they fall under law in existence before the amendments were announced.
This will only be accepted providing they are intangible assets created AFTER March 31st 2002 - when Schedule 29 of the Finance Act 2002 came into play.
The Revenue stresses that it will now deny all requests to include intangible assets in accounts and their accounting periods, regardless of when transaction took place and that it will not revisit past accounting periods.
Changes to corporation tax rules were announced at the same time as the closure of the inheritance tax planning 'gifts with reservation' loophole.
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