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Finance Act 2002

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This is the original version (as it was originally enacted).

Part 4Realisation of intangible fixed assets

Introduction

18This Part provides for credits or debits to be brought into account for tax purposes on the realisation by a company of an intangible fixed asset.

Meaning of “realisation”

19(1)References in this Schedule to the realisation of an intangible fixed asset are to a transaction resulting, in accordance with generally accepted accounting practice—

(a)in the asset ceasing to be recognised in the company’s balance sheet, or

(b)in a reduction in the accounting value of the asset.

For this purpose a “transaction” includes any event giving rise to a gain recognised for accounting purposes.

(2)In relation to an intangible fixed asset that has no balance sheet value (or no longer has a balance sheet value), sub-paragraph (1) applies as if it did have a balance sheet value.

(3)References in this Schedule to a “part realisation” are to a realisation falling within sub-paragraph (1)(b).

Realisation of asset written down for tax purposes

20(1)This paragraph applies where there is a realisation of an intangible fixed asset in respect of which debits have been brought into account for tax purposes—

(a)under paragraph 9 (writing down on accounting basis), or

(b)under paragraphs 10 and 11 (writing down at fixed rate).

(2)Where this paragraph applies—

(a)if the proceeds of realisation exceed the tax written down value of the asset, a credit equal to the excess shall be brought into account for tax purposes;

(b)if the proceeds of realisation are less than the tax written down value of the asset, a debit equal to the shortfall shall be brought into account for tax purposes; and

(c)if there are no proceeds of realisation, a debit equal to the tax written down value shall be brought into account for tax purposes.

(3)References in this paragraph to the tax written down value of an asset are to its tax written down value immediately before the realisation.

Realisation of asset shown in balance sheet and not written down for tax purposes

21(1)This paragraph applies where there is a realisation of an intangible fixed asset for which a value is shown in the company’s balance sheet but which is not within paragraph 20 (asset written down for tax purposes).

(2)Where this paragraph applies—

(a)if the proceeds of realisation exceed the cost of the asset, a credit equal to the excess shall be brought into account for tax purposes;

(b)if the proceeds of realisation are less than the cost of the asset, a debit equal to the shortfall shall be brought into account for tax purposes; and

(c)if there are no proceeds of realisation, a debit equal to the cost of the asset shall be brought into account for tax purposes.

(3)The cost of the asset means the cost recognised for tax purposes.

(4)Subject to any adjustment required for tax purposes, the cost of the asset recognised for tax purposes is the same as the amount of expenditure on the asset capitalised by the company for accounting purposes.

(5)After a part realisation of the asset the references in sub-paragraph (2)(a), (b) and (c) to the cost of the asset shall be read as a reference to—

(a)the cost recognised for tax purposes in respect of the value of the asset recognised for accounting purposes immediately after the part realisation, and

(b)the cost so recognised of any subsequent expenditure on the asset that is capitalised for accounting purposes.

(6)On a further part realisation, sub-paragraph (5) applies again.

Apportionment in case of part realisation

22(1)In the case of a part realisation the references in paragraph 20 to the tax written down value of the asset, or, as the case may be, the references in paragraph 21 to the cost of the asset, shall be read as references to the appropriate proportion of that amount.

(2)That proportion is given by:

Entry incomplete

where—

  • Reduction in Accounting Value is the difference between the accounting value immediately before the realisation compared with that immediately after the realisation; and

  • Previous Accounting Value is the accounting value immediately before the realisation.

Realisation of asset not shown in balance sheet

23(1)This paragraph applies where there is a realisation of an intangible fixed asset in relation to which neither paragraph 20 (asset written down for tax purposes) nor paragraph 21 (asset shown in balance sheet but not written down) applies.

(2)Where this paragraph applies, a credit equal to any proceeds of realisation shall be brought into account for tax purposes.

Meaning of “proceeds of realisation”

24(1)In this Schedule the “proceeds of realisation” of an asset means the amount recognised for accounting purposes as the proceeds of realisation, reduced by the amount so recognised as incidental costs of realisation.

(2)The amounts referred to in sub-paragraph (1) are subject to any adjustment required for tax purposes.

Relief in case of reinvestment

25The preceding provisions of this Part have effect subject to Part 7 (relief in case of reinvestment).

Abortive expenditure on realisation

26(1)Where in a period of account—

(a)a loss is recognised in the company’s profit and loss account in respect of expenditure by the company for the purposes of a transaction that would constitute a realisation of an intangible fixed asset, but

(b)the transaction does not proceed to completion,

a corresponding debit shall be brought into account for tax purposes.

(2)Subject to any adjustment required for tax purposes, the amount of the debit recognised for tax purposes is the same as the amount of the loss recognised by the company for accounting purposes.

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