Corporation Tax Act 2009

Chapter 4 U.K. Realisation of intangible fixed assets

733 Overview of Chapter U.K.

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

(2) For the meaning of “realisation”, see section 734.

(3) Sections 735 to 738 are subject to Chapter 7 (roll-over relief in case of realisation and reinvestment).

(4) This Chapter is also relevant for determining—

(a) whether an asset is a chargeable intangible asset for the purposes of this Part, and

(b) whether a gain is a chargeable realisation gain for the purposes of this Part.

(5) For the meaning of “chargeable intangible asset” and “chargeable realisation gain”, see section 741.

734 Meaning of “realisation” U.K.

(1) References in this Part 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.

(2) In subsection (1) “transaction” includes any event giving rise to a gain recognised for accounting purposes.

(3) In relation to an intangible fixed asset that has no balance sheet value (or no longer has a balance sheet value), subsections (1) and (2) apply as if it did have a balance sheet value.

(4) References in this Part to a “part realisation” are to a realisation falling within subsection (1)(b).

735 Asset written down for tax purposes U.K.

(1) This section applies if there is a realisation of an intangible fixed asset in respect of which debits have been brought into account for tax purposes.

(2) If the proceeds of realisation exceed the tax written-down value of the asset, a credit equal to the excess must be brought into account for tax purposes.

(3) If the proceeds of realisation are less than the tax written-down value of the asset, a debit equal to the shortfall must be brought into account for tax purposes.

(4) If there are no proceeds of realisation, a debit equal to the tax written-down value must be brought into account for tax purposes.

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

736 Asset shown in balance sheet and not written down for tax purposes U.K.

(1) This section applies if—

(a) there is a realisation of an intangible fixed asset to which section 735 does not apply, and

(b) a value is shown for the asset in the company's balance sheet.

(2) If the proceeds of realisation exceed the cost of the asset, a credit equal to the excess must be brought into account for tax purposes.

(3) If the proceeds of realisation are less than the cost of the asset, a debit equal to the shortfall must be brought into account for tax purposes.

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

(5) In this section “the cost of the asset” means the cost recognised for tax purposes.

(6) 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.

(7) Subsection (6) is subject to any adjustments required by this Part or [F1 Part 4 of TIOPA 2010] (provision not at arm's length)).

(8) If this section has applied on a part realisation of an asset and applies again (on the realisation of the unrealised asset) the references in subsections (2) to (4) to the cost of the asset must be read as references to the sum of—

(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 recognised for tax purposes of any subsequent expenditure on the asset that is capitalised for accounting purposes.

(9) If there is a further part realisation, subsection (8) applies again.

Textual Amendments

F1 Words in s. 736(7) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 145(1), (2) (with Sch. 9 paras. 1-9, 22)

737 Apportionment in case of part realisation U.K.

(1) In the case of a part realisation—

(a) the references in section 735 to the tax written-down value of the asset, and

(b) the references in section 736 to the cost of the asset,

must be read as references to the appropriate proportion of that amount.

(2) That proportion is—

where—

AVB is the accounting value immediately before the realisation, and

AVA is the accounting value immediately after the realisation.

738 Asset not shown in balance sheet U.K.

(1) This section applies if—

(a) there is a realisation of an intangible fixed asset, and

(b) neither section 735 (asset written down for tax purposes) nor section 736 (asset shown in balance sheet and not written down for tax purposes) applies.

(2) A credit equal to any proceeds of realisation must be brought into account for tax purposes.

[F2 738A Realisation of assets previously subject to Northern Ireland rate U.K.

(1) This section applies if—

(a) a company is required by section 735, 736 or 738 to bring into account for tax purposes a credit or debit on the realisation of an intangible fixed asset in an accounting period (“the relevant period”),

(b) the company is not a Northern Ireland company as defined by section 357KA of CTA 2010 in the relevant period,

(c) the asset is not a pre-commencement asset for the purposes of Chapter 8 of Part 8B of CTA 2010 (trading profits taxable at the Northern Ireland rate: intangible fixed assets),

(d) the credit or debit is treated for the purposes of that Chapter as including a Northern Ireland element, and

(e) at any time during the relevant period, the Northern Ireland rate is lower than the main rate.

(2) The amount of the credit or debit to be brought into account for tax purposes under section 735, 736 or 738 is reduced by an amount determined under this section (“the appropriate reduction”).

(3) If the relevant period falls within only one financial year, the appropriate reduction is—

where—

E is the Northern Ireland element of the credit or debit (see subsection (5));

MR is the main rate for the financial year;

NIR is the Northern Ireland rate for the financial year.

(4) If the relevant period falls within more than one financial year, take the following steps to find the appropriate reduction—

• Step 1 Apportion the Northern Ireland element of the credit or debit (see subsection (5)) between the financial years on a time basis according to the respective lengths of the parts of the relevant period falling within those years.

• Step 2 Where an amount is apportioned under step 1 to a financial year in which the Northern Ireland rate is lower than the main rate, multiply that amount by the following fraction—

  where—

  MR is the main rate for the financial year;

  NIR is the Northern Ireland rate for the financial year.

• Step 3 To find the appropriate reduction, add together each amount determined under step 2.

(5) In subsections (3) and (4), the “Northern Ireland element” of the credit or debit is an amount determined in accordance with sections 357OE to 357OG of CTA 2010.]

Textual Amendments

F2 S. 738A inserted (with effect in accordance with s. 5 of the amending Act) by Corporation Tax (Northern Ireland) Act 2015 (c. 21), Sch. 2 para. 1

739 Meaning of “proceeds of realisation” U.K.

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

[F3 (1A) But if the realisation involved the receipt of something other than money, subsection (1) has effect as if the reference to the amount recognised for accounting purposes as the proceeds of realisation were a reference to the amount that would have been so recognised had the receipt been a receipt of a sum of money equal to the price the thing concerned might reasonably have been expected to fetch on a sale in the open market.]

(2) The amounts referred to in subsection (1) are subject to any adjustments required by this Part or [F4 Part 4 of TIOPA 2010] (provision not at arm's length).

Textual Amendments

F3 S. 739(1A) inserted (with application in accordance with s. 20(2) of the amending Act) by Finance Act 2018 (c. 3), s. 20(1)

F4 Words in s. 739(2) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 145(1), (2) (with Sch. 9 paras. 1-9, 22)

740 Abortive expenditure on realisation U.K.

(1) This section applies if—

(a) in a period of account a loss is recognised in determining the company's profit or loss in respect of expenditure by the company for the purposes of a transaction,

(b) the transaction does not proceed to completion, but

(c) were it completed, it would constitute a realisation of an intangible fixed asset.

(2) A corresponding debit must be brought into account for tax purposes.

(3) The amount of the debit is the same as the amount of the loss recognised by the company for accounting purposes.

(4) Subsection (3) is subject to any adjustments required by this Part or [F5 Part 4 of TIOPA 2010] (provision not at arm's length).

Textual Amendments

F5 Words in s. 740(4) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 145(1), (2) (with Sch. 9 paras. 1-9, 22)

741 Meaning of “chargeable intangible asset” and “chargeable realisation gain” U.K.

(1) For the purposes of this Part, an asset is a “chargeable intangible asset” in relation to a company at any time if any gain on its realisation by the company at that time would be a chargeable realisation gain.

(2) For the purposes of this Part, “chargeable realisation gain”, in relation to an asset, means a gain on the realisation of the asset that gives rise to a credit required to be brought into account under this Chapter.

(3) For the purposes of subsections (1) and (2), there is a gain on the realisation of an asset in any case if section 735(2), 736(2) or 738(2) applies.

(4) For the purpose of subsections (1) and (2), ignore any question whether—

(a) relief under Chapter 7 (roll-over relief in case of realisation and reinvestment) is available, or

(b) a transfer of an asset is tax-neutral for the purposes of this Part (see section 776).