Make sure you complete Box 122 on the Return and keep a memorandum of the loss.
Goodwill
If you think the existing goodwill only has a useful economic life to the business of five years, then you should amortise it over five years and can take the tax relief that is available on it over those five years.
Obviously, estimating the useful economic life of the goodwill is an exercise of judgement. There is no perfect answer!
If HMRC do challenge it the just remind them of this paragraph from one of their manuals in BIM46555:
It must be accepted that sometimes absolute accuracy is impossible, so that there is no single right figure. Directors and business proprietors have a responsibility when preparing accounts to make judgements, and there will often be a range of possible answers within which their own business expertise will be the main factor in deciding the final answer. What we expect them to do in arriving at an estimate is to exercise their judgement in a reasonable manner, taking into account the information reasonably available to them and other relevant factors including their own business expertise. If they have done this, and arrived at a result that accords with the requirements of GAAP, then Inspectors are not entitled to substitute a different figure just because they might have exercised their own judgement differently.
-- Edited by Truemanbrown on Friday 29th of March 2013 06:23:17 PM
Hi, I hope someone can help me. I have been trading for a few years as a sole trader, and normally file my own accounts with no issues. I was a bookkeeper many years ago, so SA is no problem, however this is my first time dealing with statutory accounts. I have incorporated and am in the process of filing my first CT return. The accounts period I am filing for is the 11-12 period, the company started trading on the 1 Oct 2011 and I have changed the year end to 5 April 2012.
The goodwill valuation was £210,000, which I have entered as an asset. I have made a net profit of just over £13300.00 in that 6 month period (1 Oct 11-5 Apr 12). I have been advised by the guy who valued the goodwill that it would be okay to write off the goodwill over 5 years. I didn't think to ask him at the time, but how do I work out the figure for the first 6 months of trading? Will this be a flat 1/5 of the goodwill, ie £42,000, or do I have to calculate it over the 6 months and halve it to £21,000?
Both figures will put me into a loss, which is fine. Reading up on CT losses, am I right in thinking that CT losses are automatically carried forward, that I don't have to state that I want to carry them forward like I have to in the SA return?
Finally, I have it in my head that once a goodwill amortisation period is set, it has to be used whether a company makes a profit or not, you can't carry it forward the way you can with capital allowances, is this correct? Sorry about all these questions, but my tax advisor it taking 2 weeks off so I won't get him, and if I don't get these filed I'll get a fine.
Hi, I hope someone can help me. I have been trading for a few years as a sole trader, and normally file my own accounts with no issues. I was a bookkeeper many years ago, so SA is no problem, however this is my first time dealing with statutory accounts. I have incorporated and am in the process of filing my first CT return. The accounts period I am filing for is the 11-12 period, the company started trading on the 1 Oct 2011 and I have changed the year end to 5 April 2012.
The goodwill valuation was £210,000, which I have entered as an asset. I have made a net profit of just over £13300.00 in that 6 month period (1 Oct 11-5 Apr 12). I have been advised by the guy who valued the goodwill that it would be okay to write off the goodwill over 5 years. I didn't think to ask him at the time, but how do I work out the figure for the first 6 months of trading? Will this be a flat 1/5 of the goodwill, ie £42,000, or do I have to calculate it over the 6 months and halve it to £21,000? Yes £21k seems reasonable
Both figures will put me into a loss, which is fine. Reading up on CT losses, am I right in thinking that CT losses are automatically carried forward, that I don't have to state that I want to carry them forward like I have to in the SA return? Depends what software your using. I use taxcalc and you need to state on that what you want to do with loss. Expect other software will be the same. Though depending if your software balances forward the loss from the previous year you may need to enter any losses brought forward from previous year.
Finally, I have it in my head that once a goodwill amortisation period is set, it has to be used whether a company makes a profit or not, you can't carry it forward the way you can with capital allowances, is this correct? You should review the goodwill each year and write off over what period you think will last at that point though generally people pick a rate at the start and keep that unless anything significant happens. Sorry about all these questions, but my tax advisor it taking 2 weeks off so I won't get him, and if I don't get these filed I'll get a fine.
There is one thing I missed, this may be a really stupid question, I thought the Goodwill amortisation would have to go into the capital allowances section, I am using HMRC's free software and it isn't giving me an option to amortise the goodwill in capital allowances, it only gives me the option for cars or machinery. Is amortisation entered as an expense, or is this just a flaw of HMRC's software?
Looks like Truemanbrown maybe made a typo. Wow, this is some site, I get my queries answered on a Friday evening! Thanks guys, that's just saved me a £150 companies house fine.
