Intangible asset impairment and Corporation Tax: franchise and software licence write-offs
Short version. An intangible asset impairment can give a Corporation Tax deduction under the accounts-based rules in Part 8 CTA 2009. A franchise or software licence write-off is not automatically fully deductible. First establish whether it is impairment or realisation and which tax rules apply.
1. Amortisation, impairment and realisation
Amortisation allocates an asset's cost over its useful life. An impairment records a reduction in its accounting value following an impairment review. A disposal or other realisation is a different event. The word write-off alone does not decide the classification.
HMRC CIRD13230 distinguishes realisation from reductions arising through amortisation or an impairment review. Do not label a realisation as impairment simply because both might produce the same amount.
2. What determines the deduction?
For an asset within the accounts-based Part 8 route, the tax debit can match a qualifying impairment charge. It can differ where tax and accounting values diverge. The regime's scope, elections and restrictions still matter. See section 729 and HMRC's accounts-based relief explanation.
A licence name does not establish qualification. Goodwill and customer-related assets can have restricted relief. The amortisation guide links to the relevant official conditions.
3. A licence impaired in full
Assume a £5,000 licence has had £2,000 of accounting amortisation, leaving £3,000. The company then recognises a full £3,000 impairment. For this example only, assume the asset qualifies for accounts-based relief, its tax value also equals £3,000, no fixed-rate election applies and no restriction changes the deduction. The prepared tax debit is then £3,000.
The £3,000 accounting expense belongs in the depreciation and amounts written off assets total. If the computation adds that charge back, deducting the qualifying £3,000 restores its tax effect. There is one accounting expense and one tax deduction, not two expenses.
For a separate partial example, a £2,000 book impairment and a prepared £1,500 tax deduction leave £500 added back. These supplied figures illustrate the reconciliation. They do not set a standard deduction percentage.
4. Common filing mistakes
- Leaving the whole impairment added back when your prepared working includes a qualifying deduction.
- Deducting the same charge in Other charges and Depreciation.
- Entering amortisation and impairment as overlapping tax deductions instead of one combined amount.
- Treating a disposal as impairment, or assuming book value always equals tax value.
- Using whole-year figures for a separately prepared short-period return.
5. From accounts to the CT600
Prepare the accounts charge and the qualifying tax deduction, reconcile them in the tax computation, and check the resulting business profit or loss. Trading and property amounts belong in their respective business computations under HMRC's business-use rules.
SimpleCompanyTax accepts the supported accounts-based impairment deduction through its existing intangible field. Follow the product guide for exact steps and the current period-handling limits. Disposals and other realisations need a separate treatment which that field does not support.
This is general guidance. You supply your prepared figures and treatment. If their classification or deductibility is unclear, use the linked HMRC guidance or seek advice before choosing the field.