A First-tier Tribunal (FTT) has ruled that a company had validly acquired an intangible fixed asset (IFA) through an informal licensing arrangement, and that the mislabelling of that asset as “goodwill” in the accounts did not constitute careless conduct that might warrant extending statutory time limits for HMRC enquiries.

Facts:

This case involves an appeal by a company against several corporation tax assessments and closure notices issued by HMRC regarding the tax treatment of an IFA. The core of the dispute centres on whether the appellant was entitled to claim tax deductions for the amortisation of an asset valued at approximately £550,000, which it asserted was a licence to use a client list and associated data. This asset originated from the retirement of a Mr. Robert Glazer from his former partnership, Glazers Chartered Accountants, after an arbitrator ruled that he could take his client portfolio, provided that he compensated the firm for its share of the goodwill.

The appellant was incorporated to own this asset and subsequently licensed it to Ripe LLP, a separate entity that was specifically formed to conduct the accountancy practice in return for an annual fee or profit share. HMRC, however, challenged this arrangement on two primary fronts, arguing first that the appellant had not actually acquired an identifiable IFA but had instead paid for a release from a restrictive covenant or for non-identifiable goodwill. Secondly, HMRC issued discovery assessments for earlier accounting periods, asserting that the loss of tax was due to the careless conduct of the directors in mislabelling the asset as goodwill in the company’s accounts.

Decision:

The FTT allowed the taxpayer’s appeal against closure notices and assessments, denying corporation tax deductions for the amortisation of the licensing of a client list and related data on the basis that the licence was not an IFA.

The Tribunal ruled that the appellant had validly acquired an identifiable IFA, even though there was no formal written contract at the outset. The Judge found that a “licence” was effectively created by the conduct of the parties, and the payment made to the old partnership was thus not merely a fee to avoid a lawsuit (a restrictive covenant) but rather a payment for the right to use specific client data to generate income.

The Judge accepted that the appellant had sufficient control over the asset to satisfy the stipulations of the Corporation Tax Act (CTA) 2009. The evident strategy of “ring-fencing” the client list within a separate holding company was deemed a legitimate commercial arrangement. The fact that the appellant charged Ripe LLP for the use of this data only proved that it was exploiting the asset for economic benefit.

Implications:
The most significant commercial implication is the legal recognition of IFAs. The ruling confirms that an IFA—such as a licence to use client data—can exist through the conduct of the parties and oral agreements, even in the absence of any formal, written contract. This ruling validates the “ring-fencing” model, where one company holds the intellectual property (IP or client list) and another operating entity (the LLP) pays for its use.

The Tribunal ruled that mislabelling an asset as “goodwill” instead of a “licence” does not automatically invalidate a tax claim. If the tax outcome (in this case, the amortisation deduction) would be equivalent under the correct label, then the error is considered a matter of description rather than a substantive tax failure. This judgement effectively prevents HMRC from penalising taxpayers for technical terminology errors that have no impact on the quantum of tax owed.