UKFTT 109 (2010) Greenbank Holidays Ltd v HMRC

Intangibles and goodwill - HMRC won

Case Summary:

Much of the legislation (see Schedule 29 Finance Act 2002) referred to in this decision has been extensively amended by section 70 of Finance Act 2009.  The amended code now appears in Part VIII of Corporation Tax Act 2009.  Some of the amendments were expressly designed to cater for the issue arising in this appeal.

HMRC disallowed a deduction in respect of expenditure on goodwill relating to the business acquired from a company in the same group, on 30 September 2003. 

HMRC argued the Goodwill was acquired after the commencement date of the Schedule 29 code, i.e. 1 April 2002, from a related party.  Greenbank claimed that relief was available because the Goodwill was created by Greenbank after the commencement date.

Greenbank said Goodwill was not created until it appeared as an asset in the balance sheet of the company in question.  The Goodwill only appeared in Greenbank’s accounts as purchased goodwill as the consequence of its acquisition for consideration from Keyline on 30 September 2003, i.e. after the commencement date.

HMRC said that the Goodwill to which Greenbank’s claim relates was created from the time when Keyline started to carry on the business to which the Goodwill related.

The First Tier Tribunal decided that no goodwill was created by Greenbank.  It had already been created by Keyline.  From the time when Keyline carried on the business, it was creating internally generated goodwill.  That was the goodwill that became the subject-matter of the sale to Greenbank on 30 September 2003.  No part of the purchase price paid to Keyline was expenditure “on” the creation of the goodwill. 

The Tribunal said:

“More fundamentally, Greenbank’s case is founded on the proposition that internally generated goodwill is a “nothing” for purposes of the code in Schedule 29 until recognised in the accounts of the relevant company.  We have already concluded that Goodwill, using the meaning that it has for accounting purposes, covers both purchased goodwill and internally generated goodwill.”

Therefore relief could not be due