How are know-how disposal proceeds taxed under CTA 2009 section 177 when the trade continues?

Under section 177, when a company disposes of know-how used in its trade but continues trading, the consideration received is treated as a taxable trading receipt. However, this treatment does not apply to the extent the amount is already brought into account as a disposal value under the capital allowances rules in section 462 of CAA 2001, preventing double taxation.

When does CTA 2009 section 177 not apply to a disposal of know-how?

Section 177 does not apply where the know-how is disposed of as part of a sale of all or part of a trade (covered by section 178), or where there is a control relationship between the seller and the buyer (covered by section 179). In those cases, different rules govern the tax treatment of the disposal proceeds.

How are proceeds apportioned when know-how is sold together with other property?

Where know-how is sold with other property, the net proceeds must be apportioned on a just and reasonable basis. All property sold as part of one bargain is treated as sold together, even if separate prices are specified. This prevents manipulation of the allocation between know-how and other assets to gain a tax advantage.

What happens if the apportionment of know-how proceeds affects more than one taxpayer?

Where an apportionment question materially affects the tax liability of two or more persons, it must be resolved using the statutory procedure in section 563(2) to (6) of CAA 2001. This formal mechanism ensures fair resolution of disputes over the allocation of consideration between know-how and other property sold together.

Corporation Tax Act 2009 section 177

Disposal of know-how if trade continues to be carried on

Section 177 sets out the general rule for how payments received for the disposal of know-how are treated for corporation tax purposes when the company continues to carry on the trade.

When a company sells know-how used in its trade but continues trading, the payment received is generally treated as a taxable trading receipt.
The trading receipt treatment does not apply to the extent the amount is already brought into account as a disposal value under the capital allowances rules (section 462 of CAA 2001).
Where know-how is sold together with other property as part of one bargain, the sale proceeds must be split on a just and reasonable basis to identify the amount attributable to the know-how.
Where an apportionment question materially affects the tax liability of two or more taxpayers, it must be resolved using the statutory procedure in section 563 of CAA 2001.

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