Corporation Tax Act 2009 section 178

Disposal of know-how as part of disposal of all or part of a trade

Section 178 provides the main exception to the general treatment of know-how payments, by treating consideration for know-how sold as part of a trade disposal as a capital payment for goodwill rather than a trading receipt.

• When know-how is sold as part of the disposal of all or part of a trade, the consideration is treated as a capital receipt (for the seller) and a capital payment (for the buyer) for goodwill, rather than as a trading amount
• This goodwill treatment does not apply to the buyer if, before the acquisition, the trade was carried on wholly outside the United Kingdom
• The seller and the buyer may jointly elect within two years of the disposal for this goodwill treatment not to apply, which may allow the buyer to claim capital allowances or, exceptionally, treat the payment as a trading expense
• Where an income tax payer disposes of know-how to a corporation tax payer and an election is made under the corresponding income tax provision (section 194 of ITTOIA 2005), that election is automatically treated as also being an election under this section