Corporation Tax Act 2009 section 874

Original asset not subject to fixed-rate writing down

Section 874 deals with the tax adjustment required when a change of accounting policy causes a single intangible fixed asset to be split into two or more separate assets, where the original asset was not subject to fixed-rate writing-down.

• When a change of accounting policy splits one intangible fixed asset into two or more resulting assets, a tax adjustment is needed if there is a difference between the accounting value of the original asset and the combined accounting values of the resulting assets
• If the combined value of the resulting assets exceeds the original asset's value, a taxable credit arises; if it is less, a tax-deductible debit arises — in both cases recognised in the later period
• The credit or debit is calculated as: the accounting difference multiplied by the ratio of the original asset's tax written-down value to its accounting value at the end of the earlier period
• Any credit is capped at the net cumulative debits previously brought into account for tax purposes in respect of the original asset (that is, total prior debits minus total prior credits)