What are the exceptions to the corporation tax charge on know-how disposals under section 909 of the Corporation Tax Act 2009?

Section 909 provides four exceptions to the section 908 charge: where the consideration is already a disposal value for capital allowances, where it is treated as a trading receipt because the trade continues, where it is treated as a capital receipt for goodwill on a trade sale, and where the sale is between connected parties with a control relationship.

Why does section 909 exclude connected party sales of know-how from the section 908 charge?

Section 909 excludes connected party sales because transactions between parties where the buyer controls the seller, the seller controls the buyer, or a third party controls both should not trigger the know-how disposal charge. This reflects United Kingdom tax policy that such intra-group or connected transactions are treated differently from arm's length sales.

When does the know-how disposal consideration already fall within the United Kingdom tax system?

The consideration already falls within the tax system where it has been brought into account as a disposal value for capital allowances purposes, where it is treated as a trading receipt because the company continues its trade after the disposal, or where it is treated as a capital receipt for goodwill as part of a disposal of all or part of a trade.

What happens if none of the section 909 exceptions apply to a know-how disposal?

If none of the four exceptions under section 909 apply — for example, where know-how is sold to an unconnected party and the consideration is not accounted for through capital allowances, trading receipts, or goodwill — the profit on the disposal is subject to the full corporation tax charge imposed by section 908 of the Corporation Tax Act 2009.

Corporation Tax Act 2009 section 909

Exceptions to charge under section 908

Section 909 sets out the circumstances in which the corporation tax charge on profits from disposals of know-how under section 908 does not apply.

The charge does not apply where the consideration is already accounted for as a disposal value for capital allowances purposes.
The charge does not apply where the consideration is treated as a trading receipt because the trade continues to be carried on after the know-how disposal.
The charge does not apply where the consideration is treated as a capital receipt for goodwill as part of a disposal of all or part of a trade.
The charge does not apply where the know-how is sold between connected parties — that is, where the buyer controls the seller, the seller controls the buyer, or a third party controls both.

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