How is taxable profit calculated under section 585 of ITTOIA 2005 for disposal of know-how outside a trade?

Under section 585, the taxable profit is calculated by taking the total consideration received for the disposal of know-how and deducting any expenditure incurred wholly and exclusively in acquiring the know-how or in making the disposal. This includes costs such as legal fees or the original purchase price of the know-how from a third party.

Can expenditure deducted under section 585 also be claimed elsewhere?

No. Section 585 explicitly prevents double counting of expenditure. Any costs used as a deduction under this section cannot also be claimed as a deduction under any other provision of the Act or any other tax rule. Each item of allowable expenditure may only be relieved once across all applicable provisions.

How does section 603 affect the allowable expenditure under section 585?

Section 603 reduces allowable expenditure where a third party has contributed towards the costs of acquiring or disposing of know-how. If someone else has reimbursed or funded part of the expenditure, the deductible amount must be reduced by that contribution, thereby increasing the taxable profit charged under section 585.

When is the taxable profit from a know-how disposal charged to income tax under section 585?

The charge applies to the full amount of profits arising in the relevant tax year in which the disposal occurs. There is no apportionment or deferral mechanism available. The entire taxable profit, being consideration less allowable expenditure, is subject to income tax in that single tax year.

Income Tax (Trading and Other Income) Act 2005 section 585

Income charged under section 583

Section 585 explains how to calculate the taxable profit when a person receives consideration for the disposal of know-how outside a trade, as charged under section 583.

Tax is charged on the full amount of profits arising in the tax year from disposals of know-how
Profits are calculated as the consideration received, less any expenditure incurred wholly and exclusively in acquiring or disposing of the know-how
Any allowable expenditure can only be deducted once, whether under this section or any other provision
The rules on contributions to expenditure in section 603 may reduce the amount of deductible expenditure

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