Schedule 29 - Gains and losses of a company from intangible fixed assets

Part of Finance Bill – in a Public Bill Committee at 9:45 am on 13th June 2002.

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Photo of John Healey John Healey The Economic Secretary to the Treasury 9:45 am, 13th June 2002

Thank you, Mr. Gale, and good morning. As I said to your co-Chairman on Tuesday, it is a great privilege to join the Committee, and I very much look forward to serving on it under your chairmanship.

The schedule would enact a major reform of the corporation tax treatment of intangible assets. The reform modernises the corporate tax base, providing relief for the cost of acquiring intangible assets when none had previously been available. Before I turn to the amendments, let me introduce clause 83, and schedules 29 and 30, and explain the background to this important new element of the legislation. It introduces a comprehensive regime that will provide consistent treatment of companies' expenditure and receipts in respect of intangible assets.

The new regime replaces an outdated and, in places, incoherent accretion of rules based on judicial decisions and occasional legislation, which had grown up piecemeal over nearly 150 years. It marks a further step in the Government's programme of corporate tax reform, which is designed to ensure that the tax system reflects the realities of today's business and competes with the best in the world. A modern system for taxing intangible assets will encourage companies to take advantage of new opportunities in the knowledge-based economy and will contribute to the Government's goal of increasing national productivity.

The proposals have been the subject of extensive consultation. The Government have issued six consultation documents since March 1998. The Inland Revenue has established a consultative group drawing on all representative employer organisations, and draft clauses were published with the pre-Budget report by my right hon. Friend the Chancellor of the Exchequer in November 2001. To that degree, therefore, business and tax practitioners and specialists have been closely involved in the development of the new regime, both individually and through their representative bodies. I pay tribute to all those who made a contribution. The Bill has been very much improved by that process, and the reform has been widely welcomed. The proposals have been developed considerably, particularly through the inclusion of roll-over relief and grandfather clauses.

The new regime provides for companies to obtain tax relief for the cost of intangible assets, including goodwill, brand names, trade marks and other intellectual property; in most cases, it will be based on the amortisation reflected in the accounts. The use of accounting write-downs to determine the tax relief breaks new ground, providing greater flexibility and bringing tax and commercial profits closer together.

The coverage of the new regime is also broadly aligned with the accountancy definition contained in financial reporting standard 10. That will ensure that relief under the new rules is available for the full range of intangible assets, with very few exceptions. It will enable the new regime to keep pace with commercial developments, without the need continually to add to the legislation to provide relief for new forms of intangibles as they develop in an increasingly fast-moving business world.

Mr. Michael Jack (Fylde): Just for clarification—not necessarily now, but before the end of our debate—will the Minister say what he meant by those delphic words ''with a few exceptions''? I am interested to know what has been left out.