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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Greenbank Holidays Ltd v Revenue & Customs [2010] UKFTT 109 (TC) (08 March 2010) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2010/TC00416.html Cite as: [2010] SFTD 653, [2010] UKFTT 109 (TC), [2010] STI 1758 |
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Appeal number SC/3190/2008
CORPORATION TAX – Intangible fixed assets – Goodwill – Chargeability of gains and losses – Commencement of new statutory code – Application of the code and goodwill created or acquired after commencement – Taxpayer company purchased business and internally-generated goodwill from associated company after commencement date of code – Taxpayer company recognised goodwill element as purchased goodwill in its accounts – Whether goodwill created by taxpayer company after commencement of code – No – Appeal dismissed – FA 2002 Sch 29 para 118(1)(a)
FIRST-TIER TRIBUNAL
TAX CHAMBER
GREENBANK
HOLIDAYS
LIMITED Appellant
- and -
TRIBUNAL: SIR STEPHEN OLIVER QC
MARK BUFFERY FCA
Sitting in public in London
on 25-27 January 2010
Francis Fitzpatrick, counsel, instructed by Reynolds Porter Chamberlain LLP, solicitors for the Appellant
Christopher Tidmarsh QC and Nicola Shaw, counsel, instructed by the General Counsel for HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT
2010
DECISION
1. Greenbank
Holidays
Ltd
(“
Greenbank”)
appeals against an amendment by
HMRC
(pursuant to paragraph 34
Finance Act 1998) to its return for the period ended 30 September 2003. The
amendment in effect disallowed a deduction in respect of expenditure on
goodwill relating to the business acquired from Keyline Continental
Ltd
(“Keyline”), a company in the same group, on 30 September 2003 (“the Goodwill”).
2. The issue in this
appeal is whether, in computing its taxable profits for purposes of corporation
tax for the period ending 30 September 2003, Greenbank
is entitled to a
deduction by reference to the Goodwill recognised in its accounts that relates
to the business acquired from Keyline.
3. The legislation in point is Schedule 29 Finance Act 2002. This was introduced with effect from 1 April 2002 as a new corporation tax code for intangible assets, defined so as to include, amongst other things, intellectual property and goodwill. In essence, the code contained in the Schedule brought the tax treatment of intangible assets into line with the manner in which such items were treated in a company’s accounts and treated gains in respect of intangible assets as income for corporation tax purposes. Many of the terms in Schedule 29 are expressly defined by reference to the meaning they bear for accountancy purposes (a phrase given legal meaning for purposes of the Schedule).
4. Unless otherwise stated all statutory references in this Decision are to paragraphs in Schedule 29 Finance Act 2002.
5. Greenbank
elected,
pursuant to paragraph 10, to write down at an annual fixed rate of 4% the cost
of the Goodwill arising from its acquisition of the business from Keyline.
HMRC
have denied the relief on the grounds that it falls outside the scope of
the code contained in Schedule 29. Specifically,
HMRC
say, the Goodwill was
acquired after the commencement date of the Schedule 29 code, i.e. 1 April
2002, from a related party.
Greenbank
claims that relief is available because
the Goodwill was created by
Greenbank
after the commencement date.
The facts
6. Greenbank
was at all
material times a member of a UK corporate group whose parent company was
Holidaybreak
Plc, a UK listed company. The group was organised into three
divisions, known as “Camping”, “Hotel Breaks” and “Adventure”.
Greenbank’s
carried on the Camping division trade. The trade was that of a tour operator
of camping
holidays
throughout Europe and involved the provision of
self-catering
holidays
in mobile homes and tents pre-sited on a number of
European camp sites. Some years ago, in or around 1998, in order to expand the
business of the Camping division, Keyline, another tour operator, was acquired
and became a member of the group.
7. Keyline as vendor
and
Greenbank
as purchaser entered into an agreement dated 30 September 2003 for
the sale and purchase of the camping and mobile home
holiday
business of
Keyline (excluding certain specified assets) for a consideration of £46,632,000
and the assumption by
Greenbank
of
various
debts, liabilities and obligations
of Keyline.
8. Following the
acquisition of the Keyline business, Greenbank’s
accounts recognised an amount
of £37,119,927 in respect of the Goodwill relating to that acquisition. The
accounts were prepared by
Greenbank
in accordance with UK Generally Accepted
Accounting Practice. That phrase is referred in this Decision as GAAP.
9. Greenbank’s
corporation tax computation and return for the accounting period ending 30
September 2003 was filed in October 2004 with a Schedule showing the Goodwill
as being non-deductible in nature. In early 2005
HMRC
commenced an enquiry
into that return. In May 2005
HMRC
were informed by the accountants to the
group that the treatment of the Goodwill in the accounts had been incorrect.
An election was made under paragraph 10 claiming a deduction on account of the
Goodwill at a fixed rate of 4% per annum. On completion of their enquiry in
October 2007,
HMRC
concluded that
Greenbank
was not entitled to any deduction
for the Goodwill pursuant to paragraph 10 and, on 29 November 2007, they gave
notice to
Greenbank
amending its return for the accounting period ending 30
September 2003 to give effect to that conclusion.
Greenbank
appealed in
December 2007 and in January
2010
the appeal came on for hearing before the Tax
Chamber of the First-tier.
The legal and accounting background
10. Much of the legislation
referred to in this decision has been extensively amended by section 70 of
Finance Act 2009. The amended code now appears in Part VIII
of Corporation Tax
Act 2009. It is not in dispute that the amendments, or some of them, were
expressly designed to cater for the issue arising in this appeal.
11. Schedule 29 introduced a new code for bringing into charge corporation tax profits and losses in respect of “intangible fixed assets”.
12. For these purposes “intangible asset” is given by paragraph 2(1) “the meaning it has for accounting purposes”. It is expressly extended to “intellectual property”: paragraph 2(2).
13. Paragraph 3(1) provides that an “intangible fixed asset” means “an intangible asset acquired or created by the company for use on a continuing basis in the course of the company’s activities”: nothing in this appeal turns on the meaning of “fixed”.
14. “For accounting
purposes” means for “the purposes of accounts drawn up in accordance with
generally accepted accounting practice” (Taxes Act 1998 section 832(1) as
amended by Finance Act 2002 section 103(1)). “Generally accepted accounting
practice” (i.e. GAAP) means “generally accepted accounting practice with
respect to the accounts of UK companies intended to give a true and fair view”:
Taxes Act 1988 section 836A.
15. Goodwill is not regarded as an asset (intangible or otherwise) for accounting purposes but paragraph 4 provides:
“(1) Except as otherwise indicated, the provisions of this Schedule apply to Goodwill as to an intangible fixed asset.
(2) In this Schedule “Goodwill” has the meaning it has for accounting purposes”.
16. Part 14 of the Schedule sets out the commencement and transitional provisions. Paragraph 118 of the Schedule provides:
“(1) Except as otherwise expressly provided, the provisions of this Schedule apply only to intangible fixed assets of a company (“the Company”) that –
(a) are created by the company after commencement, or
(b) are acquired by the company after commencement from a person who at the time of the acquisition is not a related party in relation to the company, or
(c) are acquired by the company after commencement from a person who at the time of acquisition is a related party in relation to the company in the cases specified in subparagraph (2).
As and when assets are regarded as created or acquired, see paragraphs 120-125”.
(Keyline was a related party. It is not therefore in dispute that any other cases specified in paragraph 118(2) could apply here.)
17. Paragraph 117 prescribes 1 April 2002 as the “commencement” date.
18. Paragraph 118(1)(a) is
the key provision in this appeal. Greenbank’s
case, as already noted, is that
the Goodwill was created by it as the result of its purchase on 30 September
2003 coupled with its recognition in
Greenbank’s
accounts.
HMRC
contend that
the Goodwill was not created by
Greenbank;
consequently the code in the
Schedule has no application in relation to the Goodwill.
19. To the extent that the
present dispute involves a consideration of what meaning Goodwill has for
accounting purposes, we heard expert evidence in relation to this. The expert
report of Professor David H Cairns OBE was adduced by Greenbank.
The expert report
of Matthew J Blake FCA, an accountant employed by
HMRC
and whose duties
included advising their Solicitors Office on accounting matters, was adduced by
HMRC.
The two experts produced a Joint Statement which contains the following
elements as common ground:
(1) There are assets that may exist in a commercial or legal sense that are not recognised on the balance sheet as assets.
(2) On
the purchase of a business, the purchaser’s accounts recognise as goodwill
(described in the accountancy literature as “purchased goodwill”) the
difference between the cost of the business and the fair value
of the
identifiable assets and liabilities that have been purchased.
(3) That what the accountancy literature describes as “internally generated goodwill” is prohibited from being recognised in accounts.
Introduction to the issues
20. HMRC’s
case for refusing
the
Greenbank’s
claim for relief is that Schedule 29 has no application to the
present circumstances because the goodwill to which the claim was related fails
to meet the requirements of paragraph 118. It had not been created by
Greenbank
on or after 1 April 2002; and if and to the extent that it had been created by
Greenbank,
then pursuant to paragraph 121 it was to be treated as having been
created before 1 April 2002.
Greenbank’s
case, as already noted, is that the
Goodwill in question was created after 1 April 2002. Goodwill,
Greenbank
contends, is not created until it appears as an asset in the balance sheet of
the company in question. The Goodwill only appeared in
Greenbank’s
accounts as
purchased goodwill as the consequence of its acquisition for consideration from
Keyline on 30 September 2003, i.e. after the commencement date.
21. The issue is whether
the Goodwill was created by Greenbank
on or after 1 April 2002. The issue
arises in the context to section 118 which provides that the provisions of
Schedule 29 apply to specified “intangible fixed assets”. Intangible fixed
assets, as noted above, are defined in terms of intangible assets (by paragraph
3(1)) and paragraph 2(1) gives “intangible asset” the meaning it has for
accountancy purposes. The provisions of Schedule 29 apply to goodwill as they
apply to intangible fixed assets (see paragraph 4(1)); and by paragraph 4(2)
goodwill has the meaning it has for accountancy purposes. The Goodwill (i.e.
that to which the present claim relates) will, whether acquired or created,
have been a fixed asset, as having been acquired or created for use on a
continuing basis in the course of
Greenbank’s
activities: see paragraph 3(1).
Is the term “Goodwill” in Schedule 29 confined to purchased goodwill?
22. HMRC’s
reliance on
paragraph 121, which provides that internally generated goodwill is to be
treated as created before 1 April 2002 if the business was carried on before
then by the company (
Greenbank
in the present situation) or a related party
(i.e. Keyline), is, so
Greenbank’s
argument goes, misplaced. This is because
the definition of Goodwill (in paragraph 4(1) and sections 832(1) and 836A of
Income and Corporation Taxes Act 1988) covers purchased goodwill, i.e. goodwill
acquired for
valuable
consideration, and not internally generated goodwill.
Consequently the Goodwill was not created until it appeared as an asset in the
balance sheet of
Greenbank
following the purchase for
valuable
consideration
from Keyline.
23. We now present the
steps in the argument for Greenbank,
starting with a summary of the law and the
accounting principles relied on by
Greenbank.
24. “Intangible asset”, it
will be recalled, has the meaning it has “for accounting purposes”. At the
material time “for accounting purposes” was defined in section 832(1) as
meaning “for the purposes of the accounts drawn up in accordance with” GAAP;
and GAAP was defined in section 836A as (unless the contrary required)
“generally accepted accounting practice with respect to accounts of UK
companies that are intended to give a true and fair view”.
24. Greenbank
points out
that at the material time section 226(3) of Companies Act 1985 required
Companies to prepare their accounts in accordance with Schedule 4 of that Act.
Schedule 4 sets out the prescribed formats for accounts reflecting the
requirements of the Fourth Council Directive (78/660/EEC). Paragraph 36A of
Schedule 4 to that Act required the accounts to state whether they had been
prepared in accordance with applicable accounting standards. The relevant
statement of accounting practice with regard to intangible assets was Financial
Reporting Standard 10 (“FRS10”). The title of FRS10 is “Goodwill and
Intangible Assets” and it was issued by the Accounting Standards Board in
1997.
25. So far as is material to the present circumstances the definition in FRS10 of “intangible assets” is found in paragraph 2. We quote:
“Non-financial fixed assets that do not have physical substance that are identifiable and are controlled by the entity through custody or legal rights.
An identifiable asset is defined by company’s legislation as one that can be disposed of separately without disposing of a business of the entity. If an asset can be disposed of only as part of the revenue-earning activity to which it contributes, it is regarded as indistinguishable from the goodwill relating to that activity and is accounted for as such.
In the context of an intangible asset, control is normally secured by legal rights: a franchise or licence grants the entity access to the benefits for a fixed period; a patent or trademark restricts the access of others. In the absence of legal rights, it is more difficult to demonstrate control. However, control may be obtained through custody. This could be the case where, for example, technical or intellectual or knowledge arising from developments activity is maintained secretly.
…
The definition does not encompass assets, such as prepaid expenditure, that are not fixed assets.”
26. In the light of that
definition, Goodwill will not be an intangible asset. This is because by its
very
nature it is not an identifiable asset and consequently it cannot be
disposed of separately from the business of the undertaking in question. Prima
facie therefore Goodwill would fall outside the scope of Schedule 29. However,
as already noted, paragraph 4(1) provides that (except as otherwise indicated)
“the provisions of this Schedule apply to Goodwill as to an intangible fixed
asset. Paragraph 4(2) goes on to provide of “goodwill” that it “has the
meaning it has for accounting purposes”. The definition of “for accounting
purposes” has already been addressed. Using that definition, Goodwill has the
meaning it has for purposes of accounts drawn up in accordance with GAAP with
respect to UK companies that are intended to give a true and fair
view.
The development of Greenbank’s
argument
27. The basis for the case
for Greenbank
is that, for the purposes of such accounts drawn up in accordance
with GAAP, goodwill must mean goodwill acquired for
valuable
consideration,
i.e. purchased goodwill. This, say
Greenbank,
is based on the principles of
European Community law, primary UK legislation and the relevant statements of
standard accounting practice in FRS10. Moreover, say
Greenbank,
the evidence
of the experts endorses that conclusion.
28. The EC legislation is, as noted, found in the Fourth Directive which prescribes, in Notes 3 to Articles 9C and 10C two identical lay-outs in the balance sheet. Under the heading “Fixed Assets”, the notes state –
“3. Goodwill
to the extent that it was acquired for valuable
consideration”.
That provision, it is said (and
there is no dispute about this) shows that Goodwill that has not been acquired
for valuable
consideration may not appear on the balance sheet of the company
in question. Hence while a business may be thought to have a
value
in excess
of its net assets and so may be thought to have goodwill, such goodwill, i.e
internally generated goodwill, is prohibited from appearing on the balance
sheet. Goodwill acquired for
valuable
consideration, such as the purchase of a
business for a sum greater than its net asset
value
(as is the case here) will
rank as “purchased goodwill” and will therefore fall within the scope of Note 3
to Article 9C.
29. UK law has implemented the Fourth Directive provisions in the Balance Sheet Formats in Section B of Schedule 4 to the Companies Act 1985 where Note 3 states:
“Amounts
representing goodwill may only be included to the extent that the goodwill was
acquired for valuable
consideration”.
Here again there is no dispute
that under UK primary law a company’s accounts may only include goodwill to the
extent that it was acquired for valuable
consideration.
30. So far as goodwill is concerned FRS10 provides:
“7. Positive purchased goodwill should be capitalised and classified as an asset on the balance sheet.
8. Internally generated goodwill should not be capitalised.”
FRS10 defines “purchased goodwill” in paragraph 2 as –
“The
difference between the cost of an acquired entity and the aggregate of the fair
values
of that entity’s identifiable assets and liabilities. Positive goodwill
arises when the acquisition cost exceeds the aggregate fair
values
of the
identifiable assets and liabilities. Negative goodwill arises when the
aggregate fair
values
of the identifiable assets and liabilities of the entity
exceed the acquisition costs.”
From those provisions it is
evident (and here again there is no dispute) that the term purchased goodwill
is the term used to describe the excess of the purchase price over the fair
values
of the acquired entity’s net identifiable assets.
31. It is relevant to mention the following passage from paragraph (b) of the Summary to FRS10 in this connection. This states:
“The
accounting requirements for goodwill reflect the view
that goodwill arising on
an acquisition is neither an asset like other assets nor an immediate loss in
value.
Rather, it forms the bridge between the cost of an investment shown as
an asset in the acquirer’s own financial statement and the
values
attributed to
the acquired assets and liabilities in the consolidated financial statement.
Although purchased goodwill is not in itself an asset, its inclusion amongst
the assets of the reporting entity, rather than as a deduction from
shareholder’s equity, recognises that goodwill is part of a larger asset, the
investment for which management remains accountable.”
32. So much is more or less
common ground. The controversy here revolves round the significance to be
given to internally generated goodwill. Greenbank
say it is no more than “the
product of a measurement formula” (to use the expression in their Skeleton
Argument); it means any goodwill other than purchased goodwill and represents
the notional excess of a business over the
value
of its net identifiable
assets. It is not an identifiable separate asset and, because it cannot be
disposed of separately from the business, its
value
will depend on the price a
purchaser is prepared to pay for it. By contrast, purchased goodwill will have
an established
value.
33. From those principles
and on the evidence of the experts (on which we will draw later), say
Greenbank,
it follows that the existence, the nature, the character and the
quantum of the goodwill of a business will be wholly dependent on whether it
has been purchased and on the terms of the purchase. It must follow that
internally generated goodwill is to be disregarded for all purposes of Schedule
29. Consequently no goodwill will have been created or acquired, by either
Keyline or
Greenbank,
before the commencement date, i.e. 1 April 2002. The
Goodwill in the form of purchased goodwill was therefore created as the result
of
Greenbank’s
purchase from Keyline and this meant that it had to appear as an
asset in
Greenbank’s
balance sheet. Until then the goodwill had no
significance for the purposes of accounts (and in particular to those of
Keyline) drawn up in accordance with GAAP.
Conclusion on whether goodwill in Schedule 29 is confined to purchased goodwill
34. We start by examining
whether the use of the term “goodwill” in Schedule 29 confines its meaning to
purchased goodwill. The argument for Greenbank
is that the meaning is so
confined: therefore the entry of goodwill in accounts drawn up in accordance
with UK GAAP means purchased goodwill.
35. Paragraph 4(2) provides
that goodwill has “the meaning it has for accounting purposes” which in turn
means for the purposes of accounts drawn up in accordance with UK GAAP. The
construction of those definitions advanced by HMRC
is that goodwill is to have
the meaning it has for accounting purposes. This is the meaning underpinning
such accounts, being the meaning in accordance with such accounts are drawn up.
That meaning of goodwill is not just clear; it harmonises with the other
provisions throughout Schedule 29.
36. We agree with HMRC’s
construction. The legislative provision governing the presentation of a
company’s accounts is Note 3 in Section B of Schedule 4 to the Companies Act
1985, set out above. This directs that “Amounts representing goodwill” are to
be included to the extent only “that the goodwill was acquired for
valuable
consideration”. The use of the expression “amounts representing goodwill”
demonstrates that there is a relevant statutory concept of goodwill. It goes
wider than purchased goodwill.
37. FRS10 defines purchased goodwill but contains no explicit definitions of either goodwill or internally generated goodwill. In its substantive part dealing with recognition FRS10 states:
“Goodwill
The positive purchased goodwill should be capitalised and classified as an asset on the balance sheet.
Internally generally goodwill should not be capitalised”.
The definition of purchased goodwill in FRS10 is set out in paragraph 30 above. Those extracts show, we think, that for the purposes of FRS10 “goodwill” exists generally and is divided into purchased goodwill and internally generated goodwill.
38. We mention in this connection the requirement in FRS10 for an “impairment review” to be made at intervals, and certainly at the end of the first financial review after the acquisition of a business. This review is designed to ensure that goodwill is not carried in the balance sheet at more than the amount at which the company expects to recover from that goodwill. While the impairment review exercise does not have the effect of bringing internally generated goodwill on to the balance sheet, it does involve (and this was accepted by Professor Cairns) a calculation of the internally generated goodwill in order to determine what impairment should be ascribed to the purchased goodwill.
39. Our understanding of
the company’s legislation and FRS10 is that, whereas they do not define goodwill,
the strong implication is that there is a general concept of goodwill, being
the excess of the value
of a business over the fair net assets
value;
and only
part of that excess, the purchased goodwill part, falls to be capitalised and
included in the balance sheet. This was accepted by both experts.
40. Developing that point
in the light of our findings of the evidence of the two experts, we mention
that both experts agreed that, for the purposes of both the Companies Act and
FRS10, Goodwill comprises both internally generated goodwill and purchase
goodwill. And, as already noted, they both accepted that the nature of
goodwill is the difference between the value
of the business in question and
the fair
value
of its assets. Thus where, as here, there has been a purchase
of a business, then the purchase price paid (by
Greenbank
to Keyline as
happened here) evidences or measures the overall
value
of the business; the
consequence is that the purchased goodwill, or the part that has been
purchased, is to be included in the balance sheet and comes into the reckoning
for purposes of any impairment review.
41. When our understanding of the general concept is tested by reference to the other relevant provisions of Schedule 29, the implication becomes inescapable.
42. The proposition that Goodwill covers both purchased goodwill and internally generated goodwill is consistent with paragraph 3(3). This provides that Schedule 29 applies to an “intangible fixed asset whether or not it is capitalised in the company’s accounts”. Paragraph 4(1) provides that – “Except as otherwise indicated, the provisions of this Schedule apply to goodwill as to an intangible fixed asset.” Combining the effect of paragraph 3(3) with that of paragraph 4(1) it follows that the provisions of Schedule 29 apply to goodwill whether or not it is capitalised in the accounts of the company in question.
43. This conforms with the
accounting rules. Intangible assets are not defined for purposes of Schedule
29. But FRS10, as noted in paragraph 25 above, defines “intangible assets” as
“Non-financial assets that do not have physical substance but are identifiable
and are controlled by the entity through custody or legal rights”. That
definition, however, says nothing about a relevant asset having to be
capitalised; to do so would be inconsistent with what FRS goes on to say. In
paragraphs 7 to 14 of FRS10, in the section headed “Initial recognition of
positive goodwill and intangible assets” are the rules about whether the thing
in question is to be recognised or capitalised. The effect of these is that an
intangible asset is only to be capitalised if it has an ascertainable market
value.
If an intangible asset is purchased it has one; otherwise it might
not. It follows that in determining whether something is an intangible asset,
then for FRS10 purposes, its meaning has nothing to do with whether it is or
has to be capitalised.
44. Finally on this topic
the provisions of paragraph 121 are consistent with HMRC’s
contention that
“goodwill” in Schedule 29 covers both internally-generated and purchased
goodwill. Paragraph 118 expressly incorporates paragraph 121 as being one of
the provisions determining when assets are to be regarded as created. Paragraph
121 provides:
“For the purposes of paragraph 118 … internally-generated goodwill is regarded as created before (and not after) commencement if the business in question was carried on at any time before commencement by the company or a related party.”
This shows that, for the purposes
of the Schedule, goodwill encompasses internally generated goodwill and it is
at odds with Greenbank’s
assertion that for the purposes of the Schedule
“goodwill” means “purchased goodwill” alone.
Was the Goodwill created after the commencement date?
45. This brings us to
paragraph 118(1). HMRC
rely on this as their ground for refusing relief under
Schedule 29. This, as already noted, provides:
“(1) Except as otherwise expressly provided, the provisions of this Schedule apply only to intangible fixed assets of a company … that –
(a) are created by the company after commencement, …”.
(The later provisions of paragraph 118, which deal with acquisitions, are not in point save for paragraph 118(2)(b) which has the effect of excluding from relief assets acquired after commencement from a related party.)
46. HMRC
say that the
Goodwill to which
Greenbank’s
claim relates was created from the time when
Keyline started to carry on the business to which the Goodwill related. This,
HMRC
say, follows from paragraph 121 which provides:
“For the purposes of paragraph 118 (application of Schedule to assets created or acquired after commencement) internally-generated goodwill is regarded as created before (and not after) commencement if the business in question was carried on at any time before commencement by the company or a related party.”
That, say HMRC
in reliance on
paragraph 3(3), is the position irrespective of the fact that in Keyline’s
hands the goodwill was never capitalised.
47. Greenbank’s
response is
that, given Goodwill the meaning it has for accounting purposes (by
virtue
of
paragraph 4(2)), it is not “created” until it appears as an asset of the
company in question following a purchase at a
value
in excess of the
value
of
the business assets. Keyline’s accounts never recognised any amount in respect
of goodwill.
Greenbank’s
accounts did. Consequently there was no goodwill in
the relevant sense to have been acquired by
Greenbank
from a related person;
Greenbank’s
purchase of that goodwill and its recognition in the accounts had
the effect of creating it “after commencement”. Paragraph 121, says
Greenbank,
does not apply because there was no goodwill of Keyline in the relevant sense
of that word, being its meaning in the context of Schedule 29.
48. We disagree. No
goodwill was created by Greenbank.
It had already been created by Keyline.
From the time when Keyline carried on the business to which the Goodwill to
which this appeal relates, it was creating internally generated goodwill. That
was the goodwill that became the subject-matter of the sale to
Greenbank
on 30
September 2003. No part of the purchase price paid to Keyline was expenditure
“on” the creation of the goodwill. More fundamentally,
Greenbank’s
case is
founded on the proposition that internally generated goodwill is a “nothing”
for purposes of the code in Schedule 29 until recognised in the accounts of the
relevant company. We have already concluded that Goodwill, using the meaning
that it has for accounting purposes, covers both purchased goodwill and
internally generated goodwill. Paragraph 121 is consistent with that.
Conclusion
49. For the reasons given
above we have concluded that the Goodwill was not created by Greenbank.
Consequently the relief given by Schedule 29 does not in the present
circumstances apply in relation to the Goodwill.
50. For those reasons we dismiss the appeal.
51. The Appellant has a right to apply for permission to appeal against this decision pursuant to Rule 39 of the Rules. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.