Unlocking hidden value: How we secured a capital allowances refund on intangibles for our client

published on 7 August 2025 | reading time approx. 2 minutes

As Corporation Tax Compliance Advisors, we often encounter complex transactions that require both a technical understanding of legislation and a practical approach to compliance. Recently, we were engaged in the preparation of a corporation tax return for a client who had undertaken a significant transaction involving intangible assets during the financial year.

The challenge: Complex intangible additions

The transaction in question related to the acquisition of intangible assets, which can include software, intellectual property, trademarks, and other non-physical assets. Intangibles have a notoriously diverse range of tax treatments — from deductible amortisation under the Intangible Fixed Assets (IFA) regime to capital allowances treatment for specific qualifying items such as software or even ineligible for tax relief (e.g. most types of goodwill). At the audit stage, due to the high-level nature of the available information and the pressing need to progress the financial statements, the transaction was initially treated as ineligible for capital allowances for prudence. This approach was taken as a conservative interim measure to ensure the audit could proceed without delay.

Re-examining the detail: A forensic approach

When we began finalising the corporation tax return, we identified the intangible transaction as a potential area for further review. We requested the sale and purchase agreement and a more detailed breakdown of the intangible additions, including descriptions, classifications, and cost allocations.

Upon receipt of this further information, we were able to identify that a material portion of the expenditure related to software — a qualifying asset for capital allowances under the Capital Allowances Act 2001. We advised the client to make an election to bring the software element into the capital allowances regime. Additionally, the availability of Annual Investment Allowances (AIA) meant that the client was able to achieve a significant to reduction to taxable profits.

The outcome: A successful claim and HMRC refund

By electing into the capital allowances regime and properly segregating the qualifying software costs, we were able to claim capital allowances on large portion of the expenditure that had initially been treated in a prudent manner (given the audit time pressure for version one of the draft computation). This resulted in a significant reduction in the client's corporation tax liability and ultimately led to a tax refund from HMRC of approximately £282k.

Key takeaways

This case highlights the importance of:

Understanding the nuanced tax treatments applicable to different types of intangible assets;
Revisiting conservative or provisional treatments once further detail becomes available;
Taking a proactive and analytical approach to ensure all qualifying reliefs are captured;
Collaborating closely with clients and auditors to strike a balance between timely reporting and accurate tax treatment.