Draft legislation, which will be included in the Finance (No. 2) Bill 2015, proposes the removal of corporation tax relief for the costs incurred by a company in purchasing goodwill. Currently, relief is given for expenditure written off in accordance with GAAP (or at a fixed rate of 4%, if the company so elects). This is subject to the rules introduced by sections 849B to 849D of the Corporation Tax Act 2009 (CTA 2009), which denies relief for acquisitions of goodwill from related individual or firm (see Legal update, Finance Bill 2015: corporation tax relief restricted on goodwill transfers to related companies).

Part 8 of the CTA 2009 will be amended to remove relief for debits for all purchased goodwill and customer related intangible assets unless they relate to acquisitions made before 8 July 2015 (or acquisitions made afterwards under an unconditional obligation entered into before then). Additionally, Part 8 will also be amended to treat any debits arising on disposals of such assets (made on or after 8 July 2015) as non-trading debits. This will limit how such debits may be relieved (in particular, such debits will not be included in computing trading losses). These amendments also mean that sections 849B to 849D of the CTA 2009 will be repealed.

Intangibles relief for purchased goodwill is one factor that may point a buyer towards acquiring the target business rather than the target company. The government says that removing the advantage for asset purchases will bring the UK into line with other major economies and create a more level playing field for merger and acquisition transactions.

The government confirmed that the Finance Bill 2016 will introduce a new corporation tax relief for orchestras. The relief will apply at a rate of 25% on qualifying expenditure from 1 April 2016.

This measure was originally announced in the 2014 Autumn Statement and, following a consultation launched on 23 January 2015, was confirmed in the March 2015 Budget (see Tax legislation tracker: intellectual property: Orchestra relief).

The Chancellor announced that the R&D tax credit legislation will be amended to prevent universities and research institutes from claiming a payable tax credit in relation to pure research. This change will apply to expenditure incurred on or after 1 August 2015 and will be included in the Finance (No.2) Bill 2015.

The intention of the legislation, as amended in 2013, was to make it possible for large companies, even those with no liability to corporation tax, to claim the credit. It was never intended that universities and research institutes should benefit from it on their own research or research subcontracted to them. The amendment corrects an anomaly in the legislation. It will not affect the ability of spin-out companies to claim in respect of research and development carried out with a view to commercial development. For background, see Practice note, R&D tax reliefs: practical aspects.