A company that buys a brand, a customer list or software gets tax relief for it under the intangible fixed assets regime — and by default that relief follows the amortisation in the accounts. Where the accounts amortise nothing, because the asset has an indefinite life, the default gives nothing either. The fixed rate election solves that: a straight-line deduction of 4% of cost a year regardless of the accounting treatment, claimed in writing within two years of the end of the accounting period in which the asset was acquired or created, and irrevocable once made.
Why the election exists
The intangible fixed assets regime is unusual in UK tax because it generally follows the accounts. Amortisation and impairment charged in the profit and loss account are deductible; revaluation gains are taxable. For an asset written off over five years, the tax relief simply mirrors the accounting.
The problem arises with assets carried at cost and not amortised — a trademark with an indefinite useful life, a brand expected to be maintained rather than consumed. Under the default rule, no amortisation means no deduction, potentially forever, even though the company has spent real money on a real asset.
The fixed rate election disconnects the tax from the accounts. Instead of following the charge in the profit and loss account, the company deducts 4% of the tax cost each year on a straight-line basis — relief over twenty-five years, irrespective of what the accounts do. The deduction for a period is the lower of that 4% and the tax written-down value brought forward, so total relief can never exceed what the asset cost, and the rate is reduced proportionately for accounting periods shorter than twelve months.
When it is worth making
The election is not automatically better. It is a trade between certainty and speed, and the comparison runs asset by asset:
- Make it where the accounts carry the asset indefinitely, or amortise it over a life longer than twenty-five years. Get the comparison the right way round: 4% is a twenty-five year write-off, so it is slower than most accounting lives. A twenty-year accounting life already gives 5% a year, and electing would reduce the annual deduction rather than accelerate it. The election is about turning nothing into something, or turning an unpredictable charge into a fixed one — not about speed;
- Do not make it where the accounts amortise quickly — over three or five years — because the accounting deduction is larger and arrives sooner;
- Consider it for stability where the accounting treatment is likely to be volatile. Impairments are lumpy and hard to forecast; a fixed deduction is not, and a tax computation that does not swing with impairment testing is easier to plan around;
- Watch the goodwill rules. Relief for goodwill and customer-related intangibles has been restricted over successive changes, with a separate fixed-rate relief applying to relevant assets acquired with qualifying intellectual property on or after 1 April 2019 — a different provision, at 6.5% rather than 4%, capped by reference to six times the cost of the qualifying IP, and not dependent on making this election. Where goodwill is part of an acquisition, the analysis is about which regime applies before it is about which election to make.
The mechanics that catch people out
Three features of the election deserve respect.
The two-year window. The election must be made in writing within two years of the end of the accounting period in which the company acquires or creates the asset. It is not made on the tax return by default and it is not made by behaviour; it is a written election, and missing the window removes the option permanently. On an acquisition completing in March, the deadline is two years from the following accounting period end — which sounds generous and is routinely missed because the intangibles analysis is done long after the deal closes.
It is irrevocable. There is no ability to change position later because the accounting treatment turned out differently, or because a faster deduction would now be preferable. The decision is made once, on the facts known at the time, and lives with the asset.
It is made asset by asset. A company acquiring a portfolio can elect for some and not others, and should — the answer for a perpetual brand is usually different from the answer for software amortised over four years.
Where it fits in a transaction
The election belongs to the post-completion work stream that also includes the purchase price allocation, and doing them together is what makes both sensible. The allocation identifies and values what was acquired — brands, customer relationships, technology, goodwill — as set out in our guide to valuing intangibles. Only once that exists can anyone say which assets fall in the regime, what the accounting life will be, and therefore whether an election improves the position.
Doing the allocation late is common; doing it more than two years late costs the election as well. For a buyer acquiring intangible-heavy businesses regularly, the discipline worth having is a standing post-completion checklist with the election deadline on it, diarised at completion rather than raised at the first audit.
Acumon handles the intangibles analysis, the elections and the deferred tax that follows through corporation tax and financial reporting work, alongside tax due diligence on the transactions that create them. If an acquisition completed in the last two years and nobody has considered the election, the window is still open — but it has a date.