11 April 2011 - Upper Tribunal dismisses appeal in Greenbank Holidays Limited v HRMC

Mr Justice Arnold, sitting in the Upper Tribunal (Tax and Chancery Chamber), has dismissed an appeal by a corporate taxpayer against the disallowance of a corporation tax deduction claimed by it for the depreciation of purchased goodwill.

The appellant, Greenbank Holidays Limited ('Greenbank'), had purchased the business (save for some excepted assets) of Keyline Continental Limited ('Keyline'), an associated company, on 30 September 2003. The appellant sought to write down the cost of the goodwill it had purchased at an annual fixed rate of 4% pursuant to paragraphs 10 and 11 to Schedule 29 to the Finance Act 2002, and presented this as a deduction on its corporation tax return. HMRC, in an amendment to Greenbank's tax return, disallowed the deduction on the grounds that the goodwill was created before the commencement of Schedule 29 on 1 April 2002 and was therefore, under the terms of Schedule 29, non-deductible.

Greenbank appealed to the First-Tier Tribunal (Tax), which dismissed its appeal on 8 March 2010. Greenbank then appealed to the Upper Tribunal.

Mr Justice Arnold has now in turn dismissed Greenbank's appeal to the Upper Tribunal.

Greenbank’s primary case in the Upper Tribunal was that the definition of “goodwill” in paragraph 4(2) of Schedule 29 did not include internally generated goodwill. On this basis, Greenbank contended that Keyline had no goodwill within the meaning of paragraph 4(2) prior to the sale, and that the goodwill was created by Greenbank after 1 April 2002  when Greenbank purchased the business of Keyline and recognised the goodwill in its balance sheet. Greenbank’s alternative case was that, even if the definition of “goodwill” in paragraph 4(2) included internally generated goodwill, the goodwill held by Greenbank and recognised in its accounts was purchased goodwill, which was a different asset to the internally generated goodwill previously held by Keyline.

The First-Tier Tribunal had decided that: (i) the definition of “goodwill” in paragraph 4(2) included internally generated goodwill; and (ii) the goodwill was created by Keyline before commencement and acquired by Greenbank, not created by Greenbank after commencement. Mr Justice Arnold agreed with these conclusions.

Christopher Tidmarsh QC successfully appeared for HMRC.

A copy of Mr Justice Arnold's judgment can be found by clicking on the link below.

Judgment >>