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Suppose a company buys an intangible asset on 1 January 2015. It pays £100,000 for the asset and decides that it has a useful life of ten years and amortises it over that period at 10% per annum in accordance with FRS102 s18. Assuming the intangible asset is within the regime:

• In the year to 31 December 2015 it will charge £10,000 amortisation, which is allowable for tax.
• In the year to 31 December 2016 it will charge £10,000 amortisation, which is allowable for tax.
• It then receives an attractive offer and sells the intangible asset for £120,000 in 2017.

Its accounts for the year ended 31 December 2017 will show a book profit of £40,000 (£120,000 sale proceeds minus £80,000 book value after past amortisation). This sum will be subject to corporation tax as an income receipt.

»Ê¹ÚÌåÓýapp end result is that the company has been taxed on a realisation profit of £40,000, and been allowed amortisation deductions of £20,000. This means that overall the company has suffered tax on a net figure of £20,000, which corresponds to its true profit.

»Ê¹ÚÌåÓýapp company may be able to claim reinvestment relief to defer tax on part of its realisation profit. Reinvestment relief is covered in this introduction section at CIRD10170.