Corporation tax treatment of fishing licences
Businesses often need to acquire intangible assets such as licences in order to operate legally in the UK. In today’s example we’ll be talking about fishing licences purchased by a limited company but the rule applies to a lot of intangible assets.
Is a fishing licence a capital asset?
Yes (in most cases). A purchased fishing licence to be attached to a vessel is treated as an intangible asset for tax purposes.
Under UK tax law, most purchased licences, quotas and similar rights are dealt with under the Intangible Fixed Assets (IFA) regime, which is set out in Part 8 of the Corporation Tax Act 2009.
https://www.legislation.gov.uk/ukpga/2009/4/part/8
The key point is that this regime applies to intangible assets acquired by a company, including licences and permissions granted by regulators, provided they are not internally generated. Not to be confused by the hire of quota or an annual licence however, those would be treated as expenditure in the normal course of business and appear as a Tax deductible expenses in the profit and loss account.
How does corporation tax relief work?
Unlike plant and machinery, intangible assets do not qualify for capital allowances. Instead, tax relief generally follows the accounting treatment, with an optional alternative method available.
There are two main routes to relief:
Relief based on accounting amortisation (default position)
Where an intangible asset is amortised in the accounts, the amortisation expense is normally deductible for corporation tax purposes.
However, many fishing licences are considered to have an indefinite useful life (for example, where they can be renewed indefinitely and are not time-limited). In these cases:
- No amortisation is charged in the accounts, and
- No automatic corporation tax deduction arises.
This is often where companies are surprised to find that they receive no tax relief unless further action is taken.
Fixed-rate 4% write-down election (optional)
Where little or no amortisation is charged, the company can elect for a fixed-rate tax deduction of 4% per year, calculated on a straight-line basis.
This election is made under CTA 2009 s.730 and spreads tax relief evenly over 25 years, regardless of the accounting treatment.
Key points to note:
The election must be made in the corporation tax return for the period in which the asset is acquired
Once made, the election is irrevocable
The relief continues even if no amortisation is charged in the accounts
Worked example: £250,000 fishing licence
Let’s assume a company purchases a fishing licence for £250,000
Scenario A – Licence is amortised in the accounts
If the licence is amortised over 25 years:
- Annual amortisation: £10,000
- Corporation tax deduction: £10,000 per year
- Corporation tax saving at 25%: £2,500 per year
Scenario B – No amortisation, but 4% election made
If the licence is treated as having an indefinite life but a 4% election is made:
- Annual tax deduction: £10,000 (4% of £250,000)
- Corporation tax saving at 25%: £2,500 per year
In practice, both approaches can produce the same annual tax relief, but the 4% election ensures certainty where amortisation is not permitted or appropriate.
What happens if the licence is sold?
If the fishing licence is sold in the future, any profit or loss is dealt with under the intangible assets regime, not capital gains tax.
Sale proceeds are brought into account for corporation tax purposes, with previous tax relief effectively factored into the calculation.
https://www.legislation.gov.uk/ukpga/2009/4/part/8/chapter/7
Key takeaways for fishing companies
- Purchased fishing licences are intangible assets, not plant or machinery
- Relief usually follows the accounting treatment, but this can mean no deduction where the licence has an indefinite life
- A 4% fixed-rate election can provide predictable, long-term tax relief
- The election must be made on time and cannot be reversed
Because licences often represent a significant investment, it’s important to consider the tax treatment before finalising the accounts for the year of purchase.
How JP Blackmoor can help
If you operate a fishing vessel through a limited company and are planning to acquire or dispose of a licence, professional advice can help ensure the most appropriate and tax-efficient treatment is applied.
If you’d like help, please get in touch.
