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Tax treatment of payment for degrouping charge

Degrouping charge in the U.K.

UK Company X left a chargeable group with an IP which was transferred at no gain, no loss within 6 years of the disposal of the company. This has triggered a degrouping charge of £1m. The vendor has agreed to contribute £500k to Company X as compensation, as both were going to make an election under s.792 CTA 2009 to reallocate the degrouping charge to another company. However, the election was not made in time, and HMRC have rejected the election.

I would expect Company X should record the full £1m in its books in the tax line. However, I wonder how the compensation from the vendor should be booked and whether the compensation towards the degrouping charge is taxable.

I would be grateful if anyone could clarify this.

Many thanks


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