CA73000 | Know-how: Payments to acquire know-how

Payments made to acquire know-how wholly and exclusively for the purposes of a trade are normally revenue payments and are allowable deductions in computing trading profits under the normal rules of Schedule D. This applies whether the payments are lump sum or recurring.

In other cases payments for know-how may be capital.

A capital payment for know-how will sometimes:

• qualify for capital allowances because it is expenditure on the acquisition of know-how CA71000, or

• be treated as a payment for goodwill CA72300. If it is treated as a payment for goodwill no capital allowances are due.

Know-how agreements often contain clauses (commonly described as keep-out covenants CA72600) which protect the buyer of the know-how against competition from the seller or from other licensees. You should deal with any payment made for a keep-out covenant under the normal Schedule D rules. It will normally be capital expenditure (see Associated Portland Cement Manufacturers Ltd v CIR [1945] 27TC103).