Glossary · UK
What is Amortisation?
The accounting process of spreading the cost of an intangible asset over its useful economic life, similar to depreciation but applied to non-physical assets such as patents, goodwill and software licences.
Full Definition
Amortisation allocates the cost of an intangible asset across its expected useful economic life, reducing the asset's book value on the balance sheet each year. Common intangible assets subject to amortisation include patents, trademarks, software licences, customer lists and purchased goodwill. Under FRS 102 (the UK accounting standard for smaller entities), intangible assets including goodwill must be amortised over their useful life, or if that cannot be reliably estimated, over a maximum of 10 years. For UK corporation tax purposes, the deductibility of amortisation depends on whether the intangible was acquired from an unrelated party after April 2002 -- if so, tax relief generally follows the accounting charge. However, goodwill and certain customer-related intangibles acquired from related parties after July 2015 are specifically excluded from corporate intangibles tax relief. Businesses should work with an accountant to confirm whether their amortisation charges are tax-deductible, as the rules are complex and the distinction between tangible depreciation and intangible amortisation has real cash-flow implications.