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Suppose company A has realised a chargeable intangible asset for 拢15,000, which it bought in the previous accounts year for 拢10,000. In that year it had decided that the useful economic life of the asset was five years, and so had charged 拢2000 amortisation, leaving a book value of 拢8,000 in the year of disposal.

Sale proceeds - book value = 拢15,000 - 拢8,000 = an accounts gain of 拢7,000. This is the taxable gain but, as 拢2,000 represents a recovery of past amortisation deductions, only 拢5,000 is eligible for reinvestment relief.

The company buys another chargeable intangible asset for 拢20,000, which it will amortise over five years, and claims reinvestment relief of 拢5,000.

The result is that, in computing its taxable gain on the realisation, the company deducts the amount of relief so its taxable gain is reduced from 拢7,000 to 拢2,000.

For the new asset, the company will be amortising a figure of 拢20,000 in the accounts at a rate of 拢4,000 p.a. For tax purposes, however, the initial expenditure on the new asset will be reduced to 拢15,000 and so the allowable amortisation over five years will only be 拢3,000 p.a. Over the full five years, the amount of allowable amortisation for tax purposes will be reduced by 拢5,000 (拢1,000 p.a. for five years), which is the amount of reinvestment relief that was claimed. Therefore, the reinvestment relief given will be recovered over the useful economic life of the new asset.

It follows that, where reinvestment relief is claimed, the accounts figure for amortisation of the new asset needs to be adjusted for tax purposes.