Session 2013 - 14
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Finance Bill


Finance Bill
Schedule 4 — Cash basis for small businesses
Part 1 — Main provisions

172

 

section 162 (payments by persons liable to pool betting duty),

sections 163 and 164 (intermediaries treated as making

employment payments),

section 164A (managed service companies),

sections 165 to 168 (waste disposal),

5

sections 169 to 172ZE (cemeteries and crematoria).”

Changes in trading stock

29         

In Chapter 11A (trade profits: changes in trading stock), after section 172A

insert—

“172AA  

Chapter not to apply where cash basis used

10

   

Nothing in this Chapter applies in calculating the profits of a trade

on the cash basis.”

Unremittable amounts

30         

In Chapter 13 (deductions from profits: unremittable amounts), after section

188 insert—

15

“188A   

Chapter not to apply where cash basis used

   

Nothing in this Chapter applies in calculating the profits of a trade

on the cash basis.”

Disposal and acquisition of know-how

31         

In Chapter 14 (disposal and acquisition of know-how), before section 192

20

insert—

“191A   

Chapter not to apply where cash basis used

   

Nothing in this Chapter applies in calculating the profits of a trade

on the cash basis.”

Averaging profits of farmers and creative artists

25

32         

In Chapter 16 (averaging profits of farmers and creative artists), after section

221 insert—

“221A   

Claim not available where cash basis used

   

Nothing in this Chapter applies in calculating the profits of a trade

on the cash basis.”

30

Compensation for compulsory slaughter of animal

33         

In Chapter 16ZA (compensation for compulsory slaughter of animal), after

section 225ZA insert—

“225ZAA 

Chapter not to apply where cash basis used

   

Nothing in this Chapter applies in calculating the profits of a trade

35

on the cash basis.”

 
 

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 1 — Main provisions

173

 

Oil activities

34         

In Chapter 16A (oil activities), before section 225A (and the italic heading

preceding it) insert—

“Application of Chapter

225ZH   

Chapter not to apply where cash basis used

5

   

Nothing in this Chapter applies in calculating the profits of a trade

on the cash basis.”

Adjustment income

35         

Chapter 17 (adjustment income) is amended as follows.

36         

After section 227 insert—

10

“227A   

Application of Chapter where cash basis used

(1)   

This Chapter applies if—

(a)   

an election under section 25A (cash basis for small

businesses) has effect in relation to a trade for a tax year but

no such election has effect in relation to the trade for the

15

following tax year, or

(b)   

no such election has effect in relation to a trade for a tax year

but such an election has effect in relation to the trade for the

following tax year.

(2)   

But this Chapter does not apply to income which is charged in

20

accordance with section 832.”

37         

After section 239 insert—

“Spreading of adjustment income on leaving cash basis

239A    

Spreading on leaving cash basis

(1)   

This section applies if—

25

(a)   

an election under section 25A (cash basis for small

businesses) has effect in relation to a trade for a tax year, and

(b)   

no such election has effect in relation to the trade for the

following tax year.

(2)   

Any adjustment income is spread over 6 tax years as follows.

30

(3)   

In each of the 6 tax years beginning with that in which the whole

amount of the adjustment income would otherwise be chargeable to

tax, an amount equal to one-sixth of the amount of the adjustment

income is treated as arising and is charged to tax.

(4)   

This section is subject to any election under section 239B (election to

35

accelerate charge).

 
 

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 1 — Main provisions

174

 

239B    

Election to accelerate charge under section 239A

(1)   

A person who under section 239A is liable to tax for a tax year on an

amount of adjustment income may elect for an additional amount to

be treated as arising in the tax year.

(2)   

The election must be made on or before the first anniversary of the

5

normal self-assessment filing date for the tax year.

(3)   

The election must specify the amount to be treated as income arising

in the tax year (which may be any amount of the adjustment income

not previously charged to tax).

(4)   

If an election is made, section 239A applies in relation to any

10

subsequent tax year as if the amount of adjustment income (as

reduced by any previous application of this section) were reduced by

the amount given by the following formula—equation: cross[char[A],over[num[6.0000000000000000,"6"],char[T]]]

   

where—

A is the additional amount treated as arising in the tax year for

15

which the election is made, and

T is the number of tax years remaining after that tax year in the

period of 6 tax years referred to in section 239A.”

Adjustments for capital allowances

38         

After Chapter 17 insert—

20

“Chapter 17A

Cash basis: adjustments for capital allowances

Introduction

240A    

Professions and vocations

   

The provisions of this Chapter apply to professions and vocations as

25

they apply to trades.

Adjustments on entering cash basis

240B    

“Entering the cash basis”

   

For the purposes of this Chapter a person carrying on a trade enters

the cash basis for a tax year if—

30

(a)   

an election under section 25A has effect in relation to the

trade for the tax year, and

(b)   

immediately before the beginning of the basis period for the

tax year, such an election does not have effect in relation to

the trade.

35

240C    

Unrelieved qualifying expenditure

(1)   

This section applies if—

 
 

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 1 — Main provisions

175

 

(a)   

a person carrying on a trade enters the cash basis for a tax

year (“the current tax year”), and

(b)   

at the end of the basis period for the previous tax year, the

person has unrelieved qualifying expenditure to carry

forward from the chargeable period ending with that basis

5

period.

(2)   

But this section does not apply if section 240D (assets not fully paid

for) applies.

(3)   

In calculating the profits of the trade for the current tax year, a

deduction is allowed for the relevant portion of the expenditure.

10

(4)   

The “relevant portion” of the expenditure means the amount of the

expenditure for which a deduction would be allowed in calculating

the profits of the trade on the cash basis for a period if the

expenditure was paid during that period.

(5)   

The relevant portion of the expenditure is to be determined on such

15

basis as is just and reasonable in all the circumstances.

(6)   

Section 59(1) and (2) of CAA 2001 (unrelieved qualifying

expenditure) has effect for the purposes of this section.

240D    

Assets not fully paid for

(1)   

This section applies if—

20

(a)   

a person carrying on a trade enters the cash basis for a tax

year,

(b)   

at any time before the beginning of the basis period for that

tax year the person has obtained capital allowances in respect

of expenditure on the provision of plant or machinery (“the

25

relevant expenditure”), and

(c)   

not all of the relevant expenditure has actually been paid by

the person.

(2)   

If the amount of the relevant expenditure that the person has actually

paid exceeds the amount of capital allowances given in respect of the

30

relevant expenditure, the difference is to be deducted in calculating

the profits of the trade for the tax year.

(3)   

If the amount of the relevant expenditure that the person has actually

paid is less than the amount of capital allowances given in respect of

the relevant expenditure, the difference is to be treated as a receipt in

35

calculating the profits of the trade for the tax year.

(4)   

The amount of any capital allowance obtained in respect of

expenditure on the provision of any plant or machinery is to be

determined on such basis as is just and reasonable in all the

circumstances.

40

(5)   

If the amount of capital allowances given in respect of the relevant

expenditure has been reduced under section 205 or 207 of CAA 2001

(reduction where asset provided or used only partly for qualifying

activity), the amount of the relevant expenditure that the person has

actually paid is to be proportionately reduced for the purposes of this

45

section.

 
 

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 1 — Main provisions

176

 

(6)   

This section does not apply where the relevant expenditure was

incurred on the provision of a car.

   

In this subsection “car” has the same meaning as in Part 2 of CAA

2001 (see section 268A of that Act).

Successions where predecessor and successor are connected persons

5

240E    

Effect of election where predecessor and successor are connected

persons

(1)   

This section applies if—

(a)   

a person carrying on a trade enters the cash basis for a tax

year,

10

(b)   

the person is the successor for the purposes of section 266 of

CAA 2001, and

(c)   

as a result of an election under section 267 of that Act,

relevant plant or machinery is treated as sold by the

predecessor to the successor at any time during the basis

15

period for the tax year.

(2)   

The provisions of this Chapter have effect in relation to the successor

as if everything done to or by the predecessor had been done to or by

the successor.

(3)   

Any expenditure actually incurred by the successor on acquiring the

20

relevant plant or machinery is to be ignored for the purposes of

calculating the profits of the trade for the tax year.

(4)   

In this section “the predecessor” and “relevant plant or machinery”

have the same meaning as in section 267 of CAA 2001.”

Post-cessation receipts

25

39    (1)  

Chapter 18 (post-cessation receipts) is amended as follows.

      (2)  

In section 246 (basic meaning of “post-cessation receipt”), after subsection (2)

insert—

“(2A)   

If, immediately before a person permanently ceases to carry on a

trade, an election under section 25A (cash basis for small businesses)

30

has effect in relation to the trade, a sum is to be treated as a post-

cessation receipt only if it would have been brought into account in

calculating the profits of the trade on the cash basis had it been

received at that time.”

      (3)  

In section 254 (allowable deductions), after subsection (2) insert—

35

“(2A)   

If, immediately before the person permanently ceases to carry on the

trade, an election under section 25A (cash basis for small businesses)

has effect in relation to the trade, assume for the purposes of

subsection (2) that such an election has effect in relation to the trade.”

Rent-a-room relief

40

40         

In Chapter 1 of Part 7 of ITTOIA 2005 (rent-a-room relief), in section 786

 
 

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 1 — Main provisions

177

 

(meaning of “rent-a-room receipts”), after subsection (4) insert—

“(5)   

Subsections (6) and (7) apply if—

(a)   

the receipts would otherwise be brought into account in

calculating the profits of a trade, and

(b)   

an election under section 25A (cash basis for small

5

businesses) has effect in relation to the trade.

(6)   

Any amounts brought into account under section 96A (capital

receipts) as a receipt in calculating the profits of the trade are to be

treated as receipts within paragraph (a) of subsection (1) above.

(7)   

The reference in subsection (1)(b) to receipts that accrue to an

10

individual during the income period for those receipts is to be read

as a reference to receipts that are received by the individual during

that period.”

Qualifying care relief

41         

Chapter 2 of Part 7 of ITTOIA 2005 (qualifying care relief) is amended as

15

follows.

42         

In section 805 (meaning of “qualifying care receipts”), after subsection (3)

insert—

“(4)   

Subsections (5) and (6) apply if—

(a)   

the receipts would otherwise be brought into account in

20

calculating the profits of a trade, and

(b)   

an election under section 25A (cash basis for small

businesses) has effect in relation to the trade.

(5)   

Any amounts brought into account under section 96A (capital

receipts) as a receipt in calculating the profits of the trade are to be

25

treated as receipts within paragraph (a) of subsection (1) above.

(6)   

The reference in subsection (1)(b) to receipts that accrue to an

individual during the income period for those receipts is to be read

as a reference to receipts that are received by the individual during

that period.”

30

43         

In section 820 (periods of account not ending on 5th April)—

(a)   

the existing provision becomes subsection (1), and

(b)   

after that subsection insert—

“(2)   

Where an election under section 25A (cash basis for small

businesses) has effect in relation to the trade, any reference in

35

this section or sections 821 to 823 to the period of account in

which receipts accrue is to be read as a reference to the period

of account in which receipts are received.”

 
 

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 2 — Consequential amendments

178

 

Part 2

Consequential amendments

TMA 1970

44         

In section 42 of TMA 1970 (procedure for making claims etc), in subsection

(7)(e), after “sections” insert “25A,”.

5

TCGA 1992

45         

After section 47 of TCGA 1992 insert—

“Cash basis accounting

47A     

Exemption for disposals by persons using cash basis

(1)   

No chargeable gain shall accrue on the disposal of, or of an interest

10

in, an asset if conditions A to D are met in relation to the asset.

(2)   

Condition A is that the asset is—

(a)   

tangible movable property, and

(b)   

a wasting asset.

(3)   

Condition B is that, at any time during the period of ownership of the

15

person making the disposal, the asset has been used for the purposes

of a trade, profession or vocation carried on by the person.

(4)   

Condition C is that an election under section 25A of ITTOIA 2005

(cash basis for small businesses) has effect in relation to the trade,

profession or vocation at the time of the disposal.

20

(5)   

Condition D is that—

(a)   

any expenditure attributable to the asset or interest under

paragraph (a) or (b) of section 38(1) has been brought into

account in calculating the profits of the trade, profession or

vocation on the cash basis, or

25

(b)   

any of that expenditure would have been so brought into

account if an election under section 25A of ITTOIA 2005 had

had effect in relation to the trade, profession or vocation at

the time the expenditure was paid.

(6)   

Subsection (7) applies in the case of the disposal of, or of an interest

30

in, an asset which, in the period of ownership of the person making

the disposal—

(a)   

has been used partly for the purposes of the trade, profession

or vocation and partly for other purposes, or

(b)   

has been used for the purposes of the trade, profession or

35

vocation for part of that period.

(7)   

In such a case—

(a)   

the consideration for the disposal, and any expenditure

attributable to the asset or interest by virtue of section 38(1)(a)

and (b), shall be apportioned by reference to the extent to

40

which that expenditure was, or (as the case may be) would

 
 

 
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Revised 8 May 2013