Finance Bill

Session 2013 - 14
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Finance Bill

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 2 — Consequential amendments
179

have been, brought into account as mentioned in subsection
(5) above,
(b)
the computation of the gain shall be made separately in
relation to the apportioned parts of the expenditure and
consideration, and
5
(c)
subsection (1) above shall apply to any gain accruing by
reference to the computation in relation to the part of the
consideration apportioned to use for the purposes of the
trade, profession or vocation.
47B
Disposals made by persons after leaving cash basis
10
(1)
This section applies where—
(a)
a person disposes of, or of an interest in, an asset that has
been used for the purposes of a trade, profession or vocation
carried on by the person, and
(b)
conditions A and B are met in relation to the trade, profession
15
or vocation.
(2)
Condition A is that—
(a)
any expenditure attributable to the asset or interest under
paragraph (a) or (b) of section 38(1) was incurred at a time
when an election under section 25A of ITTOIA 2005 (cash
20
basis for small businesses) had effect in relation to the trade,
profession or vocation, and
(b)
that expenditure (“the relevant expenditure”) has been
brought into account in calculating the profits of the trade,
profession or vocation on the cash basis.
25
(3)
Condition B is that no such election has effect in relation to the trade,
profession or vocation at the time of the disposal.
(4)
Section 39 (exclusion of expenditure by reference to tax on income)
does not apply in relation to the relevant expenditure.
(5)
Section 41 (restriction of losses by reference to capital allowances and
30
renewals allowances) has effect as if—
(a)
the election mentioned in subsection (2)(a) above had not had
effect at the time the relevant expenditure was incurred, and
(b)
the reference in subsection (7) to qualifying expenditure
included a reference to expenditure which, if that election
35
had not had effect at that time, would have been qualifying
expenditure.
(6)
Section 45 (exemption for certain wasting assets) and section 47
(wasting assets qualifying for capital allowances) have effect as if the
election mentioned in subsection (2)(a) above had not had effect at
40
the time the relevant expenditure was incurred.

Accordingly, any reference in those sections to expenditure
qualifying for capital allowances is to be read as a reference to
expenditure that would, in the absence of the election, have qualified
for such allowances.”
45

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 2 — Consequential amendments
180

CAA 2001
46
In section 1 of CAA 2001 (capital allowances), after subsection (3) insert—
“(4)
But a person is not entitled to any allowance or liable to any charge
under this Act in calculating the profits of a trade, profession or
vocation of the person in relation to which an election under section
5
25A of ITTOIA 2005 (cash basis for small businesses) has effect, other
than an allowance in respect of expenditure incurred on the
provision of a car (or a charge in connection with such an allowance).
(5)
In subsection (4) “car” has the same meaning as in Part 2 (see section
268A).”
10
47
In section 59 of CAA 2001 (unrelieved qualifying expenditure), after
subsection (3) insert—
“(4)
If a person carrying on a trade, profession or vocation enters the cash
basis for a tax year, no amount may be carried forward as unrelieved
qualifying expenditure from the chargeable period ending with the
15
basis period for the previous tax year.
(5)
But subsection (4) does not apply to unrelieved qualifying
expenditure incurred on the provision of a car.
(6)
Where a person has unrelieved qualifying expenditure to carry
forward from a chargeable period that is not expenditure allocated to
20
a single asset pool, the amount of unrelieved qualifying expenditure
incurred on the provision of a car is to be determined on such basis
as is just and reasonable in all the circumstances.
(7)
Section 240B of ITTOIA 2005 (meaning of “entering the cash basis”)
applies for the purposes of this section as it applies for the purposes
25
of Chapter 17A of Part 2 of that Act.”
48
In Chapter 5 of Part 2 of CAA 2001 (plant and machinery allowances and
charges), after section 66 insert—
“Application of Chapter to person leaving cash basis
66A
Persons leaving cash basis
30
(1)
This section applies if—
(a)
a person carrying on a trade, profession or vocation leaves
the cash basis in a chargeable period, and
(b)
the person has at any time incurred expenditure which, if an
election under section 25A of ITTOIA 2005 (cash basis for
35
small businesses) had not had effect at that time, would have
been qualifying expenditure.
(2)
In this section—
(a)
the “relieved portion” of the expenditure is the amount of
that expenditure for which—
40
(i)
a deduction was allowed in calculating the profits of
the trade, profession or vocation, or
(ii)
a deduction would have been so allowed if the
expenditure had been incurred wholly and

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 2 — Consequential amendments
181

exclusively for the purposes of the trade, profession
or vocation;
(b)
the “unrelieved portion” of the expenditure is any remaining
amount of the expenditure.
(3)
For the purposes of determining any entitlement of the person to an
5
annual investment allowance or a first-year allowance, the person is
to be treated as incurring the unrelieved portion of the expenditure
in the chargeable period.
(4)
For the purposes of determining the person’s available qualifying
expenditure in a pool for the chargeable period (see section 58)—
10
(a)
the whole of the expenditure must be allocated to the
appropriate pool (or pools) in that chargeable period, and
(b)
the available qualifying expenditure in a pool to which the
expenditure (or some of it) is allocated is reduced by the
relieved portion of that expenditure.
15
(5)
For the purposes of determining any disposal receipts (see section
60), the expenditure incurred by the person is to be regarded as
qualifying expenditure.
(6)
For the purposes of this section a person carrying on a trade,
profession or vocation leaves the cash basis in a chargeable period
20
if—
(a)
immediately before the beginning of the chargeable period
an election under section 25A had effect in relation to the
trade, profession or vocation, and
(b)
such an election does not have effect in relation to the trade,
25
profession or vocation for the chargeable period.”
ITTOIA 2005
49
In section 31 of ITTOIA 2005 (relationship between rules prohibiting and
allowing deductions), in subsection (2), omit the “or” at the end of paragraph
(b) and after paragraph (c) insert “or
30
(d)
Chapter 17A,”.
50
In section 56 of ITTOIA 2005 (rules allowing deductions: professions and
vocations), after “marks)” insert “and section 97A (cash basis: value of
trading stock on cessation of trade)”.
51
Omit section 160 of ITTOIA 2005 (cash basis of calculation for barristers and
35
advocates in early years of practice).
52    (1)
Chapter 17 of Part 2 of ITTOIA 2005 (adjustment income) is amended as
follows.
      (2)
In section 229(2)(a), for “sections 237 to 239” substitute “sections 237 to
239B”.
40
      (3)
Omit sections 238 and 239 (spreading of adjustment income: barristers and
advocates).
53
In Part 2 of Schedule 4 to ITTOIA 2005 (index of defined expressions), at the

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 2 — Consequential amendments
182

appropriate place insert—

“the cash basis (in Part 2)
section 25A”;

“entering the cash basis
section 240B”.

(in Chapter 17A of Part 2)

ITA 2007
5
54    (1)
In Part 4 of ITA 2007 (loss relief), Chapter 2 (trade losses) is amended as
follows.
      (2)
In section 64 (deduction of losses from general income), in subsection (8),
after paragraph (ba) insert—
“(bb)
section 74E (restriction on the relief and early trade losses
10
relief where cash basis applies),”.
      (3)
In section 72 (relief for individuals for losses in first 4 years of trade), in
subsection (5), after paragraph (ba) insert—
“(bb)
section 74E (restriction on the relief and trade loss relief
where cash basis applies),”.
15
      (4)
After section 74D insert—
“Restriction on sideways relief and capital gains relief where cash basis applies
74E
No relief where cash basis used to calculate losses
(1)
This section applies if—
(a)
a person makes a loss in any trade in a tax year, and
20
(b)
an election under section 25A of ITTOIA 2005 (cash basis for
small businesses) has effect in relation to the trade for that tax
year.
(2)
No sideways relief or capital gains relief may be given to the person
for the loss.
25
(3)
For the purposes of this section—
(a)
capital gains relief is, in relation to a loss, the treatment of a
loss as an allowable loss by virtue of section 261B of TCGA
1992 (use of trading loss as a CGT loss), and
(b)
capital gains relief is given for a loss when it is so treated.”
30
55    (1)
Chapter 1 of Part 8 of ITA 2007 (relief for interest payments) is amended as
follows.
      (2)
In section 383(5), after paragraph (a) insert—
“(aa)
section 384B (restriction on relief where cash basis applies),”.
      (3)
After section 384A insert—
35
“384B
Restriction on relief where cash basis applies
(1)
Relief is not to be given under this Chapter for a tax year for interest
paid by a person on a relevant loan if the partnership to which the

Finance Bill
Schedule 5 — Deductions allowable at a fixed rate
183

loan relates has made an election under section 25A of ITTOIA 2005
(cash basis for small businesses) for the tax year.
(2)
A loan is a “relevant loan” if—
(a)
it is a loan to which section 388 applies (loan to buy plant or
machinery for partnership use), or
5
(b)
it is a loan to which section 398 applies (loan to invest in
partnership) and which is not used for purchasing a share in
a partnership.”
Part 3
Commencement and transitional provision
10
56
Subject to paragraph 57, the amendments made by this Schedule have effect
for the tax year 2013-14 and subsequent tax years.
57    (1)
In a case where—
(a)
the profits of a barrister or advocate in independent practice for a
period of account ending in the tax year 2012-13 have been calculated
15
in accordance with section 160 of ITTOIA 2005 (barristers and
advocates: alternative basis of calculation in early years of practice),
and
(b)
if that section had not been repealed by this Schedule, the profits of
the barrister or advocate for any subsequent period of account could
20
have been calculated in accordance with that section,

the profits of the barrister or advocate for that subsequent period of account
may be calculated in accordance with that section.
      (2)
The repeal of sections 238 and 239 of ITTOIA 2005 (spreading of adjustment
income: barristers and advocates) does not have effect in relation to any
25
individual whose profits for a period of account ending in or before the tax
year 2012-13 have been calculated in accordance with section 160 of ITTOIA
2005.
Schedule 5
Section 18

Deductions allowable at a fixed rate
30
1
Part 2 of ITTOIA 2005 (trading income) is amended as follows.
2
After Chapter 5 insert—
“Chapter 5A
Trade profits: deductions allowable at a fixed rate
Introduction
35
94B
Professions and vocations

The provisions of this Chapter apply to professions and vocations as
they apply to trades.