Finance Bill

House of Commons

Session 2013 - 14
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 1 — Main provisions
173

Herd basis rules
24
In Chapter 8 (trade profits: herd basis rules), after section 111 insert—
“111A
Herd basis rules not to apply where cash basis used

Nothing in this Chapter applies in calculating the profits of a trade
on the cash basis.”
5
Sound recordings
25
In Chapter 9 (trade profits: sound recordings), after section 130 insert—
“130A
Chapter not to apply where cash basis used

Nothing in this Chapter applies in calculating the profits of a trade
on the cash basis.”
10
Telecommunication rights
26
In Chapter 10 (trade profits: certain telecommunication rights), before
section 145 insert—
“144A
Chapter not to apply where cash basis used

Nothing in this Chapter applies in calculating the profits of a trade
15
on the cash basis.”
Long funding leases
27
In Chapter 10A (leases of plant or machinery: special rules for long funding
leases), before section 148A (and the italic heading preceding it) insert—
“Application of Chapter
20
148ZA
Chapter not to apply where cash basis used

Nothing in this Chapter applies in calculating the profits of a trade
on the cash basis.”
Specific trades
28
In Chapter 11 (trade profits: other specific trades), before section 149 (and the
25
italic heading preceding it) insert—
“Cash basis accounting
148K
Application of Chapter to the cash basis

The following sections do not apply in calculating the profits of a
trade, profession or vocation on the cash basis—
30
sections 149 to 154A (dealers in securities etc),
section 157 (relief in respect of mineral royalties),
section 158 (lease premiums etc: reduction of receipts),
section 159 (ministers of religion),
section 161 (mineral exploration and access),
35

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 1 — Main provisions
174

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
175

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
176

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—

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
177

(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
178

(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
179

(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.”