Finance (No. 2) Bill (HL Bill 156)

(a) an election under section 25A of ITTOIA 2005 (cash basis for
trades) has effect in relation to the trade, profession or
vocation for the tax year, and

(b) no such election has effect in relation to the trade, profession
5or vocation for the previous tax year.

(10) For the purposes of this section a person carrying on a property
business “enters the cash basis” for a tax year if the profits of the
business are calculated—

(a) on the cash basis for the tax year (see section 271D of ITTOIA
102005), and

(b) in accordance with GAAP (see section 271B of that Act) for
the previous tax year.

(11) In this section—

(a) references to calculating the profits of a trade, profession or
15vocation on the cash basis are to calculating the profits of a
trade, profession or vocation in relation to which an election
under section 25A of ITTOIA 2005 has effect, and

(b) references to calculating the profits of a property business on
the cash basis are to be construed in accordance with section
20271D of that Act (calculation of profits of property businesses
on the cash basis).

(12) In this section—

• “car” has the same meaning as in Part 2 (see section 268A);

• “disposal value” means—

  (a)

  25a disposal value for the purposes of Part 2, 4A, 5, 6, 7,
  8 or 10, or

  (b)

  proceeds from a balancing event for the purposes of
  Part 3 or 3A;

• “qualifying expenditure” means qualifying expenditure within
  30the meaning of any Part of this Act.””

51 (1) Section 4 (capital expenditure) is amended as follows.

(2) In subsection (2)—

(a) omit “or” at the end of paragraph (a), and

(b) after paragraph (a) insert—

“(aa) 35any cash basis expenditure, other than expenditure
incurred on the provision of a car, or”.”

(3) After subsection (2) insert—

“(2ZA) In subsection (2)(aa)—

• “cash basis expenditure” means any expenditure incurred—

  (a)

  40in the case of a trade, profession or vocation, at a time
  when an election under section 25A of ITTOIA 2005
  has effect in relation to the trade, profession or
  vocation, or

  (b)

  in the case of a property business, in a tax year for
  45which the profits of the business are calculated on the
  cash basis (see section 271D of that Act); and

• “car” has the same meaning as in Part 2 (see section 268A).””

52 (1) Section 59 (unrelieved qualifying expenditure) is amended as follows.

(2) In subsection (4), for “no amount may be carried forward as unrelieved
qualifying expenditure” substitute “any cash basis deductible amount may
not be carried forward as unrelieved qualifying expenditure in a pool for the
5trade, profession or vocation”.

(3) After subsection (4) insert—

“(4A) If a person carrying on a property business enters the cash basis for
a tax year, any cash basis deductible amount may not be carried
forward as unrelieved qualifying expenditure in a pool for a relevant
10qualifying activity from the chargeable period which is the previous
tax year.””

(4) Omit subsection (5).

(5) After subsection (5) insert—

“(5A) A “cash basis deductible amount” means any amount of unrelieved
15qualifying expenditure for which a deduction would be allowed in
calculating the profits of the trade, profession, vocation or property
business (as the case may be) on the cash basis on the assumption
that the expenditure was paid in the tax year for which the person
enters the cash basis.””

(6) 20In subsection (6), for “the amount of unrelieved qualifying expenditure
incurred on the provision of a car” substitute “any cash basis deductible
amount”.

(7) For subsection (7) substitute—

“(7) Subsections (9), (10) and (11) of section 1A (capital allowances and
25charges: cash basis) apply for the purposes of this section as they
apply for the purposes of that section.

(7A) In subsection (4A) “relevant qualifying activity” means—

(a) in relation to a UK property business, an ordinary UK
property business and a UK furnished holiday lettings
30business, and

(b) in relation to an overseas property business, an ordinary
overseas property business and an EEA furnished holiday
lettings business.””

53 (1) Section 66A (persons leaving cash basis) is amended as follows.

(2) 35For subsection (1) substitute—

“(1) This section applies if—

(a) a person carrying on a trade, profession, vocation or property
business (“the business”) leaves the cash basis in a chargeable
period,

(b) 40the person has incurred expenditure at a time when the
profits of the business are calculated on the cash basis,

(c) some or all of the expenditure was brought into account in
calculating the profits of the business on the cash basis, and

(d) the expenditure would have been qualifying expenditure if
the profits of the business had not been calculated on the cash
basis at the time the expenditure was incurred.””

(3) In subsection (2)(a)—

(a) 5for “amount of that expenditure for which” substitute “higher of the
following”,

(b) in sub-paragraphs (i) and (ii), at the beginning insert “the amount of
that expenditure for which”, and

(c) in both places, for “or vocation” substitute “, vocation or property
10business”.

(4) After subsection (6) insert—

“(7) For the purposes of this section a person carrying on a property
business leaves the cash basis in a chargeable period (“tax year X”) if
the profits of the business are calculated—

(a) 15in accordance with GAAP (see section 271B of ITTOIA 2005)
for tax year X, and

(b) on the cash basis (see section 271D of that Act) for the
previous tax year.

(8) Subsection (11) of section 1A (capital allowances and charges: cash
20basis) applies for the purposes of this section as it applies for the
purposes of that section.””

54 After section 419 insert—

“419A Unrelieved qualifying expenditure: entry to cash basis

(1) If a person carrying on a mineral extraction trade enters the cash
25basis for a tax year, for the purpose of determining the person’s
unrelieved qualifying expenditure for the chargeable period ending
with the basis period for the tax year and subsequent chargeable
periods (see section 419), only the non-cash basis deductible portion
of qualifying expenditure incurred before the chargeable period
30ending with the basis period for the tax year is to be taken into
account.

(2) The “non-cash basis deductible portion” of qualifying expenditure
means the amount of qualifying expenditure for which no deduction
would be allowed in calculating the profits of the trade on the cash
35basis on the assumption that the expenditure was paid in the tax year
for which the person enters the cash basis.

(3) Subsections (9) and (11) of section 1A (capital allowances and
charges: cash basis) apply for the purposes of this section as they
apply for the purposes of that section.””

55 40After section 431C insert—

“431D Persons leaving cash basis

(1) This section applies if—

(a) a person carrying on a mineral extraction trade leaves the
cash basis in a chargeable period,

(b) the person has incurred expenditure at a time when an
election under section 25A of ITTOIA 2005 (cash basis for
trades) has effect in relation to the trade,

(c) some or all of the expenditure was brought into account in
5calculating the profits of the trade on the cash basis, and

(d) the expenditure would have been qualifying expenditure if
an election under section 25A of that Act had not had effect at
the time the expenditure was incurred.

(2) In this section—

(a) 10the “relieved portion” of the expenditure is the higher of the
following—

(i) the amount of that expenditure for which a deduction
was allowed in calculating the profits of the trade, or

(ii) the amount of that expenditure for which a deduction
15would have been so allowed if the expenditure had
been incurred wholly and exclusively for the
purposes of the trade;

(b) the “unrelieved portion” of the expenditure is any remaining
amount of the expenditure.

(3) 20An amount of the expenditure equal to the amount (if any) by which
the unrelieved portion of the expenditure exceeds the relieved
portion of the expenditure is to be regarded as qualifying
expenditure incurred by the person in the chargeable period.

(4) For the purposes of this section a person carrying on a trade leaves
25the cash basis in a chargeable period if—

(a) immediately before the beginning of the chargeable period
an election under section 25A of ITTOIA 2005 had effect in
relation to the trade, and

(b) such an election does not have effect in relation to the trade
30for the chargeable period.””

56 After section 461 insert—

“461A Unrelieved qualifying expenditure: entry to cash basis

(1) If a person carrying on a trade enters the cash basis for a tax year, any
cash basis deductible amount may not be carried forward as
35unrelieved qualifying expenditure in the pool for the trade from the
chargeable period ending with the basis period for the previous tax
year.

(2) A “cash basis deductible amount” means any amount of unrelieved
qualifying expenditure for which a deduction would be allowed in
40calculating the profits of the trade on the cash basis on the
assumption that the expenditure was paid in the tax year for which
the person enters the cash basis.

(3) Any cash basis deductible amount is to be determined on such basis
as is just and reasonable in all the circumstances.

(4) 45Subsections (9) and (11) of section 1A (capital allowances and
charges: cash basis) apply for the purposes of this section as they
apply for the purposes of that section.””

57 After section 462 insert—

“462A Persons leaving cash basis

(1) This section applies if—

(a) a person carrying on a trade leaves the cash basis in a
5chargeable period,

(b) the person has incurred expenditure at a time when an
election under section 25A of ITTOIA 2005 (cash basis for
trades) has effect in relation to the trade,

(c) some or all of the expenditure was brought into account in
10calculating the profits of the trade on the cash basis, and

(d) the expenditure would have been qualifying expenditure if
an election under section 25A of that Act had not had effect at
the time the expenditure was incurred.

(2) In this section the “relieved portion” of the expenditure is the higher
15of the following—

(a) the amount of that expenditure for which a deduction was
allowed in calculating the profits of the trade, or

(b) the amount of that expenditure for which a deduction would
have been so allowed if the expenditure had been incurred
20wholly and exclusively for the purposes of the trade.

(3) For the purposes of determining the person’s available qualifying
expenditure in the pool for the trade for the chargeable period (see
section 456)—

(a) the whole of the expenditure must be allocated to the pool for
25the trade in that chargeable period, and

(b) the available qualifying expenditure in that pool is reduced
by the relieved portion of that expenditure.

(4) For the purposes of determining any disposal values (see section
462), the expenditure incurred by the person is to be regarded as
30qualifying expenditure.

(5) For the purposes of this section a person carrying on a trade leaves
the cash basis in a chargeable period if—

(a) immediately before the beginning of the chargeable period
an election under section 25A of ITTOIA 2005 had effect in
35relation to the trade, and

(b) such an election does not have effect in relation to the trade
for the chargeable period.””

58 After section 475 insert—

“475A Unrelieved qualifying expenditure: entry to cash basis

(1) 40If a person carrying on a trade enters the cash basis for a tax year, any
cash basis deductible amount may not be carried forward as
unrelieved qualifying expenditure in the pool for the trade from the
chargeable period ending with the basis period for the previous tax
year.

(2) 45A “cash basis deductible amount” means any amount of unrelieved
qualifying expenditure for which a deduction would be allowed in
calculating the profits of the trade on the cash basis on the

assumption that the expenditure was paid in the tax year for which
the person enters the cash basis.

(3) Any cash basis deductible amount is to be determined on such basis
as is just and reasonable in all the circumstances.

(4) 5Subsections (9) and (11) of section 1A (capital allowances and
charges: cash basis) apply for the purposes of this section as they
apply for the purposes of that section.””

59 After section 477 insert—

“477A Persons leaving cash basis

(1) 10This section applies if—

(a) a person carrying on a trade leaves the cash basis in a
chargeable period,

(b) the person has incurred expenditure at a time when an
election under section 25A of ITTOIA 2005 (cash basis for
15trades) has effect in relation to the trade,

(c) some or all of the expenditure was brought into account in
calculating the profits of the trade on the cash basis, and

(d) the expenditure would have been qualifying trade
expenditure if an election under section 25A of that Act had
20not had effect at the time the expenditure was incurred.

(2) In this section the “relieved portion” of the expenditure is the amount
of that expenditure for which a deduction was allowed in calculating
the profits of the trade.

(3) For the purposes of determining the person’s available qualifying
25expenditure in the pool for the trade for the chargeable period (see
section 470)—

(a) the whole of the expenditure must be allocated to the pool for
the trade in that chargeable period, and

(b) the available qualifying expenditure in that pool is reduced
30by the relieved portion of that expenditure.

(4) For the purposes of determining any disposal receipts (see section
476), the expenditure incurred by the person is to be regarded as
qualifying trade expenditure.

(5) For the purposes of this section a person carrying on a trade leaves
35the cash basis in a chargeable period if—

(a) immediately before the beginning of the chargeable period
an election under section 25A of ITTOIA 2005 had effect in
relation to the trade, and

(b) such an election does not have effect in relation to the trade
40for the chargeable period.””

ITA 2007

60 ITA 2007 is amended as follows.

61 In Part 4 (loss relief), in section 59 (overview of Part), in subsection (3)(b)—

(a) for “section 272” substitute “sections 272 and 272ZA”, and

(b) 45for “applies” substitute “apply”.

62 (1) Chapter 4 of Part 4 (losses from property businesses) is amended as follows.

(2) In section 120 (deduction of property losses from general income), in
subsection (7), at the end insert “and section 127BA (restriction of relief: cash
basis)”.

(3) 5After section 127B insert—

“127BA Restriction of relief: cash basis

(1) This section applies if—

(a) in a tax year a person makes a loss in a UK property business
or overseas property business (whether carried on alone or in
10partnership), and

(b) the profits of the business are calculated on the cash basis for
the tax year (see section 271D of ITTOIA 2005).

(2) No property loss relief against general income may be given to the
person for the loss.””

63 15In Chapter 1 of Part 8 (relief for interest payments), in section 384B(1)
(restriction on relief for interest payments where cash basis applies), after
“for the tax year” insert “or if the profits of a UK property business or
overseas property business carried on by the partnership are calculated on
the cash basis for the tax year (see section 271D of ITTOIA 2005).”

20Part 4 Commencement and transitional provision

64 (1) The amendments made by this Schedule have effect for the tax year 2017-18
and subsequent tax years.

(2) If—

(a) 25disregarding this sub-paragraph, under section 33A of ITTOIA 2005,
as inserted by paragraph 2 of Part 1, a deduction would not be
allowed in calculating the profits of a trade, profession or vocation
on the cash basis for the tax year 2017-18, but

(b) if the amendment made by paragraph 2 were not to have effect for
30that tax year, that deduction would be allowed in calculating the
profits of that trade, profession or vocation on that basis for that tax
year,

that deduction is to be allowed in calculating the profits of that trade,
profession or vocation on that basis for that tax year.

(3) 35Sub-paragraph (2) is to be disregarded in determining any question as to
whether or to what extent an amount of expenditure would, on the
assumption that it was paid in the tax year 2017-18, be brought into account
in calculating the profits of a trade, profession or vocation for the tax year
2017-18 for the purposes of—

(a) 40the following provisions of CAA 2001—

(i) section 1A (capital allowances and charges: cash basis),

(ii) section 59 (unrelieved qualifying expenditure),

(iii) section 419A (unrelieved qualifying expenditure: entry to
cash basis),

(iv) section 461A (unrelieved qualifying expenditure: entry to
cash basis), and

(v) section 475A (unrelieved qualifying expenditure: entry to
cash basis); and

(b) 5the following provisions of ITTOIA 2005—

(i) section 96A (capital receipts under, or after leaving, cash
basis),

(ii) section 240C (unrelieved qualifying expenditure: Parts 2, 7
and 8 of CAA 2001),

(iii) 10section 240CA (unrelieved qualifying expenditure: Part 5 of
CAA 2001), and

(iv) section 240D (assets not fully paid for).

(4) But sub-paragraph (2) is not to be disregarded in determining any question
as to whether or to what extent an amount of expenditure is actually brought
15into account in calculating the profits of a trade, profession or vocation for
the tax year 2017-18 for the purposes of the provisions mentioned in
paragraphs (a) and (b) of sub-paragraph (3).

Section 20

SCHEDULE 6 Trading and property allowances

20Part 1 Main provisions

1 In ITTOIA 2005, after section 783 insert—

““Part 6A Income charged under this Act: trading and property allowances

CHAPTER 1 25Trading allowance

Introduction

783A Relief under this Chapter

(1) This Chapter gives relief to an individual on—

(a) the income of a relevant trade (see section 783AA), and

(b) 30miscellaneous income (see section 783AB).

(2) The form of relief depends on whether the individual’s relevant
income exceeds the individual’s trading allowance (see sections
783AC and 783AD).

(3) If the individual’s relevant income does not exceed the individual’s
35trading allowance, the income is not charged to income tax (unless
the individual elects otherwise) (see sections 783AE to 783AG).

(4) If the individual’s relevant income does exceed the individual’s
trading allowance, the individual may elect for alternative methods
of calculating the income (see sections 783AH to 783AK).

(5) Any provision of this Chapter which gives relief is subject to sections
5783AN to 783AQ, which specify circumstances in which relief under
this Chapter is not given.

Basic definitions

783AA “Relevant trade” of an individual

(1) For the purposes of this Chapter, a trade carried on by an individual
10is a “relevant trade” of the individual for a tax year if—

(a) the individual carries on the trade otherwise than in
partnership, and

(b) the trade is not a rent-a-room trade in relation to the
individual for the tax year.

(2) 15For the purposes of subsection (1)(b) a trade is a “rent-a-room trade”
in relation to an individual for a tax year if—

(a) the individual qualifies for rent-a-room relief for the tax year,
and

(b) the individual has rent-a-room receipts for the tax year which
20would, apart from Chapter 1 of Part 7 (rent-a-room relief), be
brought into account in calculating the profits of the trade.

See section 783AR for definitions relevant to this subsection.

(3) In this Chapter references to a trade include references to a
profession or vocation.

783AB 25 “Miscellaneous income”

(1) For the purposes of this Chapter, an individual’s “miscellaneous
income” for a tax year is all the income arising to the individual in the
tax year which would be chargeable to income tax under Chapter 8
of Part 5 (income not otherwise charged) for the tax year.

(2) 30But if—

(a) the individual qualifies for rent-a-room relief for the tax year,
and

(b) the individual has rent-a-room receipts for the tax year which
would, apart from Chapter 1 of Part 7, be chargeable to
35income tax under Chapter 8 of Part 5,

the rent-a-room receipts are not miscellaneous income.

(3) The reference in subsection (1) to the amount which would be
chargeable to income tax under Chapter 8 of Part 5 is to the amount
which would be so chargeable—

(a) 40apart from this Chapter, and

(b) if no deduction were made for expenses or any other matter.

783AC The individual’s “relevant income”

(1) For the purposes of this Chapter, an individual’s “relevant income”
for a tax year is the sum of the following—

(a) the receipts for the tax year of the individual’s relevant trades
for the tax year, and

(b) the individual’s miscellaneous income for the tax year.

(2) In subsection (1)(a) the reference to the receipts of a trade for a tax
5year is to all the amounts which would, apart from this Chapter, be
brought into account as a receipt in calculating the profits of the trade
for the tax year.

783AD The individual’s trading allowance

(1) For the purposes of this Chapter, an individual’s trading allowance
10for a tax year is £1,000.

(2) The Treasury may by regulations amend subsection (1) so as to
substitute a higher sum for the sum for the time being specified in
that subsection.

Relief if relevant income does not exceed trading allowance

783AE 15 Full relief: introduction

(1) An individual qualifies for full relief for a tax year if—

(a) the individual has relevant income for the tax year,

(b) the relevant income does not exceed the individual’s trading
allowance for the tax year, and

(c) 20no election by the individual under section 783AL has effect
(election for full relief not to be given).

(2) Subsection (3) applies if—

(a) the individual’s relevant income for the tax year consists of or
includes receipts of one or more relevant trades,

(b) 25one or more of those trades is a GAAP trade for the tax year,

(c) the individual’s relevant income exceeds the individual’s
trading allowance for the tax year,

(d) the individual’s relevant income would not exceed the
individual’s trading allowance for the tax year if it were to be
30assumed that an election under section 25A (cash basis for
trades) had effect in relation to the GAAP trade (or to each of
them) for the tax year, and

(e) the individual is eligible to make an election under section
25A (see section 31A) in relation to the GAAP trade (or to
35each of them)—

(i) for the tax year, and

(ii) for the immediately preceding tax year.

(3) For the purposes of full relief under sections 783AF and 783AG, the
condition in subsection (1)(b) is treated as met in relation to the tax
40year.

(4) For the purposes of this section a trade is a “GAAP trade” for a tax
year if no election under section 25A has effect in relation to the trade
for the tax year.