Finance Bill (HC Bill 102)

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unrelieved 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
5qualifying 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
10as is just and reasonable in all the circumstances.

(4) 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.”

57 After section 462 insert—

462A 15 Persons leaving cash basis

(1) This 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
20election 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
calculating the profits of the trade on the cash basis, and

(d) the expenditure would have been qualifying expenditure if
25an 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
of the following—

(a) the amount of that expenditure for which a deduction was
30allowed 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
wholly and exclusively for the purposes of the trade.

(3) For the purposes of determining the person’s available qualifying
35expenditure 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
the trade in that chargeable period, and

(b) the available qualifying expenditure in that pool is reduced
40by 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
qualifying expenditure.

(5) For the purposes of this section a person carrying on a trade leaves
45the cash basis in a chargeable period if—

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(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
5for the chargeable period.”

58 After section 475 insert—

475A 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
10unrelieved 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
15calculating 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) 20Subsections (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) 25This 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
30trades) 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
35not 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
40expenditure 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
45by the relieved portion of that expenditure.

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(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
5the 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
10for 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) 15for “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) 20After 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
25partnership), 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 30In 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).”

35Part 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) 40disregarding this sub-paragraph, under section 33A of ITTOIA 2005,
as inserted by paragraph 2 of Part 1, a deduction would not be

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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
that tax year, that deduction would be allowed in calculating the
5profits 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) Sub-paragraph (2) is to be disregarded in determining any question as to
10whether 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) the following provisions of CAA 2001—

(i) 15section 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
20cash basis), and

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

(b) the following provisions of ITTOIA 2005—

(i) section 96A (capital receipts under, or after leaving, cash
25basis),

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

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

(iv) 30section 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
into 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
35paragraphs (a) and (b) of sub-paragraph (3).

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Section 17

SCHEDULE 3 Trading and property allowances

Part 1 Main provisions

1 5In ITTOIA 2005, after section 783 insert—

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

CHAPTER 1 Trading allowance
Introduction
783A 10Relief under this Chapter

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

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

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

(2) If the individual qualifies for full relief (see section 783AE), the
15individual’s relevant income (see section 783AC) is not charged to
income tax (see sections 783AF and 783AG).

(3) If the individual qualifies for partial relief (see section 783AH), the
individual’s relevant income is calculated by alternative methods
(see sections 783AI to 783AK).

(4) 20Any provision of this Chapter which gives relief is subject to sections
783AN to 783AQ, which specify circumstances in which relief under
this Chapter is not given.

Basic definitions
783AA “Relevant trade” of an individual

(1) 25For the purposes of this Chapter, a trade carried on by an individual
is 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
30individual for the tax year.

(2) For 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) 35the individual has rent-a-room receipts for the tax year which
would, apart from Chapter 1 of Part 7 (rent-a-room relief), be
brought into account in calculating the profits of the trade.

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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 “Miscellaneous income”

(1) 5For 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) But if—

(a) 10the 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
income tax under Chapter 8 of Part 5,

15the 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) apart from this Chapter, and

(b) 20if 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
25for 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
year 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
30for the tax year.

783AD The individual’s trading allowance

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

(2) The Treasury may by regulations amend subsection (1) so as to
35substitute a higher sum for the sum for the time being specified in
that subsection.

Full relief
783AE Full relief: introduction

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

(a) 40the 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

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

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

(a) the individual has relevant income for the tax year which
5consists of or includes receipts of one or more relevant trades,

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

(c) the conditions mentioned in subsection (3) are met,

(d) no election by the individual under section 783AL has effect
10for the tax year, and

(e) no election by the individual under section 783AM has effect
for the tax year (election for partial relief).

(3) The conditions are that—

(a) no election by the individual under section 25A (cash basis
15for trades) has effect for the tax year,

(b) the individual’s relevant income would not exceed the
individual’s trading allowance for the tax year if it were to be
assumed that an election by the individual under section 25A
had effect for the tax year,

(c) 20the individual is eligible to make an election under section
25A (see section 31A) for the tax year, and

(d) if any trade carried on by the individual in the tax year was
carried on in the immediately preceding tax year—

(i) an election by the individual under section 25A had
25effect for that preceding tax year, or

(ii) the individual was eligible to make such an election
for that preceding tax year.

783AF Full relief: trade profits

(1) This section applies if—

(a) 30an individual qualifies for full relief for a tax year, and

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

(2) The profits or losses of each such trade for the tax year are treated as
nil.

783AG 35 Full relief: miscellaneous income

(1) This section applies if—

(a) an individual qualifies for full relief for a tax year, and

(b) the individual’s relevant income for the tax year consists of or
includes miscellaneous income.

(2) 40The amount of—

(a) the miscellaneous income arising in the tax year, less

(b) any expenses associated with that income,

is treated as nil.

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Partial relief
783AH Partial relief: alternative calculation of profits: introduction

An individual qualifies for partial relief for a tax year if—

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

(b) 5the relevant income exceeds the individual’s trading
allowance for the tax year, and

(c) an election by the individual under section 783AM has effect
for the tax year (election for partial relief).

783AI Partial relief: alternative calculation of trade profits

(1) 10This section applies if—

(a) an individual qualifies for partial relief for a tax year, and

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

(2) The profits or losses for the tax year of each of the individual’s
15relevant trades are given by taking the following steps—

Step 1

Calculate the total of 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.

20Step 2

Subtract the deductible amount.

Step 3

Subtract from the amount given by step 2 any deduction for overlap
profit allowed in calculating the profits of the trade for the tax year
25under section 205 (deduction for overlap profit in final tax year) or
section 220 (deduction for overlap profit on change of accounting
date).

(3) Subject to section 783AK, the deductible amount is equal to the
individual’s trading allowance for the tax year.

(4) 30“Overlap profit” has the same meaning in this section as it has in
Chapter 15 of Part 2 (see sections 204 and 204A).

783AJ Partial relief: alternative calculation of chargeable miscellaneous
income

(1) This section applies if—

(a) 35an individual qualifies for partial relief for a tax year, and

(b) the individual’s relevant income for the tax year consists of or
includes miscellaneous income.

(2) The amount of miscellaneous income chargeable to income tax for
the tax year is—

(a) 40the miscellaneous income for the tax year, less

(b) the deductible amount.

(3) Subject to section 783AK, the deductible amount is equal to the
individual’s trading allowance for the tax year.

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783AK Deductible amount: splitting of trading allowance

(1) This section applies where the individual’s relevant income for the
tax year includes—

(a) receipts of a relevant trade, and

(b) 5receipts of any other relevant trade or miscellaneous income
(or both).

(2) The references in section 783AI and (where it applies) section 783AJ
to the deductible amount are to amounts which, in total, equal the
individual’s trading allowance for the tax year.

(3) 10The question of how to allocate the individual’s trading allowance
for the tax year for the purposes of subsection (2) is to be decided by
55the individual, subject to subsections (4) and (5).

(4) The deductible amount in respect of a relevant trade must not be
such that the amount given by step 2 of section 783AI(2) is negative.

(5) 15The deductible amount in respect of miscellaneous income must not
be such as to result in the individual making a loss in the transactions
giving rise to the miscellaneous income.

Elections
783AL Election for full relief not to be given

(1) 20An individual may elect not to be given full relief for a tax year (see
sections 783AF and 783AG).

(2) An election must be made on or before the first anniversary of the
normal self-assessment filing date for the tax year for which the
election is made.

783AM 25 Election for partial relief

(1) An individual may elect for partial relief to be given for a tax year if
the individual’s relevant income for the tax year exceeds the
individual’s trading allowance for the tax year (see sections 783AI
and 783AJ).

(2) 30An election must be made on or before the first anniversary of the
normal self-assessment filing date for the tax year for which the
election is made.

Exclusions from relief
783AN Exclusion from relief: expenses deducted against rent-a-room
35receipts

(1) No relief under this Chapter is given to an individual for a tax year
if—

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

(b) the individual has rent-a-room receipts mentioned in
40subsection (2) for the tax year, and

(c) condition A or B is met.

(2) The rent-a-room receipts mentioned in subsection (1) are—

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(a) rent-a-room receipts which would, apart from Chapter 1 of
Part 7 (rent-a-room relief), be brought into account in
calculating the profits of a trade, or

(b) rent-a-room receipts which would, apart from Chapter 1 of
5Part 7, be chargeable to income tax under Chapter 8 of Part 5
(income not otherwise charged).

(3) Condition A is that—

(a) the individual’s total rent-a-room amount for the tax year
does not exceed the individual’s limit for the tax year (see
10section 783AR), and

(b) an election by the individual under section 799 has effect to
disapply full rent-a-room relief for the tax year.

(4) Condition B is that—

(a) the individual’s total rent-a-room amount for the tax year
15exceeds the individual’s limit for the tax year, and

(b) no election by the individual under section 800 has effect to
apply the alternative method of calculating profits for the tax
year.

783AO Exclusion from relief: payments by employer

20No relief under this Chapter is given to an individual for a tax year
if—

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

(b) the income includes a payment made by, or on behalf of, a
person at a time when the individual is—

(i) 25an employee of the person, or

(ii) the spouse or civil partner of an employee of the
person.

783AP Exclusion from relief: payments by firm

No relief under this Chapter is given to an individual for a tax year
30if—

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

(b) the income includes a payment made by, or on behalf of, a
firm at a time when the individual is—

(i) a partner in the firm, or

(ii) 35connected with a partner in the firm.

783AQ Exclusion from relief: payments by close company

(1) No relief under this Chapter is given to an individual for a tax year
if—

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

(b) 40the income includes a payment made by, or on behalf of, a
close company at a time when the individual is—

(i) a participator in the close company, or

(ii) an associate of a participator in the close company.

(2) In this section “associate” and “participator” have the same meanings
45as in Part 10 of CTA 2010 (see sections 448 and 454).