Finance Bill (HC Bill 116)

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

(6) In this section—

  • 5“relevant property business activity” means—

    (a)

    in relation to a UK property business, an ordinary UK
    property business and a UK furnished holiday
    lettings business (within the meaning of Part 2 of
    CAA 2001 (see sections 16 and 17 of that Act)), and

    (b)

    10in relation to an overseas property business, an
    ordinary overseas property business and an EEA
    furnished holiday lettings business (within the
    meaning of Part 2 of that Act (see sections 17A and
    17B of that Act));

  • 15“unrelieved qualifying expenditure” means unrelieved
    qualifying expenditure for the purposes of Part 2 of CAA
    2001 (see section 59(1) and (2) of that Act).

334D Assets not fully paid for

(1) This section applies if—

(a) 20a person carrying on a property business enters the cash basis
for a tax year (“the current tax year”),

(b) at any time before the end of the chargeable period which is
the previous tax year the person has incurred relevant
expenditure, and

(c) 25not all of the relevant expenditure has actually been paid by
the person.

(2) “Relevant expenditure” means expenditure on plant or machinery—

(a) for which a deduction would be allowed in calculating the
profits of the property business on the cash basis on the
30assumption that the expenditure was paid in the current tax
year, and

(b) in respect of which the person has obtained capital
allowances.

(3) If the amount of the relevant expenditure that the person has actually
35paid exceeds the amount of capital allowances given in respect of the
relevant expenditure, the difference is to be deducted in calculating
the profits of the property business for the current tax year.

(4) 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
40the relevant expenditure, the difference is to be treated as a receipt in
calculating the profits of the property business for the current tax
year.

(5) Any question as to whether or to what extent expenditure is relevant
expenditure, or as to whether or to what extent any capital allowance
45obtained is in respect of relevant expenditure, is to be determined on
such basis as is just and reasonable in all the circumstances.

(6) If the amount of capital allowances given in respect of the relevant
expenditure has been reduced under section 205 or 207 of CAA 2001

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(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
section.

334E 5Effect of election where predecessor and successor are connected
persons

(1) This section applies if—

(a) a person carrying on a property business enters the cash basis
for a tax year,

(b) 10the person is the successor for the purposes of section 266 of
CAA 2001, and

(c) as a result of an election under that section, relevant plant or
machinery is treated as sold by the predecessor to the
successor at any time during the tax year.

(2) 15The 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
relevant plant or machinery is to be ignored for the purposes of
20calculating the profits of the property business for the tax year.

(4) In this section—

  • “the predecessor” has the same meaning as in section 266 of
    CAA 2001, and

  • “relevant plant or machinery” has the same meaning as in
    25section 267 of that Act.”

30 In section 351 (income charged), after subsection (2) insert—

(3) Further to subsection (2), section 254 applies for the purposes of this
Chapter as if for subsection (2A) of that section there were
substituted—

(2A) 30If the time immediately before the person permanently ceases
to carry on the UK property business falls in a cash basis tax
year, assume for the purposes of subsection (2) that the
profits of the business are calculated on the cash basis.”

(4) For the purposes of sections 254 (as so applied) and 353, a tax year is
35“a cash basis tax year” in relation to a property business if the profits
of the business for the tax year are calculated on the cash basis (see
section 271D).”

31 In section 353 (basic meaning of “post-cessation receipt”), after subsection (1)
insert—

(1A) 40If the time immediately before a person permanently ceases to carry
on a UK property business falls in a cash basis tax year (see section
351(4)), 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 business on the cash basis had it been received at that time.”

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32 In section 356 (application to businesses within the charge to corporation
tax), in subsection (1), for “section 355” substitute “sections 353(1A) and 355,
and in the modification of section 254 in section 351(3)”.

33 In section 786 (meaning of “rent-a-room receipts”), after subsection (6)
5insert—

(6A) Subsections (6B) and (7) apply if—

(a) the receipts would otherwise be brought into account in
calculating the profits of a UK property business, and

(b) the profits are calculated on the cash basis (see section 271D).

(6B) 10Any amounts brought into account under section 307E (capital
receipts under, or after leaving, cash basis) as a receipt in calculating
the profits of the property business are to be treated as receipts
within paragraph (a) of subsection (1) above.”

34 In section 860 (adjustment income), in subsection (5), after “Chapter 17 of
15Part 2” insert “, or under section 239B as applied to property businesses by
section 334A,”.

35 In section 866 (employee benefit contributions: non-trades and non-property
businesses), in subsection (7)(b), for “section 272” substitute “sections 272
and 272ZA”.

36 20In section 867 (business entertainment and gifts: non-trades and non-
property businesses), in subsection (7)(b), for “section 272” substitute
“sections 272 and 272ZA”.

37 In section 868 (social security contributions: non-trades etc), in subsection
(6)(b), for “section 272” insert “sections 272 and 272ZA”.

38 25In section 869 (penalties, interest and VAT surcharges: non-trades etc), in
subsection (6)(b), for “section 272” substitute “sections 272 and 272ZA”.

39 In section 870 (crime-related payments: non-trades and non-property
businesses), in subsection (4)(b), for “section 272” substitute “sections 272
and 272ZA”.

40 30In section 872 (losses calculated on same basis as miscellaneous income), in
subsection (4)(b), for “section 272” substitute “sections 272 and 272ZA”.

41 In Part 2 of Schedule 4 (index of defined expressions), at the appropriate
place insert—

“the cash basis
(in Part 3)
section 271D
35
in accordance
with GAAP
(in Part 3)
section 271B”.

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Part 3 Trades etc: amendments of other Acts

TMA 1970

42 In section 42 of TMA 1970 (procedure for making claims etc), in subsection
5(7)(e), after “194” insert “, 271A(10)”.

TCGA 1992

43 TCGA 1992 is amended as follows.

44 In section 37 (consideration chargeable to tax on income), after subsection (1)
insert—

(1A) 10There is to be excluded from the consideration for a disposal of an
asset taken into account in the computation of the gain a sum equal
to any amount that is taken into account by the person making the
disposal as a receipt under section 96A or 307E of ITTOIA 2005
(capital receipts under, or after leaving, cash basis) as a result of the
15operation of any deemed disposal provision in relation to the asset.

(1B) But subsection (1A) applies only to the extent that the sum has not
been excluded from the consideration for an earlier disposal of the
asset.

(1C) The following are “deemed disposal provisions”—

(a) 20in relation to trades, professions and vocations, subsections
(4) and (5) of section 96A of ITTOIA 2005 (which provide for
circumstances in which a person is to be regarded as
disposing of an asset for the purposes of that section), and

(b) in relation to property businesses, section 307F of ITTOIA
252005 (which provides for circumstances in which a person is
to be regarded as disposing of an asset for the purposes of
section 307E of that Act).”

45 (1) Section 41 (restriction of losses by reference to capital allowances etc) is
amended as follows.

(2) 30In subsection (4), after paragraph (a) insert—

(zaa) any deduction allowable in respect of capital expenditure in
calculating profits on the cash basis (see sections 33A and
307B of ITTOIA 2005),”.

(3) After subsection (6) insert—

(6A) 35Where—

(a) capital allowances have been made or may be made in
respect of expenditure, and

(b) the capital allowances include a deduction mentioned in
subsection (4)(zaa),

40the capital allowances to be taken into account under this section are
to be regarded as equal to the total amount of expenditure which has
qualified for capital allowances less any balancing charge to which

the person making the disposal is liable under the Capital
Allowances Act.”

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(4) In subsection (7), after “Capital Allowances Act,” insert “and subsection (6A)
does not apply,”

(5) After subsection (8) insert—

(9) In this section—

(a) 5in relation to a trade, profession or vocation, references to
calculating profits 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 (cash basis for
trades) has effect, and

(b) 10in relation to a property business, references to calculating
profits on the cash basis are to be construed in accordance
with section 271D of that Act (calculation of profits of
property businesses on the cash basis).

(10) In this section—

  • 15“capital expenditure” means expenditure of a capital nature
    incurred on, or in connection with, the creation, construction,
    acquisition, alteration or disposal of an asset, and

  • “property business” means a UK property business or an
    overseas property business within the meaning of Part 3 of
    20ITTOIA 2005 (see sections 264 and 265 of that Act).”

46 (1) Section 47A (exemption for disposals by persons using cash basis) is
amended as follows.

(2) For the heading substitute “Exemption for certain disposals under, or after
leaving, cash basis”.

(3) 25In subsection (1), for “A to D” substitute “A, B and D”.

(4) For subsection (2) substitute—

(2) Condition A is that the asset is not land.”

(5) In subsection (3), for “or vocation” substitute “, vocation or property
business”.

(6) 30Omit subsection (4).

(7) For subsection (5) substitute—

(5) Condition D is that relevant disposal proceeds—

(a) are brought into account as a receipt (whether or not on the
cash basis) under section 96A(3I) of ITTOIA 2005 in
35calculating the profits of a trade, profession or vocation
(capital receipts under, or after leaving, cash basis: trades,
professions and vocations), or

(b) are brought into account as a receipt (whether or not on the
cash basis) under section 307E(12) of that Act in calculating
40the profits of a property business (capital receipts under, or
after leaving, cash basis: property businesses).

(5A) “Relevant disposal proceeds” means disposal proceeds as mentioned
in section 96A(3F) of ITTOIA 2005 or (as the case may be) section
307E(9) of that Act which arise from the disposal mentioned in
45subsection (1).”

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(8) For subsection (6) substitute—

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

(a) which, in the period of ownership of the person making the
5disposal—

(i) has been used partly for the purposes of the trade,
profession or vocation and partly for other purposes,
or

(ii) has been used for the purposes of the trade,
10profession or vocation for part of that period, or

(b) expenditure on which by the person has qualified in part only
for capital allowances.”

(9) In subsection (7)—

(a) in paragraph (a), for “was, or (as the case may be)” to the end
15substitute “qualified for capital allowances”, and

(b) in paragraph (c), at the end insert “, or to the expenditure qualifying
for capital allowances.”

(10) After subsection (7) insert—

(8) In this section “property business” means a UK property business or
20an overseas property business within the meaning of Part 3 of
ITTOIA 2005 (see sections 264 and 265 of that Act).”

47 Section 47B (disposals made by persons after leaving cash basis) is omitted.

CAA 2001

48 CAA 2001 is amended as follows.

49 25In section 1 (capital allowances), omit subsections (4) and (5).

50 After section 1 insert—

1A Capital allowances and charges: cash basis

(1) This section applies in relation to a chargeable period for which the
profits of a trade, profession, vocation or property business (“the
30relevant activity”) carried on by a person are calculated on the cash
basis.

(2) The person is not entitled to any allowance or liable to any charge
under this Act except as provided by subsections (4) and (7).

(3) No disposal value is to be brought into account except as provided
35by subsections (5) and (8).

(4) If, apart from subsection (2), the person would be entitled to an
allowance in respect of expenditure incurred on the provision of a
car or liable to a charge in connection with such an allowance, the
person is so entitled or (as the case may be) so liable.

(5) 40If, apart from subsection (3), a disposal value would be brought into
account in respect of a car, the disposal value is brought into account
in respect of the car.

(6) Subsections (7) and (8) apply if—

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(a) a person carrying on a relevant activity incurs qualifying
expenditure relating to an asset at a time when the profits of
that activity are not calculated on the cash basis,

(b) after incurring the expenditure, the person enters the cash
5basis for a tax year, and

(c) no deduction would be allowed in respect of the expenditure
in calculating the profits of the relevant activity on the cash
basis for that tax year, on the assumption that the
expenditure was paid in that tax year.

(7) 10If, apart from subsection (2), the person would be liable to a charge
in connection with allowances in respect of the qualifying
expenditure mentioned in subsection (6), the person is so liable.

(8) If, apart from subsection (3), a disposal value would be brought into
account in respect of the asset mentioned in subsection (6), the
15disposal value is brought into account in respect of the asset.

(9) For the purposes of this section a person carrying on a trade,
profession or vocation “enters the cash basis” for a tax year if—

(a) an election under section 25A of ITTOIA 2005 (cash basis for
trades) has effect in relation to the trade, profession or
20vocation for the tax year, and

(b) no such election has effect in relation to the trade, profession
or 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
25business are calculated—

(a) on the cash basis for the tax year (see section 271D of ITTOIA
2005), and

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

(11) 30In this section—

(a) references to calculating the profits of a trade, profession or
vocation 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) 35references to calculating the profits of a property business on
the cash basis are to be construed in accordance with section
271D of that Act (calculation of profits of property businesses
on the cash basis).

(12) In this section—

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

  • “disposal value” means—

    (a)

    a 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
    45Part 3 or 3A;

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

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

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(2) In subsection (2)—

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

(b) after paragraph (a) insert—

(aa) any cash basis expenditure, other than expenditure
5incurred 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)

    in the case of a trade, profession or vocation, at a time
    10when 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
    which the profits of the business are calculated on the
    15cash 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
20not be carried forward as unrelieved qualifying expenditure in a pool for the
trade, 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
25forward as unrelieved qualifying expenditure in a pool for a relevant
qualifying activity from the chargeable period which is the previous
tax year.”

(4) Omit subsection (5).

(5) After subsection (5) insert—

(5A) 30A “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, 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
35enters the cash basis.”

(6) In 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) 40Subsections (9), (10) 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.

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

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

(b) in relation to an overseas property business, an ordinary
5overseas property business and an EEA furnished holiday
lettings business.”

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

(2) For subsection (1) substitute—

(1) This section applies if—

(a) 10a person carrying on a trade, profession, vocation or property
business (“the business”) leaves the cash basis in a chargeable
period,

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

(c) 15some 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) 20In subsection (2)(a)—

(a) for “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) 25in both places, for “or vocation” substitute “, vocation or property
business”.

(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
30the profits of the business are calculated—

(a) in 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) 35Subsection (11) of section 1A (capital allowances and charges: cash
basis) 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) 40If a person carrying on a mineral extraction trade enters the cash
basis 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
45of qualifying expenditure incurred before the chargeable period
ending with the basis period for the tax year is to be taken into
account.

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(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
basis on the assumption that the expenditure was paid in the tax year
5for 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 After section 431C insert—

431D 10 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
15election 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
20an election under section 25A of that Act had not had effect at
the time the expenditure was incurred.

(2) In this section—

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

(i) 25the 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
would have been so allowed if the expenditure had
been incurred wholly and exclusively for the
30purposes of the trade;

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

(3) An amount of the expenditure equal to the amount (if any) by which
the unrelieved portion of the expenditure exceeds the relieved
35portion 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
the cash basis in a chargeable period if—

(a) immediately before the beginning of the chargeable period
40an 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
for the chargeable period.”

56 After section 461 insert—

461A 45 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

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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—