|
| |
|
| |
(1) | For the purposes of section 31A there is a “relevant maximum” |
| |
applicable for a tax year in relation to a trade, profession or vocation |
| |
carried on by a person if any of conditions A to C is met. |
| |
(2) | Condition A is that an election under section 25A did not have effect |
| 5 |
in relation to the trade, profession or vocation for the previous tax |
| |
| |
(3) | Condition B is that the aggregate of the cash basis receipts of each |
| |
trade, profession or vocation carried on by the person during the |
| |
previous tax year is greater than an amount equal to twice the VAT |
| 10 |
threshold for that previous tax year. |
| |
(4) | Condition C is that, in a case where the person is either an individual |
| |
who controls a firm or a firm controlled by an individual, the |
| |
aggregate of the cash basis receipts of each trade, profession or |
| |
vocation carried on by the individual or the firm during the previous |
| 15 |
tax year is greater than an amount equal to twice the VAT threshold |
| |
for that previous tax year. |
| |
(5) | If there is a relevant maximum applicable for a tax year, the amount |
| |
of the relevant maximum is— |
| |
(a) | the VAT threshold, or |
| 20 |
(b) | in the case where the person is an individual who is a |
| |
universal credit claimant in the tax year, an amount equal to |
| |
| |
(6) | For the purposes of this section, where the basis period for a tax year |
| |
is less than 12 months, the VAT threshold is proportionately |
| 25 |
| |
| |
“universal credit claimant”, in relation to a tax year, means a |
| |
person who is entitled to universal credit under the relevant |
| |
legislation for an assessment period (within the meaning of |
| 30 |
the relevant legislation) that falls within the basis period for |
| |
| |
“the relevant legislation” means— |
| |
(a) | Part 1 of the Welfare Reform Act 2012, or |
| |
(b) | any provision made for Northern Ireland which |
| 35 |
corresponds to that Part of that Act, and |
| |
“the VAT threshold”, in relation to a tax year, means the amount |
| |
specified at the end of that tax year in paragraph 1(1)(a) of |
| |
| |
(8) | The Treasury may by order amend this section. |
| 40 |
(9) | A statutory instrument containing an order under subsection (8) that |
| |
restricts the circumstances in which an election may be made under |
| |
section 25A may not be made unless a draft of the instrument |
| |
containing the order has been laid before, and approved by a |
| |
resolution of, the House of Commons. |
| 45 |
|
| |
|
| |
|
| |
(1) | A person is an excluded person in relation to a tax year if the person |
| |
meets any of conditions A to H. |
| |
| |
(a) | the person is a firm, and |
| 5 |
(b) | one or more of the persons who have been partners in the |
| |
firm at any time during the basis period for the tax year was |
| |
not an individual at that time. |
| |
(3) | Condition B is that the person was a limited liability partnership at |
| |
any time during the basis period for the tax year. |
| 10 |
(4) | Condition C is that the person is an individual who has been a |
| |
Lloyd’s underwriter at any time during the basis period for the tax |
| |
| |
(5) | Condition D is that the person has made an election under Chapter 8 |
| |
(trade profits: herd basis rules) that has effect in relation to the tax |
| 15 |
| |
(6) | Condition E is that the person has made a claim under section 221 |
| |
(claim for averaging of fluctuating profits) in relation to the tax year. |
| |
(7) | Condition F is that, at any time within the period of 7 years ending |
| |
immediately before the basis period for the tax year, the person |
| 20 |
obtained an allowance under Part 3A of CAA 2001 (business |
| |
premises renovation allowances). |
| |
(8) | Condition G is that the person has carried on a mineral extraction |
| |
trade at any time during the basis period for the tax year. |
| |
| In this subsection “mineral extraction trade” has the same meaning |
| 25 |
as in Part 5 of CAA 2001 (see section 394(2) of that Act). |
| |
| |
(a) | at any time before the beginning of the basis period for the tax |
| |
year the person obtained an allowance under Part 6 of CAA |
| |
2001 (research and development allowances) in respect of |
| 30 |
qualifying expenditure incurred by the person, and |
| |
(b) | the person owns an asset representing the expenditure. |
| |
| In this subsection “qualifying expenditure” has the same meaning as |
| |
| |
(10) | The Treasury may by order amend this section. |
| 35 |
(11) | A statutory instrument containing an order under subsection (10) |
| |
that restricts the circumstances in which an election may be made |
| |
under section 25A may not be made unless a draft of the instrument |
| |
containing the order has been laid before, and approved by a |
| |
resolution of, the House of Commons. |
| 40 |
Elections under section 25A |
| |
31D | Effect of election under section 25A |
| |
(1) | An election made by a person under section 25A has effect— |
| |
(a) | for the tax year for which it is made, and |
| |
|
| |
|
| |
|
(b) | for every subsequent tax year. |
| |
| This is subject to subsections (2) and (3). |
| |
(2) | An election made by a person under section 25A ceases to have effect |
| |
if any of conditions A to C in section 31A is not met for a subsequent |
| |
| 5 |
(3) | An election made by a person under section 25A ceases to have effect |
| |
| |
(a) | there is a change of circumstances relating to any trade, |
| |
profession or vocation carried on by the person which makes |
| |
it more appropriate for its profits for a subsequent tax year to |
| 10 |
be calculated in accordance with generally accepted |
| |
| |
(b) | the person elects to calculate those profits in that way. |
| |
(4) | Neither subsection (2) nor subsection (3) prevents the person making |
| |
an election under section 25A for any subsequent tax year. |
| 15 |
| |
(a) | is made by a person under section 25A, and |
| |
(b) | has effect for a tax year, |
| |
| has effect in relation to every trade, profession or vocation carried on |
| |
by the person during the tax year. |
| 20 |
(6) | For provision prohibiting a person who has made an election under |
| |
section 25A from claiming any capital allowances (other than in |
| |
respect of expenditure incurred on the provision of a car), see section |
| |
| |
Calculation of profits on cash basis |
| 25 |
31E | Calculation of profits on cash basis |
| |
(1) | This section applies to professions and vocations as it applies to |
| |
| |
(2) | To determine the profits of a trade for a tax year on the cash basis— |
| |
| 30 |
| Calculate the total amount of receipts of the trade received |
| |
during the basis period for the tax year. |
| |
| |
| Deduct from that amount the total amount of expenses of the |
| |
trade paid during the basis period for the tax year. |
| 35 |
(3) | Subsection (2) is subject to any adjustment required or authorised by |
| |
law in calculating profits for income tax purposes. |
| |
Overview of rest of Part 2 |
| |
31F | Overview of rest of Part 2 as it applies to cash basis |
| |
(1) | For provision about the application of Chapters 4 to 6 (rules about |
| 40 |
deductions and receipts) in relation to the cash basis, see sections |
| |
| |
|
| |
|
| |
|
(2) | For provision about the application of Chapter 11 (trade profits: |
| |
other specific trades) in relation to the cash basis, see section 148K. |
| |
(3) | The following Chapters apply only where profits are calculated on |
| |
| |
Chapter 6A (trade profits: amounts not reflecting commercial |
| 5 |
| |
Chapter 17A (cash basis: adjustments for capital allowances). |
| |
(4) | The following Chapters do not apply in relation to the cash basis— |
| |
Chapter 8 (trade profits: herd basis rules), |
| |
Chapter 9 (trade profits: sound recordings), |
| 10 |
Chapter 10 (trade profits: certain telecommunication rights), |
| |
Chapter 10A (leases of plant or machinery: special rules for long |
| |
| |
Chapter 11A (trade profits: changes in trading stock), |
| |
Chapter 13 (deductions from profits: unremittable amounts), |
| 15 |
Chapter 14 (disposal and acquisition of know-how), |
| |
Chapter 16 (averaging profits of farmers and creative artists), |
| |
Chapter 16ZA (compensation for compulsory slaughter of |
| |
| |
Chapter 16A (oil activities).” |
| 20 |
Rules restricting deductions |
| |
6 | Chapter 4 (trade profits: rules restricting deductions) is amended as follows. |
| |
7 | After section 32 insert— |
| |
| |
32A | Application of Chapter to the cash basis |
| 25 |
(1) | The following sections do not apply in calculating the profits of a |
| |
| |
section 33 (capital expenditure), |
| |
section 35 (bad and doubtful debts), |
| |
sections 36 and 37 (unpaid remuneration), |
| 30 |
section 43 (employee benefit contributions: profits calculated |
| |
before end of 9 month period), |
| |
sections 48 to 50B (car hire). |
| |
(2) | For rules restricting deductions that apply only where profits are |
| |
calculated on the cash basis, see the following— |
| 35 |
section 33A (cash basis: capital expenditure), |
| |
section 51A (cash basis: interest payments on loans).” |
| |
8 | After section 33 insert— |
| |
“33A | Cash basis: capital expenditure |
| |
(1) | In calculating the profits of a trade on the cash basis, no deduction is |
| 40 |
allowed for items of a capital nature, other than expenditure that— |
| |
|
| |
|
| |
|
(a) | if it were not allowable as a deduction in calculating the |
| |
profits of the trade, would be qualifying expenditure within |
| |
the meaning of Part 2 of CAA 2001 (plant and machinery |
| |
| |
(b) | is not expenditure incurred on the provision of a car. |
| 5 |
(2) | In this section “car” has the same meaning as in Part 2 of CAA 2001 |
| |
(see section 268A of that Act).” |
| |
9 | In section 38 (restriction of deductions in respect of employee benefit |
| |
contributions), after subsection (2) insert— |
| |
“(2A) | In calculating for income tax purposes the profits of a trade on the |
| 10 |
cash basis, this section has effect as if— |
| |
(a) | in subsection (1), the words “or to be made” were omitted, |
| |
| |
(b) | in subsection (2), the words “or within 9 months from the end |
| |
of it” were omitted (in both places).” |
| 15 |
10 | Before section 52 (and after the heading “Interest payments”) insert— |
| |
“51A | Cash basis: interest payments on loans |
| |
(1) | In calculating the profits of a trade on the cash basis, no deduction is |
| |
allowed for the interest paid on a loan. |
| |
(2) | This is subject to section 57B.” |
| 20 |
11 (1) | Section 55A (expenditure on integral features) is amended as follows. |
| |
(2) | The existing provision becomes subsection (1). |
| |
(3) | After that subsection insert— |
| |
“(2) | But section 33A(3) of CAA 2001 does not apply in calculating the |
| |
profits of a trade on the cash basis.” |
| 25 |
Rules allowing deductions |
| |
12 | Chapter 5 (trade profits: rules allowing deductions) is amended as follows. |
| |
13 | After section 56 insert— |
| |
| |
56A | Application of Chapter to the cash basis |
| 30 |
(1) | The following sections do not apply in calculating the profits of a |
| |
| |
sections 60 to 67 (tenants under taxed leases), |
| |
section 68 (replacement and alteration of trade tools). |
| |
(2) | For rules allowing deductions that apply only where profits are |
| 35 |
calculated on the cash basis, see the following— |
| |
section 57B (cash basis: interest payments on loans). |
| |
(3) | In calculating the profits of a trade on the cash basis, any reference in |
| |
this Chapter to the incurring of expenses is to be read as a reference |
| |
to the paying of expenses.” |
| 40 |
|
| |
|
| |
|
14 | After section 57A insert— |
| |
“Cash basis: interest payments |
| |
57B | Cash basis: interest payments on loans |
| |
(1) | This section applies if a person carrying on a trade in a period pays |
| |
any interest on a loan during the period and— |
| 5 |
(a) | a deduction for the interest would not otherwise be allowable |
| |
in calculating the profits of the trade because of section 51A, |
| |
| |
(b) | in the absence of section 51A, a deduction for the interest |
| |
would not otherwise be allowable in calculating the profits of |
| 10 |
the trade because (and only because) it was not an expense |
| |
incurred wholly and exclusively for the purposes of the |
| |
| |
(2) | In calculating the profits of the trade on the cash basis, a deduction is |
| |
allowed for the interest. |
| 15 |
(3) | But the maximum amount that may be deducted by virtue of this |
| |
section or section 58 (incidental costs of obtaining finance) in |
| |
calculating the profits of a trade for any period is £500. |
| |
(4) | The Treasury may by order amend the figure for the time being |
| |
specified in subsection (3). |
| 20 |
(5) | A statutory instrument containing an order under this section that |
| |
amends that figure so as to substitute a lower figure may not be made |
| |
unless a draft of the instrument has been laid before, and approved |
| |
by a resolution of, the House of Commons.” |
| |
15 | In section 58 (incidental costs of obtaining finance), in subsection (5), after |
| 25 |
| |
(a) | section 57B(3) (which imposes a limit on the total amount that |
| |
may be deducted by virtue of this section or section 57B), and |
| |
| |
16 | In section 72 (payroll deduction schemes: contributions to agents’ expenses), |
| 30 |
after subsection (2) insert— |
| |
“(2A) | In calculating the profits of the employer’s trade on the cash basis, |
| |
subsection (2) has effect as if paragraph (b) were omitted.” |
| |
17 | In section 94A (costs of setting up SAYE option scheme or CSOP scheme), |
| |
after subsection (4) insert— |
| 35 |
“(5) | But subsection (4) does not apply in calculating the profits of a trade |
| |
| |
| |
18 | Chapter 6 (trade profits: receipts) is amended as follows. |
| |
|
| |
|
| |
|
19 | After section 95 insert— |
| |
| |
95A | Application of Chapter to the cash basis |
| |
| For rules about receipts that apply only for the purpose of calculating |
| |
profits on the cash basis, see the following— |
| 5 |
section 96A (cash basis: capital receipts), |
| |
section 97A (cash basis: value of trading stock on cessation of |
| |
| |
section 97B (cash basis: value of work in progress on cessation |
| |
of profession or vocation).” |
| 10 |
20 | After section 96 insert— |
| |
“96A | Cash basis: capital receipts |
| |
(1) | This section applies if— |
| |
(a) | the whole or part of any expenditure incurred in acquiring, |
| |
creating or improving an asset has been brought into account |
| 15 |
in calculating the profits of a trade of a person on the cash |
| |
| |
(b) | the whole or part of any such expenditure would have been |
| |
so brought into account if an election under section 25A had |
| |
had effect in relation to the trade at the time the expenditure |
| 20 |
| |
(2) | The following amounts are to be brought into account as a receipt in |
| |
calculating the profits of the trade on the cash basis— |
| |
(a) | any proceeds arising from the disposal of the asset or any |
| |
| 25 |
(b) | any proceeds arising from the grant of any right in respect of, |
| |
or any interest in, the asset; |
| |
(c) | any amount of damages, proceeds of insurance or other |
| |
compensation received in respect of the asset. |
| |
(3) | In a case where only part of the expenditure incurred in acquiring, |
| 30 |
creating or improving an asset has been, or would have been, |
| |
brought into account as mentioned in subsection (1), the amount |
| |
brought into account under subsection (2) is proportionately |
| |
| |
| 35 |
(a) | at any time the person ceases to use the asset or any part of it |
| |
for the purposes of the trade, but |
| |
(b) | the person does not dispose of the asset (or that part) at that |
| |
| |
| the person is to be regarded for the purposes of this section as |
| 40 |
disposing of the asset (or that part) at that time for an amount equal |
| |
to the market value amount. |
| |
(5) | If at any time there is a material increase in the person’s non-business |
| |
use of the asset or any part of it, the person is to be regarded for the |
| |
purposes of this section as disposing of the asset (or that part) at that |
| 45 |
|
| |
|