Finance Bill

House of Lords

Session 2013 - 14
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Other Bills before Parliament

Finance Bill

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

time for an amount equal to the relevant proportion of the market
value amount.
(6)
For the purposes of subsection (5)—
(a)
there is an increase in a person’s non-business use of an asset
(or part of an asset) if—
5
(i)
the proportion of the person’s use of the asset (or that
part) that is for the purposes of the trade decreases,
and
(ii)
the proportion of the person’s use of the asset (or that
part) that is for other purposes (the “non-business
10
use”) increases;
(b)
“the relevant proportion” is the difference between—
(i)
the proportion of the person’s use of the asset (or part
of the asset) that is non-business use, and
(ii)
the proportion of the person’s use of the asset (or that
15
part) that was non-business use before the increase
mentioned in subsection (5).
(7)
In this section “the market value amount” means the amount that
would be regarded as normal and reasonable—
(a)
in the market conditions then prevailing, and
20
(b)
between persons dealing with each other at arm’s length in
the open market.”
21
After section 97 insert—
“Cash basis: value of stock and work in progress on cessation
97A
Cash basis: value of trading stock on cessation of trade
25
(1)
This section applies if—
(a)
a person permanently ceases to carry on a trade in a tax year,
and
(b)
an election under section 25A (cash basis for small
businesses) has effect in relation to the trade for the tax year.
30
(2)
The value of any trading stock belonging to the trade at the time of
the cessation is brought into account as a receipt in calculating the
profits of the trade for the tax year.
(3)
The value is to be determined on a basis that is just and reasonable in
all the circumstances.
35
(4)
If there is a change in the persons carrying on a trade, subsection (2)
does not apply in relation to the trade so long as a person carrying on
the trade immediately before the change continues to carry it on after
the change.
(5)
In this section “trading stock” has the same meaning as in Chapter 12
40
(see section 174).
(6)
This section does not apply to professions or vocations.

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

97B
Cash basis: value of work in progress on cessation of profession or
vocation
(1)
This section applies if—
(a)
a person permanently ceases to carry on a profession or
vocation in a tax year, and
5
(b)
an election under section 25A (cash basis for small
businesses) has effect in relation to the profession or vocation
for the tax year.
(2)
The value of any work in progress at the time of the cessation is
brought into account as a receipt in calculating the profits of the
10
profession or vocation for the tax year.
(3)
The value is to be determined on a basis that is just and reasonable in
all the circumstances.
(4)
If there is a change in the persons carrying on a profession,
subsection (2) does not apply in relation to the profession so long as
15
a person carrying on the profession immediately before the change
continues to carry it on after the change.
(5)
In this section “work in progress” has the same meaning as in
Chapter 12 (see section 183).”
22    (1)
Section 105 (industrial development grants) is amended as follows.
20
      (2)
In subsection (2), at the end of paragraph (a) insert “(but see subsection
(2A))”.
      (3)
After that subsection insert—
“(2A)
Subsection (2)(a) is to be disregarded in calculating the profits of a
trade on the cash basis.”
25
Amounts not reflecting commercial transactions
23
After Chapter 6 insert—
“Chapter 6A
Trade profits: amounts not reflecting commercial transactions
106A
Professions and vocations
30

The provisions of this Chapter apply to professions and vocations as
they apply to trades.
106B
Application of Chapter

This Chapter applies in calculating the profits of a person’s trade for
a period on the cash basis.
35
106C
Amounts not reflecting commercial transactions
(1)
This section applies if—
(a)
the person does anything in relation to the trade (“the
relevant act”),
(b)
there is a difference between—
40

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 1 — Main provisions
175

(i)
the amount (if any) that, as a result of the relevant act,
would (apart from this section) be brought into
account in calculating the profits of the trade for the
period, and
(ii)
the amount (if any) that would have been so brought
5
into account had the relevant act consisted of a
transaction between the person and another person
dealing with each other at arm’s length in the open
market (“the arm’s length amount”), and
(c)
the profits of the trade for the period are less than they would
10
have been if the arm’s length amount had been so brought
into account.
(2)
The amount to be brought into account in calculating the profits of
the trade for the period is an amount that is just and reasonable in all
the circumstances.
15
106D
Capital receipts

Section 106C does not apply in relation to the relevant act if
subsection (4) or (5) of section 96A (cash basis: capital receipts)
applies in relation to that act.
106E
Gifts to charities etc
20

Section 106C does not apply in relation to the relevant act if any of
the provisions of Chapter 7 (trade profits: gifts to charities etc)
applies in relation to that act.”
Herd basis rules
24
In Chapter 8 (trade profits: herd basis rules), after section 111 insert—
25
“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.”
Sound recordings
25
In Chapter 9 (trade profits: sound recordings), after section 130 insert—
30
“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.”
Telecommunication rights
26
In Chapter 10 (trade profits: certain telecommunication rights), before
35
section 145 insert—
“144A
Chapter not to apply where cash basis used

Nothing in this Chapter applies in calculating the profits of a trade
on the cash basis.”

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 1 — Main provisions
176

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
148ZA
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.”
Specific trades
28
In Chapter 11 (trade profits: other specific trades), before section 149 (and the
italic heading preceding it) insert—
10
“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—
sections 149 to 154A (dealers in securities etc),
15
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),
section 162 (payments by persons liable to pool betting duty),
20
sections 163 and 164 (intermediaries treated as making
employment payments),
section 164A (managed service companies),
sections 165 to 168 (waste disposal),
sections 169 to 172ZE (cemeteries and crematoria).”
25
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

Nothing in this Chapter applies in calculating the profits of a trade
30
on the cash basis.”
Unremittable amounts
30
In Chapter 13 (deductions from profits: unremittable amounts), after section
188 insert—
“188A
Chapter not to apply where cash basis used
35

Nothing in this Chapter applies in calculating the profits of a trade
on the cash basis.”

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 1 — Main provisions
177

Disposal and acquisition of know-how
31
In Chapter 14 (disposal and acquisition of know-how), before section 192
insert—
“191A
Chapter not to apply where cash basis used

Nothing in this Chapter applies in calculating the profits of a trade
5
on the cash basis.”
Averaging profits of farmers and creative artists
32
In Chapter 16 (averaging profits of farmers and creative artists), after section
221 insert—
“221A
Claim not available where cash basis used
10

Nothing in this Chapter applies in calculating the profits of a trade
on the cash basis.”
Compensation for compulsory slaughter of animal
33
In Chapter 16ZA (compensation for compulsory slaughter of animal), after
section 225ZA insert—
15
“225ZAA
Chapter not to apply where cash basis used

Nothing in this Chapter applies in calculating the profits of a trade
on the cash basis.”
Oil activities
34
In Chapter 16A (oil activities), before section 225A (and the italic heading
20
preceding it) insert—
“Application of Chapter
225ZH
Chapter not to apply where cash basis used

Nothing in this Chapter applies in calculating the profits of a trade
on the cash basis.”
25
Adjustment income
35
Chapter 17 (adjustment income) is amended as follows.
36
After section 227 insert—
“227A
Application of Chapter where cash basis used
(1)
This Chapter applies if—
30
(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
following tax year, or
(b)
no such election has effect in relation to a trade for a tax year
35
but such an election has effect in relation to the trade for the
following tax year.

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 1 — Main provisions
178

(2)
But this Chapter does not apply to income which is charged in
accordance with section 832.”
37
After section 239 insert—
“Spreading of adjustment income on leaving cash basis
239A
Spreading on leaving cash basis
5
(1)
This section applies if—
(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.
10
(2)
Any adjustment income is spread over 6 tax years as follows.
(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.
15
(4)
This section is subject to any election under section 239B (election to
accelerate charge).
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
20
be treated as arising in the tax year.
(2)
The election must be made on or before the first anniversary of the
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
25
not previously charged to tax).
(4)
If an election is made, section 239A applies in relation to any
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—
30

where—
A is the additional amount treated as arising in the tax year for
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.”
35

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 1 — Main provisions
179

Adjustments for capital allowances
38
After Chapter 17 insert—
“Chapter 17A
Cash basis: adjustments for capital allowances
Introduction
5
240A
Professions and vocations

The provisions of this Chapter apply to professions and vocations as
they apply to trades.
Adjustments on entering cash basis
240B
“Entering the cash basis”
10

For the purposes of this Chapter a person carrying on a trade enters
the cash basis for a tax year if—
(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
15
tax year, such an election does not have effect in relation to
the trade.
240C
Unrelieved qualifying expenditure
(1)
This section applies if—
(a)
a person carrying on a trade enters the cash basis for a tax
20
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
period.
25
(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.
(4)
The “relevant portion” of the expenditure means the amount of the
30
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
basis as is just and reasonable in all the circumstances.
35
(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—