Finance Bill

House of Lords

Session 2013 - 14
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Finance Bill

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 1 — Main provisions
180

(a)
a person carrying on a trade enters the cash basis for a tax
year,
(b)
at any time before the beginning of the basis period for that
tax year the person has obtained capital allowances in respect
of expenditure on the provision of plant or machinery (“the
5
relevant expenditure”), and
(c)
not all of the relevant expenditure has actually been paid by
the person.
(2)
If the amount of the relevant expenditure that the person has actually
paid exceeds the amount of capital allowances given in respect of the
10
relevant expenditure, the difference is to be deducted in calculating
the profits of the trade for the tax year.
(3)
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
the relevant expenditure, the difference is to be treated as a receipt in
15
calculating the profits of the trade for the tax year.
(4)
The amount of any capital allowance obtained in respect of
expenditure on the provision of any plant or machinery is to be
determined on such basis as is just and reasonable in all the
circumstances.
20
(5)
If the amount of capital allowances given in respect of the relevant
expenditure has been reduced under section 205 or 207 of CAA 2001
(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
25
section.
(6)
This section does not apply where the relevant expenditure was
incurred on the provision of a car.

In this subsection “car” has the same meaning as in Part 2 of CAA
2001 (see section 268A of that Act).
30
Successions where predecessor and successor are connected persons
240E
Effect of election where predecessor and successor are connected
persons
(1)
This section applies if—
(a)
a person carrying on a trade enters the cash basis for a tax
35
year,
(b)
the person is the successor for the purposes of section 266 of
CAA 2001, and
(c)
as a result of an election under section 267 of that Act,
relevant plant or machinery is treated as sold by the
40
predecessor to the successor at any time during the basis
period for the tax year.
(2)
The 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.
45

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 1 — Main provisions
181

(3)
Any expenditure actually incurred by the successor on acquiring the
relevant plant or machinery is to be ignored for the purposes of
calculating the profits of the trade for the tax year.
(4)
In this section “the predecessor” and “relevant plant or machinery”
have the same meaning as in section 267 of CAA 2001.”
5
Post-cessation receipts
39    (1)
Chapter 18 (post-cessation receipts) is amended as follows.
      (2)
In section 246 (basic meaning of “post-cessation receipt”), after subsection (2)
insert—
“(2A)
If, immediately before a person permanently ceases to carry on a
10
trade, an election under section 25A (cash basis for small businesses)
has effect in relation to the trade, 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 trade on the cash basis had it been
received at that time.”
15
      (3)
In section 254 (allowable deductions), after subsection (2) insert—
“(2A)
If, immediately before the person permanently ceases to carry on the
trade, an election under section 25A (cash basis for small businesses)
has effect in relation to the trade, assume for the purposes of
subsection (2) that such an election has effect in relation to the trade.”
20
Rent-a-room relief
40
In Chapter 1 of Part 7 of ITTOIA 2005 (rent-a-room relief), in section 786
(meaning of “rent-a-room receipts”), after subsection (4) insert—
“(5)
Subsections (6) and (7) apply if—
(a)
the receipts would otherwise be brought into account in
25
calculating the profits of a trade, and
(b)
an election under section 25A (cash basis for small
businesses) has effect in relation to the trade.
(6)
Any amounts brought into account under section 96A (capital
receipts) as a receipt in calculating the profits of the trade are to be
30
treated as receipts within paragraph (a) of subsection (1) above.
(7)
The reference in subsection (1)(b) to receipts that accrue to an
individual during the income period for those receipts is to be read
as a reference to receipts that are received by the individual during
that period.”
35
Qualifying care relief
41
Chapter 2 of Part 7 of ITTOIA 2005 (qualifying care relief) is amended as
follows.
42
In section 805 (meaning of “qualifying care receipts”), after subsection (3)
insert—
40
“(4)
Subsections (5) and (6) apply if—

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 2 — Consequential amendments
182

(a)
the receipts would otherwise be brought into account in
calculating the profits of a trade, and
(b)
an election under section 25A (cash basis for small
businesses) has effect in relation to the trade.
(5)
Any amounts brought into account under section 96A (capital
5
receipts) as a receipt in calculating the profits of the trade are to be
treated as receipts within paragraph (a) of subsection (1) above.
(6)
The reference in subsection (1)(b) to receipts that accrue to an
individual during the income period for those receipts is to be read
as a reference to receipts that are received by the individual during
10
that period.”
43
In section 820 (periods of account not ending on 5th April)—
(a)
the existing provision becomes subsection (1), and
(b)
after that subsection insert—
“(2)
Where an election under section 25A (cash basis for small
15
businesses) has effect in relation to the trade, any reference in
this section or sections 821 to 823 to the period of account in
which receipts accrue is to be read as a reference to the period
of account in which receipts are received.”
Part 2
20
Consequential amendments
TMA 1970
44
In section 42 of TMA 1970 (procedure for making claims etc), in subsection
(7)(e), after “sections” insert “25A,”.
TCGA 1992
25
45
After section 47 of TCGA 1992 insert—
“Cash basis accounting
47A
Exemption for disposals by persons using cash basis
(1)
No chargeable gain shall accrue on the disposal of, or of an interest
in, an asset if conditions A to D are met in relation to the asset.
30
(2)
Condition A is that the asset is—
(a)
tangible movable property, and
(b)
a wasting asset.
(3)
Condition B is that, at any time during the period of ownership of the
person making the disposal, the asset has been used for the purposes
35
of a trade, profession or vocation carried on by the person.
(4)
Condition C is that an election under section 25A of ITTOIA 2005
(cash basis for small businesses) has effect in relation to the trade,
profession or vocation at the time of the disposal.
(5)
Condition D is that—
40

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 2 — Consequential amendments
183

(a)
any expenditure attributable to the asset or interest under
paragraph (a) or (b) of section 38(1) has been brought into
account in calculating the profits of the trade, profession or
vocation on the cash basis, or
(b)
any of that expenditure would have been so brought into
5
account if an election under section 25A of ITTOIA 2005 had
had effect in relation to the trade, profession or vocation at
the time the expenditure was paid.
(6)
Subsection (7) applies in the case of the disposal of, or of an interest
in, an asset which, in the period of ownership of the person making
10
the disposal—
(a)
has been used partly for the purposes of the trade, profession
or vocation and partly for other purposes, or
(b)
has been used for the purposes of the trade, profession or
vocation for part of that period.
15
(7)
In such a case—
(a)
the consideration for the disposal, and any expenditure
attributable to the asset or interest by virtue of section 38(1)(a)
and (b), shall be apportioned by reference to the extent to
which that expenditure was, or (as the case may be) would
20
have been, brought into account as mentioned in subsection
(5) above,
(b)
the computation of the gain shall be made separately in
relation to the apportioned parts of the expenditure and
consideration, and
25
(c)
subsection (1) above shall apply to any gain accruing by
reference to the computation in relation to the part of the
consideration apportioned to use for the purposes of the
trade, profession or vocation.
47B
Disposals made by persons after leaving cash basis
30
(1)
This section applies where—
(a)
a person disposes of, or of an interest in, an asset that has
been used for the purposes of a trade, profession or vocation
carried on by the person, and
(b)
conditions A and B are met in relation to the trade, profession
35
or vocation.
(2)
Condition A is that—
(a)
any expenditure attributable to the asset or interest under
paragraph (a) or (b) of section 38(1) was incurred at a time
when an election under section 25A of ITTOIA 2005 (cash
40
basis for small businesses) had effect in relation to the trade,
profession or vocation, and
(b)
that expenditure (“the relevant expenditure”) has been
brought into account in calculating the profits of the trade,
profession or vocation on the cash basis.
45
(3)
Condition B is that no such election has effect in relation to the trade,
profession or vocation at the time of the disposal.
(4)
Section 39 (exclusion of expenditure by reference to tax on income)
does not apply in relation to the relevant expenditure.

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 2 — Consequential amendments
184

(5)
Section 41 (restriction of losses by reference to capital allowances and
renewals allowances) has effect as if—
(a)
the election mentioned in subsection (2)(a) above had not had
effect at the time the relevant expenditure was incurred, and
(b)
the reference in subsection (7) to qualifying expenditure
5
included a reference to expenditure which, if that election
had not had effect at that time, would have been qualifying
expenditure.
(6)
Section 45 (exemption for certain wasting assets) and section 47
(wasting assets qualifying for capital allowances) have effect as if the
10
election mentioned in subsection (2)(a) above had not had effect at
the time the relevant expenditure was incurred.

Accordingly, any reference in those sections to expenditure
qualifying for capital allowances is to be read as a reference to
expenditure that would, in the absence of the election, have qualified
15
for such allowances.”
CAA 2001
46
In section 1 of CAA 2001 (capital allowances), after subsection (3) insert—
“(4)
But a person is not entitled to any allowance or liable to any charge
under this Act in calculating the profits of a trade, profession or
20
vocation of the person in relation to which an election under section
25A of ITTOIA 2005 (cash basis for small businesses) has effect, other
than an allowance in respect of expenditure incurred on the
provision of a car (or a charge in connection with such an allowance).
(5)
In subsection (4) “car” has the same meaning as in Part 2 (see section
25
268A).”
47
In section 59 of CAA 2001 (unrelieved qualifying expenditure), after
subsection (3) insert—
“(4)
If a person carrying on a trade, profession or vocation enters the cash
basis for a tax year, no amount may be carried forward as unrelieved
30
qualifying expenditure from the chargeable period ending with the
basis period for the previous tax year.
(5)
But subsection (4) does not apply to unrelieved qualifying
expenditure incurred on the provision of a car.
(6)
Where a person has unrelieved qualifying expenditure to carry
35
forward from a chargeable period that is not expenditure allocated to
a single asset pool, the amount of unrelieved qualifying expenditure
incurred on the provision of a car is to be determined on such basis
as is just and reasonable in all the circumstances.
(7)
Section 240B of ITTOIA 2005 (meaning of “entering the cash basis”)
40
applies for the purposes of this section as it applies for the purposes
of Chapter 17A of Part 2 of that Act.”
48
In Chapter 5 of Part 2 of CAA 2001 (plant and machinery allowances and

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 2 — Consequential amendments
185

charges), after section 66 insert—
“Application of Chapter to person leaving cash basis
66A
Persons leaving cash basis
(1)
This section applies if—
(a)
a person carrying on a trade, profession or vocation leaves
5
the cash basis in a chargeable period, and
(b)
the person has at any time incurred expenditure which, if an
election under section 25A of ITTOIA 2005 (cash basis for
small businesses) had not had effect at that time, would have
been qualifying expenditure.
10
(2)
In this section—
(a)
the “relieved portion” of the expenditure is the amount of
that expenditure for which—
(i)
a deduction was allowed in calculating the profits of
the trade, profession or vocation, or
15
(ii)
a deduction would have been so allowed if the
expenditure had been incurred wholly and
exclusively for the purposes of the trade, profession
or vocation;
(b)
the “unrelieved portion” of the expenditure is any remaining
20
amount of the expenditure.
(3)
For the purposes of determining any entitlement of the person to an
annual investment allowance or a first-year allowance, the person is
to be treated as incurring the unrelieved portion of the expenditure
in the chargeable period.
25
(4)
For the purposes of determining the person’s available qualifying
expenditure in a pool for the chargeable period (see section 58)—
(a)
the whole of the expenditure must be allocated to the
appropriate pool (or pools) in that chargeable period, and
(b)
the available qualifying expenditure in a pool to which the
30
expenditure (or some of it) is allocated is reduced by the
relieved portion of that expenditure.
(5)
For the purposes of determining any disposal receipts (see section
60), the expenditure incurred by the person is to be regarded as
qualifying expenditure.
35
(6)
For the purposes of this section a person carrying on a trade,
profession or vocation leaves the cash basis in a chargeable period
if—
(a)
immediately before the beginning of the chargeable period
an election under section 25A had effect in relation to the
40
trade, profession or vocation, and
(b)
such an election does not have effect in relation to the trade,
profession or vocation for the chargeable period.”
ITTOIA 2005
49
In section 31 of ITTOIA 2005 (relationship between rules prohibiting and
45

Finance Bill
Schedule 4 — Cash basis for small businesses
Part 2 — Consequential amendments
186

allowing deductions), in subsection (2), omit the “or” at the end of paragraph
(b) and after paragraph (c) insert “or
(d)
Chapter 17A,”.
50
In section 56 of ITTOIA 2005 (rules allowing deductions: professions and
vocations), after “marks)” insert “and section 97A (cash basis: value of
5
trading stock on cessation of trade)”.
51
Omit section 160 of ITTOIA 2005 (cash basis of calculation for barristers and
advocates in early years of practice).
52    (1)
Chapter 17 of Part 2 of ITTOIA 2005 (adjustment income) is amended as
follows.
10
      (2)
In section 229(2)(a), for “sections 237 to 239” substitute “sections 237 to
239B”.
      (3)
Omit sections 238 and 239 (spreading of adjustment income: barristers and
advocates).
53
In Part 2 of Schedule 4 to ITTOIA 2005 (index of defined expressions), at the
15
appropriate place insert—

“the cash basis (in Part 2)
section 25A”;

“entering the cash basis
section 240B”.

(in Chapter 17A of Part 2)

ITA 2007
20
54    (1)
In Part 4 of ITA 2007 (loss relief), Chapter 2 (trade losses) is amended as
follows.
      (2)
In section 64 (deduction of losses from general income), in subsection (8),
after paragraph (ba) insert—
“(bb)
section 74E (restriction on the relief and early trade losses
25
relief where cash basis applies),”.
      (3)
In section 72 (relief for individuals for losses in first 4 years of trade), in
subsection (5), after paragraph (ba) insert—
“(bb)
section 74E (restriction on the relief and trade loss relief
where cash basis applies),”.
30
      (4)
After section 74D insert—
“Restriction on sideways relief and capital gains relief where cash basis applies
74E
No relief where cash basis used to calculate losses
(1)
This section applies if—
(a)
a person makes a loss in any trade in a tax year, and
35
(b)
an election under section 25A of ITTOIA 2005 (cash basis for
small businesses) has effect in relation to the trade for that tax
year.