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Income Tax (Trading and Other Income) Bill


Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 2 — Receipts from intellectual property

258

 

589     

Person liable for tax under section 587

The person liable for any tax charged under section 587 is the seller of the

patent rights.

590     

UK resident sellers: spreading rules

(1)   

This section applies if the person liable under section 587 is a UK resident.

5

(2)   

If the person does not receive the proceeds of sale in instalments, one-sixth of

the amount chargeable is taxed in the tax year in which the person receives the

proceeds of the sale and in each of the next 5 tax years.

(3)   

The person may elect to be taxed instead on the whole of the amount

chargeable under section 587 in the tax year in which the person receives the

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proceeds of sale.

(4)   

If the person receives the proceeds of sale in instalments, one-sixth of the

amount chargeable in respect of each instalment is taxed in the tax year in

which the person receives the instalment and in each of the next 5 tax years.

(5)   

The person may elect to be taxed instead on the whole of any instalment in the

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tax year in which the person receives it.

(6)   

An election under subsection (3) or (5) must be made on or before the first

anniversary of the normal self-assessment filing date for that tax year.

591     

Non-UK resident sellers: election for spreading

(1)   

If the person liable under section 587

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(a)   

is a non-UK resident, and

(b)   

does not receive the proceeds of sale in instalments,

   

the whole amount chargeable is taxed in the tax year in which the person

receives the proceeds.

(2)   

The person may elect to be taxed instead on one-sixth of the amount chargeable

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in the tax year in which the person receives the proceeds of sale and in each of

the next 5 tax years.

(3)   

An election under subsection (2) must be made on or before the first

anniversary of the normal self-assessment filing date for the tax year in which

the proceeds of sale are received.

30

(4)   

Such repayments and assessments are to be made for each of the tax years

affected as are necessary to give effect to the election.

(5)   

Subsection (4) is subject to the qualifications in section 596 (adjustments where

tax has been deducted).

592     

Further provision about elections for spreading: instalments

35

(1)   

If the person liable under section 587

(a)   

is a non-UK resident, and

(b)   

receives the proceeds of sale in instalments,

   

the amount chargeable in respect of each instalment is taxed in the tax year in

which the person receives the instalment.

40

 
 

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 2 — Receipts from intellectual property

259

 

(2)   

The person may, for any instalment, elect to be taxed instead on one-sixth of

the amount chargeable in respect of the instalment in the tax year in which the

person receives it and in each of the next 5 tax years.

(3)   

An election under subsection (2) must be made on or before the first

anniversary of the normal self-assessment filing date for the tax year in which

5

the instalment is received.

(4)   

Such repayments and assessments are to be made for each of the tax years

affected as are necessary to give effect to the election.

(5)   

Subsection (4) is subject to the qualifications in section 596 (adjustments where

tax has been deducted).

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593     

Death of seller

(1)   

If a seller who is liable to income tax under section 587 dies, any amounts

which would have been chargeable in later tax years under—

(a)   

section 590(2) or (4) (UK resident sellers: spreading rules), or

(b)   

section 591(2) or 592(2) (non-UK resident sellers: elections for

15

spreading),

   

are taxed in the tax year in which the seller dies.

(2)   

The personal representatives may elect that the tax payable by reason of

subsection (1) be reduced to the total amount of income tax that the seller and

the estate would have been liable to pay if the amounts chargeable by reason

20

of that subsection had been taxed in equal parts in each of the lifetime tax years.

(3)   

In subsection (2) “the lifetime tax years” means—

(a)   

the tax year in which the seller received the proceeds or, as the case may

be, the instalment, and

(b)   

each of the next tax years up to and including that in which the seller

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died.

(4)   

An election under subsection (2) must be made on or before the first

anniversary of the normal self-assessment filing date for the tax year in which

the death occurs.

594     

Winding up of a body corporate

30

(1)   

If a body corporate which is liable to income tax under section 587 commences

to be wound up, any amounts falling within subsection (2) are taxed in the year

in which the winding up commences.

(2)   

The amounts are—

(a)   

any amounts which would have been chargeable in later tax years

35

under section 591(2) or 592(2), and

(b)   

any amounts (arising to the body in a fiduciary or representative

capacity) which would have been chargeable in later tax years under

section 590(2) or (4).

595     

Deduction of tax from payments to non-UK residents

40

(1)   

This section applies if a person who is a non-UK resident is liable to tax under

section 587 on profits from the sale of the whole or part of any patent rights.

 
 

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 2 — Receipts from intellectual property

260

 

(2)   

The rules in section 588 allowing the capital cost (if any) of the rights sold to be

deducted in calculating the profits from the sale do not affect the amount of

income tax which (by virtue of section 349ZA of ICTA: application of rules for

deduction of income tax by the payer) is to be—

(a)   

deducted under section 349(1) of ICTA, and

5

(b)   

assessed under section 350 of that Act (assessment on the payer).

(3)   

No election made by the seller under section 591(2) or 592(2) (election for

spreading) in relation to the proceeds of sale or any instalment affects the

amount of income tax which (by virtue of section 349ZA of ICTA: application

of rules for deduction of income tax by the payer) is to be—

10

(a)   

deducted from the proceeds of sale or instalment under section 349(1)

of ICTA, and

(b)   

assessed under section 350 of that Act.

596     

Adjustments where tax has been deducted

(1)   

Where any sum has been deducted from a payment by virtue of section 595(2),

15

any adjustment necessary—

(a)   

because of section 595(2), or

(b)   

because of an election under section 591(2) or 592(2),

   

must be made by way of repayment of tax.

(2)   

Adjustments necessary to give effect to an election under section 591(2) or

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592(2) must be made year by year, treating one-sixth of the sum deducted from

the proceeds of sale or instalment as income tax paid for each of the 6 years.

(3)   

No repayment is to be made of any tax treated under subsection (2) as income

tax paid for a particular year unless and until it is ascertained that the income

tax ultimately falling to be paid for that year is less than the amount which was

25

paid for that year.

597     

Licences connected with patents

(1)   

The acquisition of a licence in respect of a patent is treated for the purposes of

sections 587 to 596 as a purchase of patent rights.

(2)   

The grant of a licence in respect of a patent is treated for the purposes of

30

sections 587 to 596 as a sale of part of patent rights.

(3)   

But the grant by a person entitled to patent rights of an exclusive licence is

treated for the purposes of sections 587 to 596 as a sale of the whole of those

rights.

(4)   

In subsection (3) “exclusive licence” means a licence to exercise the rights to the

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exclusion of the grantor and all other persons for the period remaining until the

rights come to an end.

598     

Rights to acquire future patent rights

(1)   

If a sum is paid to obtain a right to acquire future patent rights, then for the

purposes of sections 587 to 596

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(a)   

the payer is treated as purchasing patent rights for that sum, and

(b)   

the recipient is treated as selling patent rights for that sum.

 
 

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 2 — Receipts from intellectual property

261

 

(2)   

If a person—

(a)   

pays a sum to obtain a right to acquire future patent rights, and

(b)   

subsequently acquires those rights,

   

the expenditure is to be treated for the purposes of sections 587 to 596 as having

been expenditure on the purchase of those rights.

5

(3)   

In this section “a right to acquire future patent rights” means a right to acquire

in the future patent rights relating to an invention in respect of which the

patent has not yet been granted.

599     

Sums paid for Crown use etc. treated as paid under licence

(1)   

This section applies if an invention which is the subject of a patent is used by

10

or for the service of—

(a)   

the Crown under sections 55 to 59 of the Patents Act 1977 (c. 37), or

(b)   

the government of a country outside the United Kingdom under

corresponding provisions of the law of that country.

(2)   

The use is treated for the purposes of sections 587 to 596 as having taken place

15

under a licence.

(3)   

Sums paid in respect of the use are treated for the purposes of sections 587 to

596 as having been paid under a licence.

Relief from income tax on patent income

600     

Relief for expenses: patent income

20

(1)   

Relief may be claimed under this section for—

(a)   

inventor’s expenses, and

(b)   

patent application and maintenance expenses.

(2)   

In this section “inventor’s expenses” means expenses which—

(a)   

have been incurred by an individual who, alone or jointly, devised an

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invention for which a patent has been granted, and

(b)   

are attributable to devising it.

(3)   

In this section “patent application and maintenance expenses” means expenses

incurred by a person in connection with—

(a)   

the grant or maintenance of a patent,

30

(b)   

the extension of the term of a patent, or

(c)   

a rejected or abandoned application for a patent,

   

but not incurred for the purposes of any trade carried on by the person.

(4)   

Relief may not be claimed under this section for patent application and

maintenance expenses unless they are expenses which would, if incurred for

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the purposes of a trade, have been allowable as a deduction in calculating the

profits of the trade.

(5)   

Relief may not be claimed under this section for any expenses if relief for them

is given under—

(a)   

section 582 (calculation of income for the purposes of the charge to tax

40

on royalties etc.), or

(b)   

any other provision of the Tax Acts.

 
 

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 2 — Receipts from intellectual property

262

 

(6)   

This section needs to be read with section 603 (contributions to expenditure).

601     

How relief is given under section 600

(1)   

This section sets out how relief for expenses is given where a person makes a

claim under section 600.

(2)   

The amount of the expenses must be deducted from or set off against the

5

person’s income from patents for the tax year in which the expenses were

incurred.

(3)   

If the amount to be allowed is greater than the amount of the person’s income

from patents for that tax year, the excess must be deducted from or set off

against the person’s income from patents for the next tax year, and so on for

10

subsequent tax years, without the need for a further claim.

(4)   

In this section “income from patents” means—

(a)   

royalties or other sums paid in respect of the use of a patent (whether

chargeable under this Chapter or otherwise),

(b)   

amounts on which tax is payable under section 587, 593 or 594, and

15

(c)   

amounts on which tax is payable under—

(i)   

section 472(5) of CAA 2001 (patent allowances: balancing

charges), or

(ii)   

paragraph 100 of Schedule 3 to that Act (balancing charges in

respect of pre-1st April 1986 expenditure on the purchase of

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patent rights).

(5)   

In this section references to a person’s income from patents are to the income

after any allowance has been deducted from or set off against it under section

479 of CAA 2001 (certain allowances against income from patents).

Payments received after deduction of tax

25

602     

Payments received after deduction of tax

Income tax deducted under either of the following sections from a payment of

royalties or other income within this Chapter is treated as income tax paid by

the recipient—

section 348(1) of ICTA (under which income tax may be deducted from

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some payments by the payer), and

section 349(1) of ICTA (under which income tax must be deducted from

some payments by the payer).

Supplementary

603     

Contributions to expenditure

35

(1)   

For the purposes of sections 585, 588 and 600, the general rule is that a person

(“A”) is to be regarded as not having incurred expenditure so far as it has been,

or is to be, met (directly or indirectly) by—

(a)   

a public body, or

(b)   

a person other than A.

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Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 2 — Receipts from intellectual property

263

 

(2)   

In this Chapter “public body” means the Crown or any government, local

authority or other public authority (whether in the United Kingdom or

elsewhere).

(3)   

The general rule does not apply to the expenses mentioned in section 588(2)(b)

(incidental expenses incurred by a seller of patent rights).

5

(4)   

The general rule is subject to the exception in section 604.

604     

Contributions not made by public bodies nor eligible for tax relief

(1)   

A person (“A”) is to be regarded as having incurred expenditure (despite

section 603(1)) so far as the requirements in subsections (2) and (3) are met in

relation to the expenditure.

10

(2)   

The first requirement is that the person meeting A’s expenditure (“B”) is not a

public body.

(3)   

The second requirement is that—

(a)   

no allowance can be made under Chapter 2 of Part 11 of CAA 2001

(contribution allowances) in respect of B’s expenditure, and

15

(b)   

the expenditure is not allowed to be deducted in calculating the profits

of a trade, profession or vocation carried on by B.

(4)   

When determining for the purposes of subsection (3)(a) whether such an

allowance can be made, assume that B is within the charge to tax.

605     

Exchanges

20

(1)   

In this Chapter references to the sale of property include the exchange of

property.

(2)   

In this section—

references to property include know-how, and

references to the sale of property include the disposal of know-how.

25

(3)   

For the purposes of subsection (1), any provision of this Chapter referring to a

sale has effect with the necessary modifications, including, in particular, those

in subsections (4) and (5).

(4)   

References to the proceeds of sale and to the price include the consideration for

the exchange.

30

(5)   

References to capital sums included in the proceeds of sale include references

to so much of the consideration for the exchange as would have been a capital

sum if it had been a money payment.

606     

Apportionment where property sold together

(1)   

Any reference in this Chapter to the sale of property includes the sale of that

35

property together with other property.

(2)   

In this section—

references to property include know-how, and

references to the sale of property include the disposal of know-how.

 
 

Income Tax (Trading and Other Income) Bill
Part 5 — Miscellaneous income
Chapter 3 — Films and sound recordings: non-trade businesses

264

 

(3)   

For the purposes of subsection (1), all property sold as a result of one bargain

is to be treated as sold together even though—

(a)   

separate prices are, or purport to be, agreed for separate items of that

property, or

(b)   

there are, or purport to be, separate sales of separate items of that

5

property.

(4)   

If an item of property is sold together with other property, then, for the

purposes of the charges under sections 583 and 587

(a)   

the net proceeds of the sale of that item are treated as being so much of

the net proceeds of the sale of all the property as, on a just and

10

reasonable apportionment, is attributable to that item, and

(b)   

the expenditure incurred on the provision or purchase of that item is

treated as being so much of the consideration given for all the property

as, on a just and reasonable apportionment, is attributable to that item.

607     

Questions about apportionments affecting two or more persons

15

(1)   

Any question about the way in which a sum is to be apportioned under section

606 must be determined in accordance with section 563(2) to (6) of CAA 2001

(procedure for determining certain questions affecting two or more persons) if

it materially affects two or more taxpayers.

(2)   

For the purposes of subsection (1) a question materially affects two or more

20

taxpayers if at the time when the question falls to be determined it appears that

the determination is material to the liability to tax (for whatever period) of two

or more persons.

608     

Meaning of “capital sums” etc.

Section 4 of CAA 2001 (meaning of “capital sums” etc.) applies in relation to

25

this Chapter as it applies in relation to that Act.

Chapter 3

Films and sound recordings: non-trade businesses

609     

Charge to tax on films and sound recordings businesses

(1)   

Income tax is charged on income from a business involving the exploitation of

30

films or sound recordings where the activities carried on do not amount to a

trade.

   

Such a business is referred to in this Chapter as a “non-trade business”.

(2)   

Expressions which are used in this Chapter and in Chapter 9 of Part 2 (trade

profits: films and sound recordings) have the same meaning in this Chapter as

35

they do in that Chapter.

610     

Income charged

(1)   

Tax is charged under this Chapter on the full amount of the income arising in

the tax year.

 
 

 
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