Income Tax (Trading and Other Income) Bill

House of Commons

Session 2004 - 05
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Other Bills before Parliament

Income Tax (Trading and Other Income) Bill

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
33

(a)
conditions A to D for the purposes of section 310 of ITEPA 2003
(employment income exemptions: counselling and other outplacement
services), and
(b)
in the case of travel expenses, condition E for those purposes.
74
Retraining courses
5
(1)
In calculating the profits of a trade, a deduction is allowed for retraining course
expenses if—
(a)
the person carrying on the trade (“the employer”) incurs the expenses,
(b)
they are incurred in relation to a person (“the employee”) who holds or
has held an office or employment under the employer for the purposes
10
of the trade, and
(c)
the relevant conditions are met.
(2)
In this section—
“retraining course expenses” means expenses incurred in the payment or
reimbursement of retraining course expenses within the meaning given
15
by section 311(2) of ITEPA 2003, and
“the relevant conditions” means—
(a)
the conditions in subsections (3) and (4) of section 311 of ITEPA
2003 (employment income exemptions: retraining courses), and
(b)
in the case of travel expenses, the conditions in subsection (5) of
20
that section.
75
Retraining courses: recovery of tax
(1)
This section applies if—
(a)
an employer’s liability to tax for a tax year is determined on the
assumption that a deduction for expenditure is allowed under section
25
74, and
(b)
the deduction would not otherwise have been allowed.
(2)
If, subsequently—
(a)
the condition in section 311(4)(a) of ITEPA 2003 is not met because of
the employee’s failure to begin the course within the period of one year
30
after ceasing to be employed, or
(b)
the condition in section 311(4)(b) of ITEPA 2003 is not met because of
the employee’s continued employment or re-employment,

an assessment of an amount or further amount of tax due as a result of the
condition not being met may be made under section 29(1) of TMA 1970.
35
(3)
Such an assessment must be made before the end of the period of 6 years
immediately following the end of the tax year in which the failure to meet the
condition occurred.
(4)
If subsection (2) applies, the employer must give the Inland Revenue a notice
containing particulars of—
40
(a)
the employee’s failure to begin the course,
(b)
the employee’s continued employment, or
(c)
the employee’s re-employment,

within 60 days of coming to know of it.

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
34

(5)
If the Inland Revenue have reason to believe that the employer has failed to
give such a notice, they may by notice require the employer to provide such
information as they may reasonably require for the purposes of this section
about—
(a)
the failure to begin the course,
5
(b)
the continued employment, or
(c)
the re-employment.
(6)
A notice under subsection (5) may specify a time (not less than 60 days) within
which the required information must be provided.
Redundancy payments etc.
10
76
Redundancy payments and approved contractual payments
(1)
Sections 77 to 79 apply if—
(a)
a person (“the employer”) makes a redundancy payment or an
approved contractual payment to another person (“the employee”),
and
15
(b)
the payment is in respect of the employee’s employment wholly in the
employer’s trade or partly in the employer’s trade and partly in one or
more other capacities.
(2)
For the purposes of this section and sections 77 to 80 “redundancy payment”
means a redundancy payment payable under—
20
(a)
Part 11 of the Employment Rights Act 1996 (c. 18), or
(b)
Part 12 of the Employment Rights (Northern Ireland) Order 1996 (S.I.
1996/1919 (N.I. 16)).
(3)
For the purposes of this section and those sections—
“contractual payment” means a payment which, under an agreement, an
25
employer is liable to make to an employee on the termination of the
employee’s contract of employment, and
a contractual payment is “approved” if, in respect of that agreement, an
order is in force under—
(a)
section 157 of the Employment Rights Act 1996, or
30
(b)
Article 192 of the Employment Rights (Northern Ireland) Order
1996.
77
Payments in respect of employment wholly in employer’s trade
(1)
This section applies if—
(a)
the payment is in respect of the employee’s employment wholly in the
35
employer’s trade, and
(b)
no deduction would otherwise be allowable for the payment.
(2)
In calculating the profits of the trade, a deduction is allowed under this section
for the payment.
(3)
The deduction under this section for an approved contractual payment must
40
not exceed the amount which would have been due to the employee if a
redundancy payment had been payable.

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
35

(4)
If the payment is made after the employer has permanently ceased to carry on
the trade, it is treated as made on the last day on which the employer carried
on the trade.
(5)
If there is a change in the persons carrying on the trade, subsection (4) does not
apply so long as a person carrying on the trade immediately before the change
5
continues to carry it on after the change.
(6)
The deduction under this section is allowed for the period of account in which
the payment is made (or treated under subsection (4) as made).
78
Payments in respect of employment in more than one capacity
(1)
This section applies if the payment is in respect of the employee’s employment
10
with the employer—
(a)
partly in the employer’s trade, and
(b)
partly in one or more other capacities.
(2)
The amount of the redundancy payment, or the amount which would have
been due if a redundancy payment had been payable, is to be apportioned on
15
a just and reasonable basis between—
(a)
the employment in the trade, and
(b)
the employment in the other capacities.
(3)
The part of the payment apportioned to the employment in the trade is treated
as a payment in respect of the employee’s employment wholly in the trade for
20
the purposes of section 77.
79
Additional payments
(1)
This section applies if the employer permanently ceases to carry on a trade or
part of a trade and makes a payment to the employee in addition to—
(a)
the redundancy payment, or
25
(b)
if an approved contractual payment is made, the amount that would
have been due if a redundancy payment had been payable.
(2)
If there is a change in the persons carrying on the trade, this section does not
apply so long as a person carrying on the trade immediately before the change
continues to carry it on after the change.
30
(3)
If, in calculating the profits of the trade—
(a)
no deduction would otherwise be allowable for the additional
payment, but
(b)
a deduction would be allowable for it if the employer had not
permanently ceased to carry on the trade or the part of the trade,
35

a deduction is allowed under this section for the additional payment.
(4)
The deduction under this section is limited to 3 times the amount of—
(a)
the redundancy payment, or
(b)
if an approved contractual payment is made, the amount that would
have been due if a redundancy payment had been payable.
40
(5)
If the payment is made after the employer has permanently ceased to carry on
the trade or the part of the trade, it is treated as made on the last day on which
the employer carried on the trade or the part of the trade.

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
36

(6)
The deduction under this section is allowed for the period of account in which
the payment is made (or treated under subsection (5) as made).
80
Payments made by the Government
(1)
This section applies if, in respect of a redundancy payment or an approved
contractual payment payable by an employer—
5
(a)
the Secretary of State makes a payment under section 167 of the
Employment Rights Act 1996 (c. 18), or
(b)
the Department for Employment and Learning makes a payment under
Article 202 of the Employment Rights (Northern Ireland) Order 1996
(S.I. 1996/1919 (N.I. 16)).
10
(2)
So far as the employer reimburses the Secretary of State or Department for the
payment, sections 77 to 79 apply as if the payment were—
(a)
a redundancy payment, or
(b)
an approved contractual payment,

made by the employer.
15
Personal security expenses
81
Personal security expenses
(1)
This section applies if—
(a)
an individual (“the trader”) carries on a trade (alone or in a partnership
of individuals),
20
(b)
there is a special threat to the personal physical security of the trader
which arises wholly or mainly because of the particular trade,
(c)
a service or asset which improves personal security is used by or
provided for the trader to meet the threat,
(d)
the person incurring expenses in connection with that use or provision
25
does so with the sole object of meeting the threat, and
(e)
a deduction for the expenses would not otherwise be allowable in
calculating the profits of the trade because (and only because) they
were not incurred wholly and exclusively for the purposes of the trade.
(2)
In calculating the profits of the trade, a deduction is allowed for the expenses—
30
(a)
in the case of a service, if the benefit resulting to the trader consists
wholly or mainly of an improvement of the trader’s personal physical
security, and
(b)
in the case of an asset, if the person incurring the expenses intends the
asset to be used to improve personal physical security (whether solely
35
or partly).
(3)
If the person incurring the expenses intends the asset to be used solely to
improve personal physical security, any use of the asset which is incidental to
improving personal physical security is ignored.
(4)
If the person incurring the expenses intends the asset to be used partly to
40
improve personal physical security, a deduction is allowed only for the
proportion of the expenses which is attributable to the intended use to improve
personal physical security.

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
37

(5)
The fact that a service or asset improves the personal physical security of a
member of the trader’s family or household (as well as that of the trader) does
not prevent a deduction from being allowed.
(6)
In determining whether or not this section applies in relation to an asset, it does
not matter if—
5
(a)
the asset becomes fixed to land, or
(b)
the trader is or becomes entitled to the property in the asset or (if the
asset is a fixture) to any estate or interest in the land concerned.
(7)
In this section—
“asset” includes equipment and a structure (such as a wall), but does not
10
include a car, ship or aircraft or a dwelling or grounds appurtenant to
a dwelling, and
“service” does not include a dwelling or grounds appurtenant to a
dwelling.
Contributions to local enterprise organisations or urban regeneration companies
15
82
Contributions to local enterprise organisations or urban regeneration
companies
(1)
This section applies if a person carrying on a trade (“the contributor”) incurs
expenses in making a contribution (whether in cash or in kind)—
(a)
to a local enterprise organisation (see section 83), or
20
(b)
to an urban regeneration company (see section 86),

and a deduction would not otherwise be allowable for the expenses in
calculating the profits of the trade.
(2)
In calculating the profits of the trade, a deduction is allowed under this section
for the expenses.
25
(3)
But if, in connection with the making of the contribution, the contributor or a
connected person—
(a)
receives a disqualifying benefit of any kind, or
(b)
is entitled to receive such a benefit,

the amount of the deduction is restricted to the amount of the expenses less the
30
value of the benefit.
(4)
For this purpose it does not matter whether a person receives, or is entitled to
receive, the benefit —
(a)
from the organisation or company concerned, or
(b)
from anyone else.
35
(5)
Subsection (6) applies if—
(a)
a deduction has been made under this section, and
(b)
the contributor or a connected person receives a disqualifying benefit
that is in any way attributable to the contribution.
(6)
An amount equal to the value of the benefit (so far as not brought into account
40
in determining the amount of the deduction)—
(a)
is brought into account in calculating the profits of the trade, as a receipt
arising on the date on which the benefit is received, or

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
38

(b)
if the contributor has permanently ceased to carry on the trade before
that date, is treated as a post-cessation receipt (see Chapter 18).
(7)
In this section “disqualifying benefit” means a benefit the expenses of obtaining
which, if incurred by the contributor directly in a transaction at arm’s length,
would not be allowable as a deduction in calculating the profits of the trade.
5
83
Meaning of “local enterprise organisation”
(1)
For the purposes of section 82 “local enterprise organisation” means—
(a)
a local enterprise agency,
(b)
a training and enterprise council,
(c)
a Scottish local enterprise company, or
10
(d)
a business link organisation.
(2)
“Local enterprise agency” means a body for the time being approved as a local
enterprise agency for the purposes of section 82 by the relevant national
authority, that is to say by—
(a)
the Secretary of State (in relation to England or Northern Ireland),
15
(b)
the Scottish Ministers (in relation to Scotland), or
(c)
the National Assembly for Wales (in relation to Wales).

For further provision about approvals by the relevant national authority, see
sections 84 and 85.
(3)
“Training and enterprise council” means a body with which the Secretary of
20
State has an agreement under which the body is to carry out the functions of a
training and enterprise council.
(4)
“Scottish local enterprise company” means a company with which—
(a)
Scottish Enterprise, or
(b)
Highlands and Islands Enterprise,
25

has an agreement under which the company is to carry out the functions of a
local enterprise company.
(5)
“Business link organisation” means a person authorised by or on behalf of the
Secretary of State to use a trade mark designated by the Secretary of State for
the purposes of this subsection.
30
84
Approval of local enterprise agencies
(1)
The relevant national authority may approve a body as a local enterprise
agency for the purposes of section 82 only if conditions A and B are met.
(2)
But if those conditions are met, the body may be approved—
(a)
whatever its status or structure, and
35
(b)
even if it is not described as a local enterprise agency.
(3)
Condition A is that the relevant national authority is satisfied—
(a)
that the body’s sole aim is the promotion or encouragement of local
enterprise, or
(b)
that one of the body’s main aims is the promotion or encouragement of
40
local enterprise and that it has or is about to have a separate fund for
the sole purpose of pursuing that aim.

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
39

(4)
For this purpose “local enterprise” means industrial and commercial activity or
enterprise in a particular area in the United Kingdom, with particular reference
to encouraging the formation and development of small businesses.
(5)
Condition B is that the body is precluded from paying or transferring any of its
income or profit directly or indirectly—
5
(a)
to any of its members, or
(b)
to any person charged with the control and direction of its affairs.
(6)
The payment of—
(a)
reasonable remuneration for goods, labour or power supplied or for
services provided,
10
(b)
reasonable interest on money lent, or
(c)
reasonable rent for premises,

does not count as a payment or transfer of income or profit for the purposes of
subsection (5).
85
Supplementary provisions with respect to approvals
15
(1)
This section applies for the purposes of section 84.
(2)
The relevant national authority may give a body approval that is conditional
on its compliance with such requirements as to—
(a)
accounts,
(b)
provision of information, and
20
(c)
other matters,

as the relevant national authority considers appropriate
(3)
If the relevant national authority approves a body on the basis that it has or is
about to have a separate fund (see section 84(3)(b))—
(a)
the approval must specify the fund, and
25
(b)
section 82 applies only to a contribution to the body made wholly to or
for the purposes of the fund.
(4)
The relevant national authority must withdraw the approval of a body as a
local enterprise agency if—
(a)
condition A or B in section 84 is no longer met, or
30
(b)
the body is failing to comply with a requirement imposed as a
condition of its approval.
(5)
The relevant national authority must give notice of withdrawal to the body
concerned, specifying the date from which the withdrawal takes effect (which
may be earlier than the date on which the notice is given).
35
86
Meaning of “urban regeneration company”
(1)
For the purposes of section 82 “urban regeneration company” means any body
of persons which the Treasury by order designates as an urban regeneration
company for the purposes of that section.
(2)
A body may be so designated only if—
40
(a)
its sole or main function is to co-ordinate the regeneration of a specific
urban area in the United Kingdom,