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 7 — Income charged under this Act: rent-a-room and foster-care relief
Chapter 2 — Foster-care relief
351

Periods of account not ending on 5th April
820
Periods of account not ending on 5th April
Sections 822 and 823 (which deal with the period of account of a trade not
ending on 5th April) apply if—
(a)
an individual qualifies for foster-care relief for a tax year,
5
(b)
the individual’s foster-care receipts for the tax year are the receipts of a
trade, and
(c)
the period of account in which those receipts accrue does not end on 5th
April in the tax year.
821
Meaning of “relevant limit”
10
(1)
For the purposes of sections 822 and 823 the “relevant limit” for a period of
account in which the individual’s foster-care receipts accrue is found by
adding—
(a)
the fixed amount for the tax year in which that period ends or (as the
case may be) the individual’s share of the fixed amount for that year
15
(found in accordance with sections 808 to 810), and
(b)
for each of the tax years in which the period of account falls, each
amount per child for the individual for each part of the period of
account falling in that tax year.
(2)
For this purpose an individual’s amount per child for a part of the period of
20
account is each amount that would be the individual’s amount per child under
section 811 for the tax year in which the part falls if that part were the income
period for that year.
822
Full relief
(1)
This section applies if the individual’s total foster-care receipts for the period
25
of account do not exceed the individual’s relevant limit for the period.
(2)
The profits or losses of the trade for the tax year are treated as nil.
823
Alternative method of calculating profits
(1)
This section applies if—
(a)
the individual’s total foster-care receipts for the period of account
30
exceed the individual’s relevant limit for the period, and
(b)
the individual makes an election under this section.
(2)
The profits of the trade for the tax year are—
(a)
the individual’s total foster-care receipts for the period of account, less
(b)
the individual’s relevant limit for the period.
35
(3)
Sections 818(2) and (3) and 819 (adjustment of assessment) apply for the
purposes of an election under this section as they apply for the purposes of an
election under those sections.

Income Tax (Trading and Other Income) Bill
Part 7 — Income charged under this Act: rent-a-room and foster-care relief
Chapter 2 — Foster-care relief
352

Capital allowances for foster carers carrying on trade
824
Capital allowances: introduction
(1)
In this group of sections (that is, this section and sections 825 to 827) an
individual is a “relevant individual” if in a tax year—
(a)
the full foster-care relief in section 813 or 822 (trading income), or
5
(b)
the alternative method of calculating profits under section 816 or 823
(trading income),

applies to the individual for the tax year.
(2)
In this group of sections a period is a “relevant chargeable period” of a relevant
individual if—
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(a)
it is a chargeable period of the individual, and
(b)
it corresponds to the income period for the individual’s foster-care
receipts in the tax year for which the individual is a relevant individual.
(3)
Expressions—
(a)
which are used in CAA 2001 and in this group of sections, but
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(b)
which are not otherwise defined in this Chapter,

have the same meaning in this group of sections as in CAA 2001.
825
Carried forward unrelieved qualifying expenditure
(1)
This section applies if—
(a)
there is available qualifying expenditure in a relevant pool for a
20
relevant chargeable period of a relevant individual,
(b)
the expenditure is unrelieved qualifying expenditure carried forward
in the pool from the previous chargeable period under section 59 of
CAA 2001, and
(c)
the previous chargeable period was not a relevant chargeable period.
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(2)
“Relevant pool” means a pool containing expenditure incurred on the
provision of plant or machinery wholly or partly for the provision of foster care
by the relevant individual.
(3)
CAA 2001 applies in relation to the relevant individual’s available qualifying
expenditure in the pool for the relevant chargeable period as if—
30
(a)
a disposal event occurred immediately after the beginning of the
period,
(b)
disposal receipts fall to be brought into account in the pool for the
period because of that event, and
(c)
the total of the receipts equals the amount of the unrelieved qualifying
35
expenditure carried forward.
(4)
Section 13 of CAA 2001 (use for qualifying activity of plant or machinery
provided for other purposes) applies as if, on the first day of the first
subsequent chargeable period which is not a relevant chargeable period—
(a)
the relevant individual brings into use for the provision of foster care
40
such of the plant or machinery on which the unrelieved qualifying
expenditure was incurred as the individual still owns on that day, and
(b)
the individual owns the plant or machinery as a result of incurring
capital expenditure on its provision for other purposes.

Income Tax (Trading and Other Income) Bill
Part 8 — Foreign income: special rules
Chapter 1 — Introduction
353

826
Excluded capital expenditure
Capital expenditure (“excluded capital expenditure”) does not constitute
qualifying expenditure for the purposes of CAA 2001 if it is—
(a)
incurred by a relevant individual in a relevant chargeable period, and
(b)
incurred on the provision of plant or machinery wholly or partly for the
5
provision of foster care by the individual.
827
Excluded capital expenditure: subsequent treatment of asset
If a relevant individual incurs excluded capital expenditure in a relevant
chargeable period, section 13 of CAA 2001 applies as if, on the first day of the
first subsequent chargeable period which is not a relevant chargeable period—
10
(a)
the individual brings into use for the provision of foster care such of the
plant or machinery on which the expenditure was incurred as the
individual still owns on that day, and
(b)
the individual owns the plant or machinery as a result of incurring
capital expenditure on its provision for other purposes.
15
Overlap profit
828
Overlap profit
(1)
This section applies if the profits or losses of a trade for a tax year are calculated
in accordance with section 813, 816, 822 or 823.
(2)
Nothing in this Chapter is to be read—
20
(a)
as preventing a deduction for overlap profit under section 205 or 220 in
calculating the profits or losses of the trade for the tax year, or
(b)
as preventing overlap profit from arising by reference to profits of the
trade calculated for the tax year in accordance with section 816 or 823
(alternative calculation of profits).
25
(3)
“Overlap profit” has the same meaning in this section as it has in Chapter 15 of
Part 2 (see section 204).
Part 8
Foreign income: special rules
Chapter 1
30
Introduction
829
Overview of Part 8
This Part provides for—
(a)
an alternative basis for calculating the amount charged for certain
relevant foreign income (see Chapter 2),
35
(b)
certain deductions in calculating relevant foreign income where that
basis does not apply (see Chapter 3), and
(c)
relief where a person is prevented from transferring income to the
United Kingdom (see Chapter 4).

Income Tax (Trading and Other Income) Bill
Part 8 — Foreign income: special rules
Chapter 1 — Introduction
354

830
Meaning of “relevant foreign income”
(1)
In this Act “relevant foreign income” means income which arises from a source
outside the United Kingdom and is chargeable under any of the provisions
specified in subsection (2).
(2)
The provisions are—
5
(a)
Chapter 2 of Part 2 (trade profits),
(b)
Chapter 17 of Part 2 (adjustment income),
(c)
Chapter 3 of Part 3 (profits of property business),
(d)
Chapter 11 of Part 3 (overseas property income),
(e)
Chapter 2 of Part 4 (interest),
10
(f)
Chapter 4 of Part 4 (dividends from non-UK resident companies),
(g)
Chapter 7 of Part 4 (purchased life annuity payments),
(h)
Chapter 8 of Part 4 (profits from deeply discounted securities),
(i)
Chapter 13 of Part 4 (sales of foreign dividend coupons),
(j)
section 579 (royalties and other income from intellectual property),
15
(k)
Chapter 3 of Part 5 (films and sound recordings: non-trading
businesses),
(l)
Chapter 4 of Part 5 (certain telecommunication rights: non-trading
income),
(m)
section 649 (estate income),
20
(n)
Chapter 7 of Part 5 (annual payments not otherwise charged), and
(o)
Chapter 8 of Part 5 (income not otherwise charged).
(3)
But “relevant foreign income” does not include income chargeable as a result
of section 844 (unremittable income: income charged on withdrawal of relief
after source ceases).
25
(4)
For the treatment of other income as relevant foreign income, see—
(a)
section 857(3) (a partner’s share of a firm’s trading income),
(b)
paragraph 6(3) of Schedule 3 to the Commonwealth Development
Corporation Act 1999 (c. 20) (distributions by the Commonwealth
Development Corporation),
30
(c)
section 575(3) of ITEPA 2003 (taxable pension income: foreign
pensions),
(d)
section 613(4) of that Act (taxable pension income: foreign annuities),
(e)
section 631(3) of that Act (pre-1973 pensions paid under the Overseas
Pensions Act 1973 (c. 21)),
35
(f)
section 635(4) of that Act (taxable pension income: foreign voluntary
annual payments), and
(g)
section 679(2) of that Act (taxable social security income: foreign
benefits).

Income Tax (Trading and Other Income) Bill
Part 8 — Foreign income: special rules
Chapter 2 — Relevant foreign income charged on remittance basis
355

Chapter 2
Relevant foreign income charged on remittance basis
Remittance basis
831
Claims for relevant foreign income to be charged on the remittance basis
(1)
A person may make a claim for a tax year for the person’s relevant foreign
5
income to be charged for that year in accordance with section 832.
(2)
The claim must state that condition A or B is met.
(3)
Condition A is that the person is not domiciled in the United Kingdom.
(4)
Condition B is that the person is not ordinarily UK resident.
(5)
This section does not apply to relevant foreign income arising in the Republic
10
of Ireland.
832
Relevant foreign income charged on the remittance basis
(1)
If a person makes a claim under section 831(1) for a tax year in respect of
relevant foreign income, income tax is charged on the full amount of the sums
received in the United Kingdom in the tax year in respect of the income.
15
(2)
For the purposes of subsection (1), it does not matter whether the income arises
in the year for which the claim is made or arose in an earlier year in which the
person was UK resident.
(3)
The only case in which deductions are allowed is where the income is from a
trade, profession or vocation carried on outside the United Kingdom.
20
(4)
In that case the same deductions are allowed as are allowed under the Income
Tax Acts where the trade, profession or vocation is carried on in the United
Kingdom.
(5)
This section is subject to section 835 (relief for delayed remittances).
833
Income treated as remitted: repayment of UK-linked debts
25
(1)
For the purposes of section 832, if a person who is ordinarily resident, but is not
domiciled, in the United Kingdom uses relevant foreign income outside the
United Kingdom to satisfy a UK-linked debt, the person is treated as receiving
the income in the United Kingdom at the time when it is so used.
(2)
Subsection (1) is subject to subsection (5).
30
(3)
In subsection (1) “UK-linked debt”, in relation to a person, means—
(a)
a debt for money lent to the person in the United Kingdom, or for
interest on money so lent,
(b)
a debt for money lent to the person outside the United Kingdom and
received in the United Kingdom, or
35
(c)
a debt incurred for satisfying—
(i)
a debt falling within paragraph (a) or (b), or
(ii)
another debt falling within this paragraph.

Income Tax (Trading and Other Income) Bill
Part 8 — Foreign income: special rules
Chapter 2 — Relevant foreign income charged on remittance basis
356

(4)
In the case of a debt (within subsection (3)(b) or (c)) for money lent to the
person outside the United Kingdom, it does not matter whether the money lent
is received in the United Kingdom before or after the income is used to satisfy
the debt.
(5)
But in the case of such a debt if the money lent is not received in the United
5
Kingdom until after the income is so used, the person is treated as receiving the
income in the United Kingdom when the money lent is received there (instead
of at the time provided in subsection (1)).
(6)
For the purposes of this section, if any of the money lent is used to satisfy a
debt, the debt for the money so used is treated as incurred for satisfying that
10
other debt.
(7)
In subsections (3) to (5) any reference to money lent being received in the
United Kingdom includes a reference to its being brought there.
(8)
Section 834 sets out circumstances in which a person is treated as using income
to satisfy a debt for the purposes of this section.
15
(9)
In this section and that section “satisfy”, in relation to a debt, means satisfy
wholly or in part.
834
Arrangements treated as repayment of UK-linked debts
(1)
A person to whom money has been lent (“the borrower”) is treated for the
purposes of section 833 as using relevant foreign income to satisfy a debt if
20
conditions A and B are met.
(2)
Condition A is that the borrower uses the income in such a way that the lender
holds money or property representing the income on behalf or on account of
the borrower in such circumstances that it is available to the lender to satisfy
the debt (by set-off or otherwise).
25
(3)
Condition B is that under an arrangement between the borrower and the
lender—
(a)
the amount for the time being owed by the borrower to the lender, or
(b)
the time at which the debt is to be satisfied,

depends in any respect, directly or indirectly, on the amount or value the
30
lender holds on behalf or on account of the borrower as mentioned in
subsection (2).
(4)
In this section “lender”, in relation to money lent, includes any person for the
time being entitled to repayment.
Relief for delayed remittances
35
835
Relief for delayed remittances
(1)
If section 832 (relevant foreign income charged on the remittance basis) applies
to income for a tax year, the person liable for the tax may make a claim for relief
under this section in respect of any of the income which meets conditions A
and B (“delayed income”).
40
(2)
Condition A is that the income arose before the tax year for which relief is
claimed.

Income Tax (Trading and Other Income) Bill
Part 8 — Foreign income: special rules
Chapter 2 — Relevant foreign income charged on remittance basis
357

(3)
Condition B is that the income could not have been transferred by the person
to the United Kingdom before the tax year because of—
(a)
the laws of the territory where the income arose,
(b)
executive action of its government, or
(c)
the impossibility of obtaining there currency that could be transferred
5
to the United Kingdom.
(4)
If a person claims relief for a tax year in respect of delayed income, that income
is to be deducted from the income charged to tax for that year in accordance
with section 832.
(5)
The delayed income is to be treated as if it were income received in the United
10
Kingdom in the tax year in which it arose.
836
Relief for delayed remittances: backdated pensions
(1)
This section applies if—
(a)
section 832 applies to a pension or annuity, or an increase in a pension
or annuity, that is treated as relevant foreign income as a result of
15
section 575(3), 613(4) or 635(4) of ITEPA 2003,
(b)
the pension, annuity or increase was granted retrospectively, and
(c)
an amount of pension, annuity or increase is paid in respect of a tax
year (“the earlier year”) before the tax year in which it was granted.
(2)
For the purposes of section 835 that amount of pension, annuity or increase is
20
treated as income arising in the earlier year from a source that the person liable
for the tax possessed in the earlier year.
(3)
The condition in section 835(3) only applies to the pension, annuity or increase
in the period after it becomes payable.
837
Claims for relief on delayed remittances
25
(1)
A claim under section 835 must be made on or before the fifth anniversary of
the normal self-assessment filing date for the tax year for which the relief is
claimed.
(2)
All adjustments (by way of repayment of tax, assessment or otherwise) are to
be made which are necessary to give effect to section 835.
30
(3)
Those adjustments may be made at any time, despite anything to the contrary
in the Income Tax Acts.
(4)
A person’s personal representatives may make any claim under section 835
which the person might have made.
(5)
If a person dies—
35
(a)
any tax paid by the person and repayable because of a claim under
section 835 is to be repaid to the personal representatives, and
(b)
the person’s personal representatives are liable for any additional tax
which arises because of a claim under that section.
(6)
If subsection (5)(b) applies, the additional tax—
40
(a)
is to be assessed on the personal representatives, and
(b)
is a debt due from and payable out of the estate.