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Income Tax (Trading and Other Income) Bill


Income Tax (Trading and Other Income) Bill
Part 9 — Partnerships

369

 

(b)   

everything done to or by the predecessors of that person or those

persons in carrying on the trade had been done to or by that person or

those persons.

862     

Sale of patent rights: effect of later cessation of trade

(1)   

This section applies if—

5

(a)   

a person (“the trader”) sells the whole or part of any patent rights in

carrying on a trade,

(b)   

by virtue of section 861 a charge under section 587 falls to be made on

any person for the time being carrying on the trade in partnership,

(c)   

any such person permanently ceases to carry on the trade thereafter,

10

and

(d)   

no person who carried on the trade immediately before the cessation

continues to carry on the trade immediately after the cessation.

(2)   

Any amounts which would have been chargeable in later tax years are charged

in the tax year in which the cessation occurs.

15

(3)   

Each partner’s share (or, if the partner is dead, the share of the partner’s

personal representatives) of any additional amount chargeable under

subsection (2) is determined in accordance with the firm’s profit-sharing

arrangements immediately before the cessation.

(4)   

If an additional amount is chargeable under subsection (2), the person liable

20

may elect that the amount of income tax payable should be reduced to the

amount that would have been payable on the assumptions mentioned in

subsection (5).

(5)   

The assumptions are—

(a)   

that subsection (2) does not apply, and

25

(b)   

that the total of the amounts that would have been charged in later tax

years is charged in equal instalments in each of the tax years—

(i)   

beginning with the year in which the trader received the

proceeds of the sale or instalment of those proceeds, and

(ii)   

ending with the year in which the cessation occurs.

30

(6)   

The election must be made on or before the first anniversary of the normal self-

assessment filing date for the tax year in which the cessation occurred.

(7)   

For the purposes of this section “profit-sharing arrangements” means the rights

of the partners to share in the profits of the trade.

863     

Limited liability partnerships

35

(1)   

For income tax purposes, if a limited liability partnership carries on a trade,

profession or business with a view to profit—

(a)   

all the activities of the limited liability partnership are treated as carried

on in partnership by its members (and not by the limited liability

partnership as such),

40

(b)   

anything done by, to or in relation to the limited liability partnership

for the purposes of, or in connection with, any of its activities is treated

as done by, to or in relation to the members as partners, and

(c)   

the property of the limited liability partnership is treated as held by the

members as partnership property.

45

 
 

Income Tax (Trading and Other Income) Bill
Part 10 — General provisions
Chapter 1 — Introduction

370

 

   

References in this subsection to the activities of the limited liability partnership

are to anything that it does, whether or not in the course of carrying on a trade,

profession or business with a view to profit.

(2)   

For all purposes, except as otherwise provided, in the Income Tax Acts—

(a)   

references to a firm include a limited liability partnership in relation to

5

which subsection (1) applies,

(b)   

references to members of a firm include members of such a limited

liability partnership,

(c)   

references to a company do not include such a limited liability

partnership, and

10

(d)   

references to members of a company do not include members of such a

limited liability partnership.

(3)   

Subsection (1) continues to apply in relation to a limited liability partnership

which no longer carries on any trade, profession or business with a view to

profit—

15

(a)   

if the cessation is only temporary, or

(b)   

during a period of winding up following a permanent cessation,

provided—

(i)   

the winding up is not for reasons connected in whole or in part

with the avoidance of tax, and

20

(ii)   

the period of winding up is not unreasonably prolonged.

   

This is subject to subsection (4).

(4)   

Subsection (1) ceases to apply in relation to a limited liability partnership—

(a)   

on the appointment of a liquidator or (if earlier) the making of a

winding-up order by the court, or

25

(b)   

on the occurrence of any event under the law of a territory outside the

United Kingdom corresponding to an event specified in paragraph (a).

Part 10

General provisions

Chapter 1

30

Introduction

864     

Overview of Part 10

This Part —

(a)   

contains general rules which are of wider application than to a

particular Part of this Act including certain calculation rules (see

35

Chapter 2), and

(b)   

deals with supplementary matters including general definitions (see

Chapter 3).

 
 

Income Tax (Trading and Other Income) Bill
Part 10 — General provisions
Chapter 2 — General calculation rules etc.

371

 

Chapter 2

General calculation rules etc.

Unpaid remuneration

865     

Unpaid remuneration: non-trades and non-property businesses

(1)   

This section applies if, in calculating profits or other income of a period of

5

account for income tax purposes—

(a)   

an amount is charged in the accounts for the period in respect of

employees’ remuneration, and

(b)   

a deduction for the remuneration would otherwise be allowable for the

period.

10

(2)   

For this purpose “profits or other income” does not include the profits of—

(a)   

a trade, profession or vocation, or

(b)   

a property business,

   

but see subsection (6).

(3)   

No deduction is allowed for the remuneration for the period of account unless

15

it is paid before the end of the period of 9 months immediately following the

end of the period of account.

(4)   

If the remuneration is paid after the end of that 9 month period, a deduction for

it is allowed for the period of account in which it is paid.

(5)   

Section 37 (supplementary provision) applies for the purposes of this section

20

as it applies for the purposes of section 36 (unpaid remuneration: trades,

professions and vocations).

(6)   

Provision corresponding to that made by this section is made by—

(a)   

sections 36 and 37 (in relation to trades, professions and vocations), and

(b)   

section 272 (in relation to property businesses).

25

Employee benefit contributions

866     

Employee benefit contributions: non-trades and non-property businesses

(1)   

This section applies if, in calculating a person’s profits or other income of a

period for income tax purposes—

(a)   

the profits or other income of the period are required to be calculated

30

for those purposes, and

(b)   

a deduction would otherwise be allowable for the period for any

employee benefit contributions made or to be made by the person (“the

employer”) (but see subsection (5)).

(2)   

For this purpose “profits or other income” does not include the profits of—

35

(a)   

a trade, profession or vocation, or

(b)   

a property business,

   

but see subsection (7).

(3)   

No deduction is allowed for the contributions for the period except so far as—

 
 

Income Tax (Trading and Other Income) Bill
Part 10 — General provisions
Chapter 2 — General calculation rules etc.

372

 

(a)   

qualifying benefits are provided, or qualifying expenses are paid, out

of the contributions during the period or within 9 months from the end

of it, or

(b)   

if the making of the contributions is itself the provision of qualifying

benefits, the contributions are made during the period or within 9

5

months from the end of it.

(4)   

An amount disallowed under subsection (3) is allowed as a deduction for a

subsequent period so far as—

(a)   

qualifying benefits are provided out of the contributions before the end

of the subsequent period, or

10

(b)   

if the making of the contributions is itself the provision of qualifying

benefits, the contributions are made before the end of the subsequent

period.

(5)   

This section does not apply to any deduction that is allowable for—

(a)   

anything given as consideration for goods or services provided in the

15

course of a trade or profession,

(b)   

contributions under a registered pension scheme or under a

superannuation fund to which section 615(3) of ICTA applies,

(c)   

contributions under a qualifying overseas pension scheme in respect of

an individual who is a relevant migrant member of the pension scheme

20

in relation to the contributions, or

(d)   

contributions under an accident benefit scheme.

   

For the purposes of paragraph (c) “qualifying overseas pension scheme” and

“relevant migrant member” have the same meaning as in Schedule 33 to FA

2004 (see paragraphs 4 to 6 of that Schedule).

25

(6)   

Sections 39 to 44 (supplementary provisions) apply for the purposes of this

section  as they apply for the purposes of section 38 (employee benefit

contributions: trades, professions and vocations).

(7)   

Provision corresponding to that made by this section is made by—

(a)   

sections 38 to 44 (in relation to trades, professions and vocations), and

30

(b)   

section 272 (in relation to property businesses).

Business entertainment and gifts

867     

Business entertainment and gifts: non-trades and non-property businesses

(1)   

This section applies for the purpose of calculating profits or other income

charged to income tax which arise from the carrying on of a business.

35

(2)   

For this purpose “business” does not include—

(a)   

a trade, profession or vocation, or

(b)   

a property business,

   

but see subsection (7).

(3)   

The general rule is that no deduction is allowed in calculating the profits or

40

other income for expenses incurred in providing entertainment or gifts in

connection with the business.

(4)   

A deduction for expenses which are incurred—

 
 

Income Tax (Trading and Other Income) Bill
Part 10 — General provisions
Chapter 2 — General calculation rules etc.

373

 

(a)   

in paying sums to or on behalf of an employee of the person carrying

on the business, or

(b)   

in putting sums at the disposal of an employee of that person,

   

is prohibited by the general rule if (and only if) the sums are paid, or put at the

employee’s disposal, exclusively for meeting expenses incurred or to be

5

incurred by the employee in providing the entertainment or gift.

(5)   

The general rule is subject to—

section 46 (business entertainment: exceptions), and

section 47 (business gifts: exceptions),

   

which apply in relation to a business as they apply in relation to a trade (but as

10

if the reference to a basis period were to a tax year).

(6)   

For the purposes of this section and those two sections as so applied—

(a)   

“employee”, in relation to a company, includes a director of the

company and a person engaged in the management of the company,

(b)   

“entertainment” includes hospitality of any kind, and

15

(c)   

the expenses incurred in providing entertainment or a gift include

expenses incurred in providing anything incidental to the provision of

entertainment or a gift.

(7)   

Provision corresponding to that made by this section is made by—

(a)   

sections 45 to 47 (in relation to trades, professions and vocations), and

20

(b)   

section 272 (in relation to property businesses).

Social security contributions

868     

Social security contributions: non-trades etc.

(1)   

This section applies for the purpose of calculating profits or other income

charged to income tax.

25

(2)   

For this purpose “profits or other income” does not include—

(a)   

the profits of a trade, profession, or vocation,

(b)   

the profits of a property business, or

(c)   

employment income,

   

but see subsection (6).

30

(3)   

No deduction is allowed for any contribution paid by any person under—

(a)   

Part 1 of the Social Security Contributions and Benefits Act 1992 (c. 4),

or

(b)   

Part 1 of the Social Security Contributions and Benefits (Northern

Ireland) Act 1992 (c. 7).

35

(4)   

But this prohibition does not apply to an employer’s contribution.

(5)   

For this purpose “an employer’s contribution” means—

(a)   

a secondary Class 1 contribution,

(b)   

a Class 1A contribution, or

(c)   

a Class 1B contribution,

40

   

within the meaning of Part 1 of the Social Security Contributions and Benefits

Act 1992 or of the Social Security Contributions and Benefits (Northern

Ireland) Act 1992.

 
 

Income Tax (Trading and Other Income) Bill
Part 10 — General provisions
Chapter 2 — General calculation rules etc.

374

 

(6)   

Provision corresponding to that made by this section is made by—

(a)   

section 53 (in relation to trades, professions and vocations),

(b)   

section 272 (in relation to property businesses), and

(c)   

section 360A of ITEPA 2003 (in relation to employment income).

Penalties, interest and VAT surcharges

5

869     

Penalties, interest and VAT surcharges: non-trades etc.

(1)   

This section applies for the purpose of calculating profits or other income

charged to income tax.

(2)   

For this purpose “profits or other income” does not include the profits of—

(a)   

a trade, profession, or vocation, or

10

(b)   

a property business,

   

but see subsection (6).

(3)   

No deduction is allowed for any penalty or interest mentioned in the first

column of the following table.

(4)   

This is the table—

15

 

Penalty or interest

Description of tax, levy or duty

 
 

Interest under any provision of Part 9 of

Income tax, capital gains tax

 
 

TMA 1970

and corporation tax

 
 

Interest required to be paid by

  
 

regulations made under section 71 of

  

20

 

FA 2004 (construction industry)

  
 

Penalty under any of sections 60 to 70 of

Value added tax

 
 

VATA 1994

  
 

Interest under section 74 of VATA 1994

  
 

Penalty under any of sections 8 to 11 of

Excise duties

 

25

 

FA 1994

  
 

Penalty under any of paragraphs 12 to

Insurance premium tax

 
 

19 of Schedule 7 to FA 1994

  
 

Interest under paragraph 21 of that

  
 

Schedule

  

30

 

Penalty under any provision of Part 5 of

Landfill tax

 
 

Schedule 5 to FA 1996

  
 

Interest under paragraph 26 or 27 of

  
 

that Schedule

  
 

Penalty under any provision of

Climate change levy

 

35

 

Schedule 6 to FA 2000

  
 
 

Income Tax (Trading and Other Income) Bill
Part 10 — General provisions
Chapter 2 — General calculation rules etc.

375

 
 

Penalty or interest

Description of tax, levy or duty

 
 

Interest under any of paragraphs 70, 81

  
 

to 85 and 109 of that Schedule

  
 

Penalty under any provision of Part 2 of

Aggregates levy

 
 

FA 2001

  

5

 

Interest under any of paragraphs 5 to 9

  
 

of Schedule 5 to, paragraph 6 of

  
 

Schedule 8 to and paragraph 5 of

  
 

Schedule 10 to FA 2001

  
 

Penalty under section 25 or 26 of FA

Customs, export and import

 

10

 

2003

duties

 
 

Penalty under any provision of Part 4 of

Stamp duty land tax

 
 

FA 2003

  
 

Interest under any provision of that Part

  
 

(5)   

No deduction is allowed for any surcharge under section 59 of VATA 1994.

15

(6)   

Provision corresponding to that made by this section is made by—

(a)   

section 54 (in relation to trades, professions and vocations), and

(b)   

section 272 (in relation to property businesses).

Crime-related payments

870     

Crime-related payments: non-trades and non-property businesses

20

(1)   

This section—

(a)   

applies for the purpose of calculating profits or other income charged

to income tax, but

(b)   

does not apply for the purpose of calculating the profits of a trade,

profession or vocation or of a property business (but see subsection (4)).

25

(2)   

No deduction is allowed for expenses incurred—

(a)   

in making a payment if the making of the payment constitutes a

criminal offence, or

(b)   

in making a payment outside the United Kingdom if the making of a

corresponding payment in any part of the United Kingdom would

30

constitute a criminal offence in that part.

(3)   

No deduction is allowed for expenses incurred in making a payment induced

by a demand which constitutes—

(a)   

the offence of blackmail under section 21 of the Theft Act 1968 (c. 60)

(England and Wales),

35

(b)   

the offence of extortion (Scotland), or

(c)   

the offence of blackmail under section 20 of the Theft Act (Northern

Ireland) 1969 (c. 16 (N.I.)) (Northern Ireland).

(4)   

Provision corresponding to that made by this section is made by—

(a)   

section 55 (in relation to trades, professions and vocations), and

40

 
 

 
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