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 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