Income Tax (Trading and Other Income) Bill

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Session 2004 - 05
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Income Tax (Trading and Other Income) Bill

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
383

Schedules
Schedule 1
Section 882

Consequential amendments
Part 1
Income and Corporation Taxes Act 1988
5
1
The Income and Corporation Taxes Act 1988 (c. 1) is amended as follows.
2
In section 1(1) (the charge to income tax)—
(a)
omit paragraph (a), and
(b)
omit the word “and” at the end of paragraph (b) and after that
paragraph insert—
10
“(ba)
all amounts which are charged to tax under any of the
following provisions of ITTOIA 2005—
(i)
Part 2 (trading income),
(ii)
Part 3 (property income),
(iii)
Part 4 (savings and investment income), and
15
(iv)
Part 5 (miscellaneous income), and”.
3     (1)
Amend section 1A (application of lower rate to income from savings and
distributions) as follows.
      (2)
In subsection (1AA)—
(a)
in paragraph (a) for “Schedule F” substitute “Chapter 3, 5 or 6 of Part
20
4 of ITTOIA 2005 (dividends etc. from UK resident companies etc.,
stock dividends from UK resident companies and loans to
participators)”, and
(b)
for paragraph (b) substitute—
“(b)
dividends chargeable under Chapter 4 of Part 4 of
25
that Act (dividends from non-UK resident
companies) or relevant foreign distributions
chargeable under Chapter 8 of Part 5 of that Act
(income not otherwise charged).”
      (3)
In subsection (1A)—
30
(a)
in paragraph (a)—
(i)
for “Schedule F”, in the first place where it occurs, substitute
“Chapter 3, 5 or 6 of Part 4 of ITTOIA 2005”, and
(ii)
for “Schedule F”, in the second place where it occurs,
substitute “dividend”, and
35
(b)
for paragraph (b) and the word “and” at the end of the paragraph

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
384

substitute—
“(b)
in the case of dividends chargeable under Chapter 4
of Part 4 of that Act or relevant foreign distributions
chargeable under Chapter 8 of Part 5 of that Act, the
dividend ordinary rate; and”.
5
      (4)
In subsection (2)—
(a)
in paragraph (a) for the words from “chargeable under” to “section
119” substitute “(other than relevant foreign income) chargeable
under—
(i)
Chapter 2 of Part 4 of ITTOIA 2005 (charge on
10
interest);
(ii)
Chapter 7 of that Part of that Act (charge on
purchased life annuity payments) other than
income from annuities specified in section
718(2) of that Act; or
15
(iii)
Chapter 8 of that Part of that Act (charge on
profits from deeply discounted securities);”,
(b)
in paragraph (aa) omit “under Case VI of Schedule D”,
(c)
in paragraph (b) for “Schedule F” substitute “Chapter 3, 5 or 6 of Part
4 of ITTOIA 2005”,
20
(d)
in paragraph (c) for “equivalent foreign income” substitute “income
falling within subsection (3) below”, and
(e)
in paragraph (d) for “547(1)(a) (chargeable event gains on life policies
etc)” substitute “465 of ITTOIA 2005 (gains from contracts for life
insurance etc.)”.
25
      (5)
For subsection (3) substitute—
“(3)
The income which falls within this subsection is any relevant foreign
income which—
(a)
would fall within subsection (2)(a) but for the exclusion of
relevant foreign income;
30
(b)
is a dividend chargeable under Chapter 4 of Part 4 of ITTOIA
2005; or
(c)
is a relevant foreign distribution chargeable under Chapter 8
of Part 5 of that Act.”
      (6)
In subsection (4)—
35
(a)
in paragraph (a), for the words from “income” to “Kingdom”
substitute “relevant foreign income which is charged in accordance
with section 832 of ITTOIA 2005 (relevant foreign income charged on
the remittance basis)”, and
(b)
omit paragraph (b) and the word “or” at the end of paragraph (a).
40
      (7)
In subsection (5)—
(a)
for “section 550” substitute “sections 535 to 537 of ITTOIA 2005”, and
(b)
in paragraph (b)(i) for “Schedule F” substitute “Chapter 3, 5 or 6 of
Part 4 of ITTOIA 2005”, and
(c)
in paragraph (b) for sub-paragraph (ii) substitute—
45
“(ii)
dividends chargeable under Chapter 4 of Part
4 of that Act (if any) or relevant foreign
distributions chargeable under Chapter 8 of
Part 5 of that Act (if any),”.

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
385

      (8)
In subsection (6) for “section 550” substitute “sections 535 to 537 of ITTOIA
2005”.
      (9)
Omit subsection (7).
     (10)
After subsection (7) insert—
“(8)
In this section “relevant foreign distribution” means any distribution
5
of a company not resident in the United Kingdom which—
(a)
is not chargeable under Chapter 4 of Part 4 of ITTOIA 2005,
but
(b)
would be chargeable under Chapter 3 of that Part of that Act
if the company were resident in the United Kingdom.
10
(9)
And, for the meaning of “relevant foreign income”, see section
832(1).”
4     (1)
Amend section 1B (rates of tax applicable to Schedule F income) as follows.
      (2)
In subsection (1)—
(a)
for paragraphs (a) and (b) substitute—
15
“(a)
income chargeable under Chapter 3 of Part 4 of
ITTOIA 2005 (dividends etc. from UK resident
companies etc.) (if any), and
(b)
dividends chargeable under Chapter 4 of Part 4 of
that Act (dividends from non-UK resident
20
companies) (if any) or relevant foreign distributions
chargeable under Chapter 8 of Part 5 of that Act
(income not otherwise charged) (if any),” and
(b)
for “Schedule F”, in the second place where it occurs, substitute
“dividend”.
25
      (3)
In subsection (2) for “Schedule F”, in both places where it occurs, substitute
“dividend”.
      (4)
After subsection (2) insert—
“(3)
In this section “relevant foreign distribution” has the same meaning
as in section 1A (see subsection (8) of that section).”
30
      (5)
In the side-note for the section for “Schedule F” substitute “distribution”.
5
In section 4 (construction of references in Income Tax Acts to deduction of
tax), omit subsection (1B).
6
After section 6(4) (the charge to corporation tax and exclusion of income tax
and capital gains tax) insert—
35
“(4A)
In sections 74(1), 79(1), 79A(1), 79B(1), 83A(1), 84(1), 86(1), 86A(2)(a),
87(1), (2) and (4), 88, 89, 90(1) and (3), 94(1), 100(2)(b), 101, 102, 401(1),
491(10), 577(7)(b), 579(2), 588(3), 589A(8) and 817(2), and in
paragraph 5(11) of Schedule 30, “profession” includes vocation.”
7     (1)
Amend section 9 (computation of income: application of income tax
40
principles) as follows.

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
386

      (2)
After subsection (2) insert—
“(2A)
But no income shall be computed, and no assessment shall be made,
for purposes of corporation tax under ITTOIA 2005.
(2B)
Instead, income shall continue to be computed, and the assessment
shall continue to be made, for purposes of corporation tax under
5
Schedules A and D, and the Cases of those Schedules.
(2C)
For (but only for) the purpose of continuing to apply for purposes of
corporation tax, those Schedules and Cases are treated as if they were
still part of income tax law (and therefore applied in accordance with
subsection (1) above for purposes of corporation tax).”
10
      (3)
In subsection (3)(a)—
(a)
for “, D and F,” substitute “and D”, and
(b)
omit “, as they apply for purposes of income tax”
      (4)
In subsection (4) after “Acts” insert “(other than ITTOIA 2005)”.
      (5)
In subsection (6) omit “60 to 69,”.
15
8     (1)
Amend section 15 (Schedule A) as follows.
      (2)
In subsection (1A)—
(a)
in paragraph (b) for “within the charge to income tax under Schedule
A” substitute “the profits of a UK property business within the
charge to income tax under Chapter 3 of Part 3 of ITTOIA 2005”, and
20
(b)
for “as separate Schedule A businesses” substitute “for the purposes
of those charges as separate businesses”.
      (3)
Before subsection (4) insert—
“(3A)
Subsection (1) applies for corporation tax purposes (and does not
apply for income tax purposes except so far as necessary to ensure its
25
application for corporation tax purposes by virtue of section 9).”
      (4)
In subsection (4) at the end insert “and under Chapter 3 of Part 3 of ITTOIA
2005 (profits of a property business)”.
9     (1)
Amend section 18 (Schedule D) as follows.
      (2)
After subsection (4) insert—
30
“(4A)
Subsections (1) to (4) apply for corporation tax purposes (and do not
apply for income tax purposes except so far as necessary to ensure
their application for corporation tax purposes by virtue of section
9).”
      (3)
In subsection (5) at the end insert “and under ITTOIA 2005 (see, in particular,
35
the charge under Chapter 2 of Part 2 of that Act (trade profits))”.
      (4)
Omit subsection (6).
10
Omit section 20 (Schedule F).
11
Omit section 21 (persons chargeable and basis of assessment under Schedule
A).
40
12    (1)
Amend section 21A (computation of amount chargeable under Schedule A)
as follows.

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
387

      (2)
In subsection (2) omit “sections 112 and 113 of that Act (expenditure in
connection with provision of security asset or service);”.
      (3)
In subsection (4)—
(a)
omit “section 82 (interest paid to non-residents),”, and
(b)
omit “section 96 (farming and market gardening: relief for
5
fluctuating profits),”.
13
In section 21B (application of other rules applicable to Case I of Schedule
D)—
(a)
omit “, 108, 109A”,
(b)
after “(post-cessation receipts and expenses, etc)” insert “, with any
10
reference to a trade within the charge to income tax being read as a
reference to a UK property business”, and
(c)
omit “section 113 (effect for income tax purposes of change in the
persons engaged on trade);”.
14
In section 21C (the Schedule A charge and mutual business)—
15
(a)
in subsection (1) after “the charge to” insert “corporation”, and
(b)
in subsection (4) from the beginning to “the person who would”
substitute “The company to which the profit arises is the company
which would”.
15    (1)
Amend section 30 (expenditure on making sea walls) as follows.
20
      (2)
In subsection (1) for “he shall be” substitute “that person shall be”.
      (3)
In subsection (2) for “he would be” substitute “that person would be”.
      (4)
After that subsection insert—
“(2A)
If—
(a)
the transferor is a company within the charge to corporation
25
tax and the transferee is a person within the charge to income
tax, or
(b)
the transferor is a person within the charge to income tax and
the transferee is a company within the charge to corporation
tax,
30

subsection (2) above shall apply only for the purpose of determining
the amount of the payment which the company is treated as making
in any year of assessment.

For any entitlement of the person within the charge to income tax to
a deduction for any of the expenditure, see sections 316 and 318 of
35
ITTOIA 2005 (corresponding income tax provision).”
16
Omit sections 31A and 31B (deductions for expenditure by landlords on
energy-saving items).
17    (1)
Amend section 34 (treatment of premiums etc. as rent) as follows.
      (2)
In subsection (1) for “the purposes of the Tax Acts” substitute “corporation
40
tax purposes”.
      (3)
In subsection (6)—
(a)
for “that other person” substitute “if that other person is a company,
the company”,
(b)
for “tax” substitute “corporation tax”,
45

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
388

(c)
for “he” substitute “the company”, and
(d)
for “his” substitute “its”.
      (4)
In subsection (7A) for “chargeable” substitute “accounting”.
      (5)
In subsection (8)—
(a)
for “person” substitute “company”,
5
(b)
for “tax”, wherever it occurs, substitute “corporation tax”, and
(c)
for “his” substitute “the company’s”.
18    (1)
Amend section 35 (charge on assignment of lease granted at an undervalue)
as follows.
      (2)
In subsection (2) for “him in consequence of his” substitute “the assignor in
10
consequence of the assignor’s”.
      (3)
In subsection (2A)(b) for “chargeable” substitute “accounting”.
      (4)
In subsection (3) for “tax” substitute “corporation tax”.
19    (1)
Amend section 36 (charge on sale of land with right to reconveyance) as
follows.
15
      (2)
In subsection (1)—
(a)
for “him”, in both places where it occurs, substitute “the vendor”,
and
(b)
for “his” substitute “the vendor’s”.
      (3)
In subsection (2)(b)—
20
(a)
for “tax” substitute “corporation tax”, and
(b)
for “him” substitute “the vendor”.
      (4)
In subsection (3) for “him” substitute “the vendor”.
      (5)
In subsection (4A)(b) for “chargeable” substitute “accounting”.
20    (1)
Amend section 37 (premiums paid etc: deductions from premiums and rent
25
received) as follows.
      (2)
In subsection (1)—
(a)
omit “or” at the end of paragraph (a),
(b)
after paragraph (b) insert—
“(c)
any amount falls to be treated as a receipt of a UK
30
property business by virtue of any of sections 277 to
282 of ITTOIA 2005 (receipts in respect of lease
premiums, sums payable instead of rent, for
surrender of lease and for variation or waiver of term
of lease and assignments), or
35
(d)
any amount would fall to be so treated but for the
operation of the rule in section 288 of that Act (the
additional calculation rule),”, and
(c)
after “this section” insert “and section 37A”.
      (3)
In subsection (2)—
40
(a)
for “person” substitute “company”, and
(b)
for “he” substitute “the company”.
      (4)
In subsection (3)—

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
389

(a)
for “person” substitute “company”, and
(b)
for “he” substitute “the company”.
      (5)
In subsection (4)—
(a)
for “the person” substitute “a company which is”, and
(b)
for “he” substitute “the company”.
5
      (6)
In subsection (7)(b) after sub-paragraph (ii) insert—
“(iii)
where it arose under Chapter 4 of Part 3 of ITTOIA
2005 (profits of property businesses: lease premiums
etc.), shall be its receipt period (within the meaning of
that Chapter (see section 288(6)).”
10
      (7)
In subsection (8) after “section 34(2)” insert “or under section 277 of ITTOIA
2005 by virtue of section 278 of that Act (amount treated as lease premium
where work required)”.
      (8)
In subsection (9)—
(a)
for “tax” substitute “income tax or corporation tax”, and
15
(b)
at the end insert “or if it has been deducted under the rule in section
288 of ITTOIA 2005 (the additional calculation rule) in calculating the
amount of a receipt of a property business (within the meaning of
that Act) under Chapter 4 of Part 3 of that Act.”
      (9)
At end insert—
20
“(10)
In the application of this section to Scotland the reference to a lease
being granted out of the head lease is to the grant of a sublease of
land subject to the head lease.”
21
After section 37 insert—
“37A
Section 37(4) and reductions in receipts under ITTOIA 2005
25
(1)
This section applies if—
(a)
in calculating the amount that falls to be treated as a receipt
of a UK property business under Chapter 4 of Part 3 of
ITTOIA 2005 (“the ITTOIA receipt”), there is a reduction
under section 288 of that Act by reference to a taxed receipt,
30
and
(b)
the taxed receipt is the amount chargeable on the superior
interest for the purposes of section 37.
(2)
Section 37(4) shall apply for the period in respect of which the
ITTOIA receipt arose only if the appropriate fraction of the amount
35
chargeable on the superior interest exceeds the amount of the
ITTOIA receipt given by the formula in section 277, 279, 280, 281 or
282 of ITTOIA 2005, as the case may be.
(3)
Section 37(4) shall then apply as if the amount chargeable on the
superior interest were reduced in the proportion which that excess
40
bears to that appropriate fraction.
(4)
Subsection (5) applies if—
(a)
the ITTOIA receipt is in respect of a lease granted out of the
taxed lease,