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
411

      (3)
After subsection (3) insert—
“(4)
For the purposes of this section and section 349(1), the following
income shall be treated as not brought into charge to income tax—
(a)
income on which income tax is treated as paid under section
399(2) or 400(2) of ITTOIA 2005 (distributions from UK
5
resident companies etc. on which there is no tax credit),
(b)
income on which an individual is liable to income tax as a
result of section 413(2) of that Act or trustees are so liable as
a result of section 413(3) of that Act (stock dividend income),
(c)
income on which any person is liable to income tax under
10
Chapter 6 of Part 4 of that Act (release of loan to participator
in close company),
(d)
income on which an individual is liable to income tax as a
result of section 465 of that Act or trustees are so liable as a
result of section 467 of that Act (gains from contracts for life
15
insurance etc.), being income to which section 530 of that Act
applies (income tax treated as paid etc.), and
(e)
income which is included in the aggregate income of an
estate as a result of section 664(2)(c), (d) or (e) of that Act
(income arising to personal representatives and
20
corresponding to income within paragraph (b), (c) or (d)).”
147   (1)
Amend section 349 (payments not out of profits or gains brought into charge
to income tax, and annual interest) as follows.
      (2)
In subsection (1A), after paragraph (a), insert—
“(aa)
which—
25
(i)
is charged with tax under Chapter 7 of Part 4 of
ITTOIA 2005 (purchased life annuity payments),
Chapter 10 of that Part (distributions from
unauthorised unit trusts), section 579 of that Act
(royalties etc. from intellectual property), Chapter 4 of
30
Part 5 of that Act (certain telecommunication rights:
non-trading income) or Chapter 7 of Part 5 of that Act
(annual payments not otherwise charged), and
(ii)
is not relevant foreign income,”.
      (3)
In subsection (2) for “chargeable to” substitute “which falls within Chapter 2
35
of Part 4 of ITTOIA 2005 (interest) (excluding anything specially exempted
from income tax and discounts treated as interest by section 381 of that Act)
or which is chargeable to corporation”.
      (4)
In subsection (3) before paragraph (a) insert—
“(za)
to interest chargeable to income tax as relevant foreign
40
income; or”.
      (5)
In subsection (3A)(a) for “a qualifying certificate of deposit and other than”
substitute “uncertificated eligible debt security units, a qualifying certificate
of deposit or”.
      (6)
In subsection (4)—
45
(a)
insert the following definitions in the appropriate places—
““certificate of deposit” means a document falling within
the definition of that expression in section 56(5) above or
section 552(2) of ITTOIA 2005;”,

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
412

““uncertificated eligible debt security units” has the same
meaning as in section 552(2) of ITTOIA 2005;”,
(b)
in the definition of “qualifying certificate of deposit” omit “, as
defined in section 56(5),”,
(c)
in the definition of “qualifying deposit right”—
5
(i)
at the end of paragraph (a) insert “above or is an
uncertificated right, as defined in section 552(2) of ITTOIA
2005”, and
(ii)
in paragraph (b) omit “, as defined in section 56(5),”.
      (7)
For subsection (7) substitute—
10
“(7)
This section is subject to section 101 of the Finance Act 2004 (payment
of royalties without deduction at source).”
148
After section 349 insert—
“349ZA
  Extension of section 349: proceeds of sale of UK patent rights
(1)
Subsection (2) applies if—
15
(a)
a person who is a non-UK resident is chargeable to tax under
section 587 of ITTOIA 2005 on profits from the sale of the
whole or part of any patent rights, and
(b)
the net proceeds of the sale consist wholly or partly of a
capital sum.
20
(2)
Subsection (1) of section 349 of this Act applies to any payment of the
net proceeds of sale, or of an instalment of them, as if the net
proceeds or instalment were, so far as consisting of the capital sum—
(a)
an annual sum to which paragraph (a) of that subsection
applies, and
25
(b)
payable otherwise than out of profits or gains charged to
income tax.
(3)
For the purposes of this section the net proceeds of the sale is the
amount of the proceeds net of any incidental expenses of the sale
which are deducted before payment.
30
(4)
Sections 597 to 599 of ITTOIA 2005 (licences connected with patents
etc.) apply for the purposes of this section as they apply for the
purposes of sections 587 to 596 of that Act.
(5)
Section 4 of the Capital Allowances Act 2001 (meaning of “capital
sums” etc.) applies in relation to this section as it applies in relation
35
to Chapter 2 of Part 5 of ITTOIA 2005 (receipts from intellectual
property).
(6)
In this section “a non-UK resident” means a person who is not
resident in the United Kingdom.”
149
In section 349A(3) (exceptions to section 349 for payments between
40
companies etc.) for “524(3)(b)” substitute “349ZA(2)”.
150   (1)
Amend section 349B (conditions mentioned in section 349A(1)) as follows.
      (2)
In subsection (4)(b) for “section 333 (personal equity plans and individual
savings accounts)” substitute “Chapter 3 of Part 6 of ITTOIA 2005 (income
from individual investment plans)”.
45

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
413

      (3)
Omit subsection (5).
151
In section 353(1) (relief for payments of interest) after “sections 359 to 368”
insert “of this Act and section 52 of ITTOIA 2005”.
152
In section 360A(2)(b) (meaning of “material interest” in section 360) for
“Chapter 1A of Part XV (see section 660G(1) and (2))” substitute “Chapter 5
5
of Part 5 of ITTOIA 2005 (see section 620 of that Act)”.
153   (1)
Amend section 368 (exclusion of double relief etc) as follows.
      (2)
In subsection (3) for “for the purposes of Schedule A or Case I or II of
Schedule D” substitute “of any trade, profession or vocation, or of any UK
property business or overseas property business,”.
10
      (3)
Omit subsection (4).
      (4)
In subsection (5)—
(a)
for “subsections (3) and (4)” substitute “subsection (3)”, and
(b)
for “those subsections” substitute “that subsection”.
      (5)
In subsection (6) substitute—
15
“(6)
Any reference in subsection (3) above to an amount taken into
account is a reference to an amount taken into account in an
assessment which has been finally determined.”
154
In section 370(2)(b) (relevant loan interest) for the words from “either” to the
end substitute “would be eligible for relief under section 353”.
20
155   (1)
Amend section 379A (Schedule A losses) as follows.
      (2)
In subsection (1) for “Schedule A business” substitute “UK property
business”.
      (3)
In subsection (2) for “Schedule A business”, in both places where it occurs,
substitute “UK property business”.
25
      (4)
In subsection (3) for “Schedule A business” substitute “UK property
business”.
      (5)
In subsection (4) for “Schedule A business” substitute “UK property
business”.
      (6)
In subsection (7)—
30
(a)
for “Schedule A business” substitute “UK property business”, and
(b)
for “applicable to” to the end substitute “applicable to UK property
businesses”.
      (7)
In the side-note for “Schedule A losses” substitute “Losses from UK property
business”.
35
      (8)
In the italic cross-heading before the section for “Schedule A” substitute “UK
property”.
156
In section 379B (losses from overseas property business)—
(a)
after “overseas property business” insert “(within the meaning given
by Chapter 2 of Part 3 of ITTOIA 2005)”, and
40
(b)
for “Schedule A business” substitute “UK property business”.

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
414

157
In section 382(3) (provisions supplementary to sections 380 and 381) omit
“under the provisions of the Income Tax Acts applicable to Case I or II of
Schedule D”.
158   (1)
Amend section 384 (restrictions on right of set-off for trade etc. losses) as
follows.
5
      (2)
In subsection (4) for the words from “a trade” to “subsections (1) to (3)
above” substitute “—
(a)
a trade is carried on for part only of a year of assessment by
reason of its being set up and commenced, or discontinued,
or both, in that year, or
10
(b)
a person carries on, or is treated as carrying on, a trade for
part only of a year of assessment by reason of—
(i)
a succession to the trade during the year which
involves all the persons carrying it on before the
succession permanently ceasing to carry it on, or
15
(ii)
a change of residence within section 17 of ITTOIA
2005,

subsections (1) to (3) above”.
      (3)
In subsection (8) for “under Case VI of Schedule D” substitute “to income
tax”.
20
159
In section 384A(6) (restriction of set-off of allowances against general
income) for “under Case VI of Schedule D” substitute “to income tax”.
160
In section 385(4) (carry-forward against subsequent profits) omit “under
Case I of Schedule D” and, in both places where it occurs, “under that Case”.
161
In section 386(1) (carry-forward where business transferred to a company)
25
omit “under Schedule D”.
162
In section 387(3)(d) (carry-forward as losses of amounts taxed under section
350) for “under section 349(1) by virtue of section 524” substitute “under
section 349(1) of this Act by virtue of section 595 of ITTOIA 2005”.
163   (1)
Amend section 388 (carry-back of terminal losses) as follows.
30
      (2)
In subsection (1) omit “under Schedule D”.
      (3)
In subsection (4) omit “under Schedule D” and, in both places where it
occurs, “under Case I of Schedule D”.
      (4)
In subsection (7) for “under the provisions of the Income Tax Acts applicable
to Cases I and II of Schedule D” substitute “of a trade, profession or vocation
35
under Part 2 of ITTOIA 2005”.
164
In section 389 (supplementary provisions relating to carry-back of terminal
losses) for subsection (4) substitute—
“(4)
For the purposes of this section and section 388 references to the
permanent discontinuance of a trade, profession or vocation
40
include—
(a)
a person permanently ceasing to carry on a trade, profession
or vocation, and
(b)
a partner permanently ceasing to carry on a notional trade in
accordance with section 852(4) of ITTOIA 2005.”
45

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
415

165
In section 390(a) (treatment of interest as a loss for purposes of carry-forward
and carry-back) for “the profits of which are chargeable to tax under Case I
or II of Schedule D” substitute “carried on wholly or partly in the United
Kingdom”.
166
For section 391 (losses from trade etc carried on abroad) substitute—
5
“391
Losses from trade etc. carried on abroad
In the case of a loss sustained in a trade, profession or vocation
carried on wholly outside the United Kingdom, relief under any of
sections 380 to 386, 388 and 389 is given only on—
(a)
the profits of a trade, profession or vocation carried on
10
wholly outside the United Kingdom, or
(b)
income falling within section 23, 355, 575, 613, 615, 631 or 635
of ITEPA 2003,
but no relief is to be given on income which is charged in
accordance with section 832 of ITTOIA 2005 (relevant foreign income
15
charged on the remittance basis).”
167
For section 392 (Case VI losses) substitute—
“392
Losses from miscellaneous transactions
(1)
A person may make a loss relief claim if —
(a)
in any year of assessment he sustains a loss in any transaction
20
(whether he was engaged in it solely or in partnership), and
(b)
the transaction is of such a nature that, if any profits or other
income had arisen from it, he would have been liable to be
assessed to income tax in respect of the income under or by
virtue of any provision to which section 836B applies.
25
(2)
A loss relief claim is a claim requiring—
(a)
that the amount of the loss sustained by him is, as far as may
be, to be deducted from or set off against the total of the
amount of any profits or other income or gains arising from
any transaction in respect of which he is assessed for that year
30
under or by virtue of any such provision, and
(b)
that any portion of the loss for which relief is not so given is,
as far as may be, to be carried forward and deducted from or
set off against the total of the amount of any profits or other
income or gains arising from any transaction in respect of
35
which he is assessed for a subsequent year of assessment
under or by virtue of any such provision.
(3)
If a partner in a partnership sustains a loss, the expression “the
amount of any profits or other income or gains arising from any
transaction in respect of which he is assessed” is to be read in
40
accordance with subsection (4).
(4)
In respect of any year that expression means such portion of the
amount on which the partnership is assessed under or by virtue of
any provision to which section 836B applies in respect of any
transaction as falls to be taken into account in computing the
45
partner’s total income for that year.

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
416

(5)
Any relief under this section by way of the carrying forward of the
loss is to be given as far as possible—
(a)
from the first subsequent assessment in respect of any profits
or other income or gains arising from any transaction in
respect of which he is assessed under or by virtue of any
5
provision to which section 836B applies for any year, and
(b)
so far as it cannot be so given, from the next such assessment,
and so on.
(6)
So far as a loss relief claim concerns the amount of the loss for any
year of assessment it must be made on or before the fifth anniversary
10
of the 31st January next following the year of assessment in question.
(7)
But the question whether and, if so, how much relief on that amount
should be given under this section against tax for any year of
assessment may be the subject of a separate claim made on or before
the fifth anniversary of the 31st January next following that year of
15
assessment.
(8)
Any portion of a loss sustained by any person in any transaction
(whether he was engaged in it solely or in partnership)—
(a)
which was of such a nature that, if any profits had arisen from
it, he would have been liable to be assessed to income tax in
20
respect of the profits under Case VI of Schedule D for any
year of assessment before the year 2005-06, and
(b)
which did not fall within section 34, 35 or 36,

is (so far as relief for that portion has not previously been given) to
be treated as a loss to be carried forward and deducted in accordance
25
with subsection (2)(b) above.”
168   (1)
Amend section 397 (restriction of relief in case of farming and market
gardening) as follows.
      (2)
In subsection (5) (restriction of relief in case of farming and market
gardening) for the definitions of “farming” and “market gardening”
30
substitute—
““farming” and “market gardening” shall be construed—
(a)
for income tax purposes, in accordance with the
definitions in section 876 of ITTOIA 2005, and
(b)
for corporation tax purposes, in accordance with the
35
definitions in section 832 but as if those definitions were
not restricted to activities in the United Kingdom.”
      (3)
In subsection (7) after “the rules applicable to” insert “the calculation of the
profits of a trade in Part 2 of ITTOIA 2005 or to”.
      (4)
In subsection (8) for the words from “, a trade shall be treated” to the end
40
substitute “—
(a)
a trade shall be treated as discontinued, and a new trade set
up, in any event which under any of the provisions of the Tax
Acts is to be treated as equivalent to the permanent
discontinuance or setting up of a trade; and
45
(b)
without prejudice to paragraph (a), a trade shall be treated as
discontinued, and a new trade set up, at any time when there
is a change in the persons carrying on the trade which

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
417

involves all of the persons carrying it on before the change
permanently ceasing to carry it on.”
      (5)
In subsection (10) for the words from the beginning to “any discontinuance,
and as if” substitute “Where at any time there has been a change in the
persons carrying on a trade, this section shall, notwithstanding subsection
5
(8) above, apply as if”.
169
In section 398 (loss relief for transactions in deposits with and without
certificates or in debts)—
(a)
after “56(2)”, in the first place where it occurs, insert “above or
Chapter 11 of Part 4 of ITTOIA 2005 (transactions in deposits)”,
10
(b)
after “56(2)”, in the second place where it occurs, insert “above or that
Chapter”, and
(c)
for “tax under Schedule D” substitute “corporation tax under
Schedule D or income tax under that Act”.
170   (1)
Amend section 399 (dealings in commodity futures etc: withdrawal of loss
15
relief) as follows.
      (2)
Omit subsections (1) and (1A).
      (3)
In subsection (3) for “under Case VI of Schedule D” substitute “(in the case
of corporation tax, under Case VI of Schedule D)”.
      (4)
In subsection (5) omit the words from “and the reference” to the end.
20
171
In section 401(1) (relief for pre-trading expenditure)—
(a)
for “person” substitute “company”,
(b)
for “trade, profession or vocation”, wherever it occurs, substitute
“trade or profession”,
(c)
for “he” substitute “the company”,
25
(d)
for “his” substitute “the company’s”, and
(e)
for “him” substitute “the company”.
172
In section 417(3)(b) (meaning of “associate” etc.) for “Chapter 1A of Part XV
(see section 660G(1) and (2))” substitute “Chapter 5 of Part 5 of ITTOIA 2005
(see section 620 of that Act)”.
30
173   (1)
Amend section 421 (taxation of borrower where loan under section 419
released etc.) as follows.
      (2)
In subsection (1)—
(a)
for “advance and” substitute “advance made to the trustees of a trust
and after the trust has ended”,
35
(b)
in paragraph (a) for “the total income of the person to whom the loan
or advance was made”, “him” and “Schedule F” substitute “the
income of the person from whom the debt was due (“the debtor”) for
corporation tax purposes”, “the debtor” and “dividend” respectively,
(c)
in paragraph (b) for “he shall not be liable to pay income tax at the
40
Schedule F” substitute “the debtor shall not be liable to pay
corporation tax at the dividend”, and
(d)
omit paragraphs (c) and (d).
      (3)
Omit subsections (2) and (3).