Income Tax (Trading and Other Income) Bill

House of Commons

Session 2004 - 05
Internet Publications
Other Bills before Parliament

Income Tax (Trading and Other Income) Bill

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 1 — General provisions
523

(a)
things done under or for the purposes of a superseded enactment in
its application for relevant tax purposes, or
(b)
things falling to be done under or for the purposes of a superseded
enactment in its application for relevant tax purposes,

is to be read, so far as is required for those relevant tax purposes, as
5
including, in relation to times, circumstances or purposes in relation to
which any corresponding rewritten provision has effect, a reference to
things done or falling to be done under or for the purposes of the rewritten
provision.
6     (1)
Paragraphs 1 to 5 have effect instead of section 17(2) of the Interpretation Act
10
1978 (c. 30) (but are without prejudice to any other provision of that Act).
      (2)
Paragraphs 4 and 5 apply only so far as the context permits.
General saving for old transitional provisions and savings
7     (1)
The repeal by this Act of a transitional or saving provision relating to the
coming into force of a provision rewritten in this Act does not affect the
15
operation of the transitional or saving provision, so far as it is not specifically
rewritten in this Act but remains capable of having effect in relation to the
corresponding provision of this Act.
      (2)
The repeal by this Act of an enactment previously repealed subject to
savings does not affect the continued operation of those savings.
20
      (3)
The repeal by this Act of a saving on the previous repeal of an enactment
does not affect the operation of the saving so far as it is not specifically
rewritten in this Act but remains capable of having effect.
General saving for section 9(5) of ICTA
8     (1)
Sub-paragraph (2) applies if—
25
(a)
as a result of this Act, an enactment which applies to both income tax
and corporation tax (“the original enactment”) has become an
enactment which applies to income tax and an enactment which
applies to corporation tax (“the successor enactments”),
(b)
immediately before 6th April 2005, section 9(5) of ICTA (taxes treated
30
as one in certain circumstances) had effect in relation to the original
enactment, and
(c)
no express provision is made by this Act to preserve this effect.
      (2)
The successor enactments are not to be affected in their operation by the fact
that income tax and corporation tax are distinct taxes but they are to apply
35
in relation to income tax and corporation tax as if they were one tax so far as
is—
(a)
consistent with the Corporation Tax Acts, and
(b)
required to preserve the effect of section 9(5) of ICTA,

and the successor enactments are to be read accordingly.
40
Partnerships involving companies
9     (1)
References in this Act to any person are to be read, in the case of a person
acting in partnership with other persons of whom at least one is a company

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 2 — Changes in the law
524

chargeable to corporation tax, as references to all the partners so far as is
required for the purposes of preserving the continuity of the law.
      (2)
References to a company or other person in any provision amended in its
application for corporation tax purposes by this Act are to be read, in the
case of a company acting in partnership with other persons of whom at least
5
one is not a company, as references to all the partners so far as is required for
the purposes of preserving the continuity of the law.
Interpretation
10    (1)
In this Part—
“enactment” includes an enactment comprised in subordinate legislation
10
(within the meaning of the Interpretation Act 1978 (c. 30)),
“relevant tax purposes” means, in relation to a superseded enactment, tax
purposes for which the enactment has been rewritten by this Act, and
“superseded enactment” means an earlier enactment which has been
rewritten by this Act for certain tax purposes (whether it applied only
15
for those purposes or for those and other tax purposes).
      (2)
References in this Part to the repeal of a provision include references to its
revocation and to its express or implied disapplication for income tax
purposes of this Act.
      (3)
References in this Part to tax purposes are not limited to income tax
20
purposes.
Part 2
Changes in the law
11    (1)
This paragraph applies if, in the case of any person—
(a)
a thing is done or an event occurs before 6th April 2005, and
25
(b)
because of a change in the law made by this Act, the tax
consequences of that thing or event for the relevant period are
different from what they would otherwise have been.
      (2)
If that person so elects, this Act applies with such modifications as may be
necessary to secure that the tax consequences for the relevant period are the
30
same as they would have been if the change in the law had not been made.
      (3)
In sub-paragraphs (1) and (2) “the relevant period” means—
(a)
for income tax purposes, any period of account beginning before and
ending on or after 6th April 2005, and
(b)
for corporation tax purposes, any accounting period beginning
35
before and ending on or after 6th April 2005.
      (4)
If this paragraph applies in the case of two or more persons in relation to the
same thing or event, an election made under this paragraph by any one of
those persons is of no effect unless a corresponding election is made by the
other or each of the others.
40
      (5)
An election under this paragraph must be made—
(a)
for income tax purposes, on or before the first anniversary of the
normal self-assessment filing date for the tax year in which the
period of account ends, and

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 3 — Trading income
525

(b)
for corporation tax purposes, no later than two years after the end of
the accounting period.
Part 3
Trading income
Unpaid remuneration
5
12    (1)
This paragraph applies for the purposes of section 36.
      (2)
In relation to a period of account ending before 27th November 2002, an
amount charged in the accounts in respect of employees’ remuneration
includes an amount which is held by an intermediary with a view to its
becoming employees’ remuneration.
10
      (3)
In relation to a period of account ending on or after 27th November 2002, an
amount charged in the accounts in respect of employees’ remuneration
includes an amount—
(a)
in respect of employee benefit contributions (within the meaning of
sections 38 to 44) made before that date, and
15
(b)
which is held by an intermediary,

with a view to its becoming employees’ remuneration.
Employee benefit contributions
13
Sections 38 to 44 do not apply to deductions that would otherwise be
allowed—
20
(a)
for a period ending before 27th November 2002, or
(b)
in respect of employee benefit contributions made before that date.
14    (1)
In relation to any time before the coming into force of ITEPA 2003—
(a)
section 40(7) applies as if, in the definition of “employment income
tax charge”, for “tax under ITEPA 2003” there were substituted
25
“income tax under Schedule E”,
(b)
section 41(1) applies as if for “treated as received” to the end there
were substituted “treated as received for the purposes of section
202A(1)(a) of ICTA (applying the rules in section 202B(1) to (6) of that
Act (receipts basis of assessment for Schedule E)).”, and
30
(c)
section 41(3) applies as if for “tax under ITEPA 2003” there were
substituted “income tax under Schedule E”.
      (2)
The express provision made by this paragraph does not affect the
construction of other provisions of this Act as a result of the operation of
paragraph 5 of this Schedule on paragraph 4 of Schedule 7 to ITEPA 2003
35
(references in enactment to rewritten provisions include corresponding
repealed provisions) or on any similar provision (for example paragraph 4
of Schedule 3 to CAA 2001).
15    (1)
Subject to sub-paragraph (7), sections 38 to 44 apply before 6th April 2006
with the following amendments.
40
      (2)
In section 38(4)—
(a)
for paragraphs (b) and (c) and the word “or” at the end of paragraph

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 3 — Trading income
526

(c) substitute—
“(b)
contributions under a retirement benefits scheme
within the meaning of Chapter 1 of Part 14 of ICTA
(see section 611 of that Act),
(c)
contributions under a personal pension scheme
5
approved under Chapter 4 of that Part (see section
630 of that Act), or”, and
(b)
omit “For the purposes of paragraph (c)” to the end.
      (3)
In section 39—
(a)
in subsection (1)(b) omit “, or in respect of, present or former”, and
10
(b)
in subsection (2) omit “present or former”.
      (4)
In section 40—
(a)
in subsection (1) for “, C or D” substitute “or C”, and
(b)
omit subsection (5).
      (5)
In section 41(1) omit paragraph (b) and the word “and” before it.
15
      (6)
In section 44(1) omit the definition of “employer-financed retirement
benefits scheme”.
      (7)
The power of the Treasury to make an order under section 281 or 283 of FA
2004 has effect as if Schedule 35 to that Act contained an amendment
substituting sections 38 to 44 of this Act for those sections as amended by
20
sub-paragraphs (2) to (6) above.
Car or motor cycle hire
16
In relation to expenditure incurred under a contract entered into before 11th
March 1992, section 48(1) and (2) apply with the substitution of “£8,000” for
“£12,000”.
25
17
Section 50 does not apply to expenditure which is incurred—
(a)
before 17th April 2002, or
(b)
on the hiring of a car mentioned in that section which is first
registered before that date.
Crime-related payments
30
18
Section 55(1)(b) does not apply to expenditure which was incurred before 1st
April 2002.
Tenants under taxed leases
19    (1)
This paragraph relates to the operation of sections 60 to 67 where, in respect
of a lease—
35
(a)
there is a receipt of a Schedule A business or an overseas property
business (within the meaning of section 65A(4) or 70A(4) of ICTA) as
a result of section 34 or 35 of ICTA (treatment of premiums etc. as
rent and assignments for profit of lease granted at an undervalue) for
a tax year before the tax year 2005-06 or an accounting period ending
40
before 6th April 2005, or

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 3 — Trading income
527

(b)
there would be such a receipt, but for the operation of section 37(2)
or (3) of ICTA (reductions in certain receipts under section 34 or 35
of ICTA).

In this paragraph and paragraph 20 such a receipt is referred to as a “pre-
commencement receipt”.
5
      (2)
For the purposes of sections 60 to 67—
(a)
the lease is treated as a taxed lease, and
(b)
the pre-commencement receipt is treated as a taxed receipt.
      (3)
For the purposes of those sections, the “receipt period” of a taxed receipt
which is a pre-commencement receipt is—
10
(a)
in the case of a pre-commencement receipt as a result of section 34 of
ICTA, the period treated in calculating the amount of the receipt as
being the duration of the lease, and
(b)
in the case of a pre-commencement receipt as a result of section 35 of
ICTA, the period treated in calculating the amount of the receipt as
15
being the duration of the lease remaining at the date of the
assignment.
      (4)
For the purposes of sections 60 to 67 the “unreduced amount” of a taxed
receipt which is a pre-commencement receipt is the amount of the pre-
commencement receipt as a result of section 34 or 35 of ICTA, before the
20
operation of section 37(2) or (3) of ICTA.
      (5)
Sub-paragraph (6) applies to a taxed receipt which is a pre-commencement
receipt arising as a result of section 34(2) of ICTA (obligation on tenant to
carry out work under lease).
      (6)
If the obligation to carry out work included the carrying out of work which
25
gave or will give rise to expenditure for which an allowance has been, or
may be, made under the enactments relating to capital allowances, the
unreduced amount of the taxed receipt is calculated as if the obligation had
not included the carrying out of that work.
20    (1)
This paragraph provides for the application of section 61 as a result of
30
section 63 if—
(a)
a lease is a taxed lease as a result of paragraph 19,
(b)
another lease is granted out of the taxed lease,
(c)
in calculating the amount of a pre-commencement receipt in respect
of the other lease, there is a reduction under section 37(2) or (3) of
35
ICTA by reference to the amount chargeable on the superior interest
for the purposes of that section, and
(d)
as a result of paragraph 19 the amount chargeable on the superior
interest is the taxed receipt for the purposes of section 61.
      (2)
Sections 61 to 65 apply as follows—
40
(a)
the pre-commencement receipt is treated as if it were a lease
premium receipt for the purposes of sections 64 and 65,
(b)
references in those sections to the reduction under section 288 by
reference to the taxed receipt are, in relation to the pre-
commencement receipt, to the reduction under section 37(2) or (3) of
45
ICTA by reference to the amount chargeable on the superior interest,
and

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 3 — Trading income
528

(c)
for the purposes of those sections the receipt period of the pre-
commencement receipt is—
(i)
in the case of a pre-commencement receipt as a result of
section 34 of ICTA, the period treated in calculating the
amount of the receipt as being the duration of the lease, and
5
(ii)
in the case of a pre-commencement receipt as a result of
section 35 of ICTA, the period treated in calculating the
amount of the receipt as being the duration of the lease
remaining at the date of the assignment.
      (3)
References to a reduction under section 37(2) or (3) of ICTA in a pre-
10
commencement receipt by reference to the amount chargeable on the
superior interest are to the difference between—
(a)
the amount of the pre-commencement receipt before the operation of
section 37(2) or (3) of ICTA, and
(b)
the amount of the receipt after the operation of that subsection,
15

so far as attributable to the amount chargeable on the superior interest for
the purposes of section 37 of ICTA.
Seconded employees
21    (1)
This paragraph applies if—
(a)
the period of account of a trade begins before 1st April 2003 and ends
20
on or after 6th April 2005, and
(b)
in that period of account the person carrying on the trade made the
services of a person employed for the purposes of the trade available
to a self-governing school within the meaning of the Self-Governing
Schools etc. (Scotland) Act 1989 (c. 39) on a basis that was stated and
25
intended to be temporary.
      (2)
For the purposes of section 70 an “educational establishment”, in Scotland,
includes such a school (despite the fact that, following the abolition of such
schools on 1st April 2003, section 86(5)(d) of ICTA is not re-written in this
Act).
30
      (3)
This paragraph applies to professions and vocations as it applies to trades.
Training courses for employees
22    (1)
This paragraph applies if, without the modifications to section 588 of ICTA
(training courses for employees) made by this Act—
(a)
section 588(5) of ICTA would operate in relation to an employee by
35
virtue of paragraph (a) of that provision and paragraph 37 of
Schedule 7 to ITEPA 2003 (savings in relation to tax years before
2003-04),
(b)
section 588(5) of ICTA would operate in relation to an employer by
virtue of paragraph (b) of that provision and paragraph 37 of
40
Schedule 7 to ITEPA 2003, or
(c)
section 588(6) and (7) of ICTA would operate in relation to an
employer by virtue of paragraph 37 of Schedule 7 to ITEPA 2003.
      (2)
Those modifications do not apply in relation to—
(a)
the operation of section 588(5) of ICTA in relation to the employee as
45
mentioned in sub-paragraph (1)(a),

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 3 — Trading income
529

(b)
the operation of section 588(5) of ICTA in relation to the employer as
mentioned in sub-paragraph (1)(b), and
(c)
the operation of section 588(6) and (7) of ICTA in relation to the
employer as mentioned in sub-paragraph (1)(c).
23    (1)
This paragraph applies if—
5
(a)
at any time during the period beginning with 6th April 2003 and
ending with 5th April 2005, a person (“the employer”) incurred
expenditure in paying or reimbursing retraining course expenses
within the meaning of section 311 of ITEPA 2003,
(b)
the employer’s liability to income tax for any tax year has been
10
determined (before or after the passing of this Act, and by
assessment or otherwise) on the assumption that, by virtue only of
section 588(3) of ICTA, the employer is entitled to a deduction on
account of the expenditure, and
(c)
before 6th April 2005, no assessment has been made under section
15
29(1) of TMA 1970 by virtue of section 588(5) of ICTA of an amount
due in consequence of the failure by the person in respect of whom
the expenditure was incurred to meet a condition of the kind
mentioned in section 312(1)(b)(i) or (ii) of ITEPA 2003.
      (2)
Section 75 (retraining courses: recovery of tax) applies in relation to the
20
employer as if the condition in subsection (1) were met.
      (3)
In the application of that section to the employer, references to “the
employee” are to the person in respect of whom the expenditure was
incurred by the employer.
Contributions to urban regeneration companies
25
24
Section 82 does not apply to any contribution which was made to an urban
regeneration company before 1st April 2003.
Local enterprise agencies
25
To the extent that any function of the Scottish Ministers under section 79 of
ICTA was, before 6th April 2005, also exercisable by the Secretary of State for
30
the purposes specified in section 2(2) of the European Communities Act 1972
(c. 68) that function as rewritten in—
(a)
section 83(2) (meaning of “local enterprise agency”),
(b)
section 84 (approval of local enterprise agencies), or
(c)
section 85 (supplementary provisions with respect to approvals),
35

continues to be also exercisable by the Secretary of State for those purposes.
Expenses connected with patents, designs and trade marks
26    (1)
This paragraph applies if—
(a)
fees have been incurred, but not paid, for the purposes of a trade in
connection with any of the matters mentioned in section 89 or 90,
40
(b)
the fees were incurred in a period of account no part of which falls in
the basis period for the tax year 2005-06 or a subsequent tax year, and
(c)
the fees have not been taken into account in calculating the profits of
the trade of any tax year.