Income Tax (Trading and Other Income) Bill

House of Commons

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

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 3 — Trading income
530

      (2)
A deduction is allowed for the fees in calculating the profits of the period of
account in which they are paid.
Payments to Export Credits Guarantee Department
27    (1)
This paragraph applies if—
(a)
a sum is payable, but not paid, by the person carrying on a trade to
5
the Export Credits Guarantee Department under an agreement
mentioned in section 91(1)(a) or with a view to entering into such an
agreement,
(b)
the sum was 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
10
(c)
the sum has not been taken into account in calculating the profits of
the trade of any tax year.
      (2)
A deduction is allowed for the sum in calculating the profits of the period of
account in which it is paid.
      (3)
This paragraph applies to professions and vocations as it applies to trades.
15
Reverse premiums
28    (1)
Sections 101 and 102 do not apply to a reverse premium—
(a)
which was received before 9th March 1999, or
(b)
to which the recipient was entitled immediately before that date.
      (2)
In determining whether a reverse premium was one to which the recipient
20
was entitled immediately before 9th March 1999, no account is to be taken of
any arrangements made on or after that date.
Sums recovered under insurance policies etc.
29    (1)
Section 106 does not apply if—
(a)
a person carrying on a trade recovers a sum mentioned in that
25
section, and
(b)
the sum has been taken into account in calculating the profits of the
trade of a tax year before the tax year 2005-06.
      (2)
This paragraph applies to professions and vocations as it applies to trades.
Meaning of “designated educational establishment”
30
30
To the extent that the power of the National Assembly for Wales to make
regulations under section 84(5) of ICTA was, before 6th April 2005, also
exercisable by the Secretary of State for the purpose of—
(a)
implementing any Community obligation of the United Kingdom,
(b)
enabling any such obligation to be implemented,
35
(c)
enabling any rights enjoyed or to be enjoyed by the United Kingdom
under or by virtue of the Community Treaties to be exercised, or
(d)
dealing with matters arising out of or related to any such obligation
or rights or the operation of section 2(1) of the European
Communities Act 1972 (c. 68),
40

that power as rewritten in section 110 continues to be also exercisable by the
Secretary of State for those purposes.

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 3 — Trading income
531

Films and sound recordings
31    (1)
This paragraph applies to—
(a)
production expenditure in respect of the original master version of a
film which (within the meaning of Chapter 9 of Part 2) was
completed before 21st March 2000,
5
(b)
production expenditure in respect of the original master version of a
film which (within the meaning of that Chapter) is completed on or
after that date, if the first day of principal photography was before
that date (but see sub-paragraph (4)), and
(c)
acquisition expenditure in respect of the original master version of a
10
film which was incurred before 6th April 2000.
      (2)
For this purpose acquisition expenditure in respect of the original master
version of a film includes the acquisition of any description of rights in the
original master version of a film (whether or not held or acquired with it).
      (3)
In relation to expenditure to which this paragraph applies—
15
(a)
section 130(4) applies with the omission of “that are held or acquired
with it”,
(b)
section 131(5) applies with the insertion at the end of “or, if the
expenditure is acquisition expenditure and the acquisition takes
place after that time, at the time of the acquisition”, and
20
(c)
section 134(1) applies with the insertion after “acquisition
expenditure,” of “and the expenditure would otherwise constitute
capital expenditure on the provision of plant or machinery for the
purposes of Part 2 of CAA 2001,”.
      (4)
This paragraph does not apply to expenditure falling within sub-paragraph
25
(1)(b) if the person incurring the expenditure so elects.
      (5)
Any such election is irrevocable.
32    (1)
Sections 134 and 135 do not apply in relation to expenditure incurred by a
person carrying on a trade which consists of or includes the exploitation of
original master versions of films if—
30
(a)
the expenditure is incurred on the production or acquisition of an
original master version of a film completed before 10th March 1992
(within the meaning of Chapter 9 of Part 2),
(b)
the original master version is a certified master version,
(c)
its value is expected to be realised over a period of not less than two
35
years, and
(d)
the film is genuinely intended for theatrical release.
      (2)
Sub-paragraph (1)(d) does not apply if—
(a)
the original master version of the film was certified before 17th April
2002 by the Secretary of State under Schedule 1 to the Films Act 1985
40
(c. 21) as a qualifying film, tape or disc, or
(b)
an application for such certification was received by the Secretary of
State before that date.
33
Section 137 does not apply in relation to expenditure which was incurred
before 10th March 1992.
45

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 3 — Trading income
532

34
Section 138 does not apply in relation to production or acquisition
expenditure in respect of the original master version of a film which was
completed before 10th March 1992.
35    (1)
Any requirement in Chapter 9 of Part 2 for a film to be genuinely intended
for theatrical release does not apply to a film completed (within the meaning
5
of that Chapter)—
(a)
on or after 17th April 2002 if—
(i)
an application for certification was received by the Secretary
of State before that date, or
(ii)
the film is a qualifying drama (see sub-paragraph (2)),
10
(b)
before 1st January 2002 if—
(i)
the film was certified by the Secretary of State before 17th
April 2002, or
(ii)
an application for certification was received by the Secretary
of State before 17th April 2002, or
15
(c)
at any time in the period beginning with 1st January 2002 and ending
with 16th April 2002.

References in this sub-paragraph to certification are to certification of the
original master version of the film under Schedule 1 to the Films Act 1985
(c. 21) as a qualifying film, tape or disc.
20
      (2)
A film is a qualifying drama if—
(a)
it is a drama with an average production expenditure per hour of
running time of the completed film greater than £500,000,
(b)
it was commissioned on or before 17th April 2002, and
(c)
the first day of principal photography was on or before 30th June
25
2002.
      (3)
For the purposes of sub-paragraph (2) “drama” does not include—
(a)
anything in the nature of—
(i)
an advertisement or promotional film,
(ii)
a discussion programme, news or current affairs programme,
30
quiz show, panel show, variety show or similar
entertainment, or
(iii)
a training film, or
(b)
a film of a live event or of a theatrical or artistic performance given
otherwise than for the purpose of being filmed,
35

but it includes a documentary involving the dramatic reconstruction of
events if the dramatic content forms 50% or more of the running time.
      (4)
For the purposes of sub-paragraph (2) the production expenditure on a film
means the total production expenditure in respect of the original master
version of the film (as defined by section 141).
40
36
Sections 139 and 140 do not apply if—
(a)
the expenditure was incurred before 2nd July 1997 (as determined by
section 142), or
(b)
the film was completed before that date (within the meaning of
Chapter 9 of Part 2).
45
37
Sections 139(4) and 141(3) do not apply to any film which was completed
before 17th April 2002.

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 3 — Trading income
533

38
The requirement in section 140 for the acquisition to be a relevant acquisition
does not apply in relation to expenditure which was incurred before 30th
June 2002 (as determined by section 142).
Certain telecommunication rights
39
Chapter 10 of Part 2 does not apply to an indefeasible right to use a
5
telecommunications cable system (“IRU”) acquired before 21st March 2000.
40    (1)
That Chapter also does not apply to an IRU acquired by a person on or after
that date (directly or indirectly) from an associate or an associated company
if the associate or associated company acquired the IRU before that date.
      (2)
In sub-paragraph (1)—
10
“associate” has the meaning given by section 417(3) and (4) of ICTA, and
“associated company”—
(a)
in relation to another company, has the meaning given by
section 416(1) of that Act, and
(b)
in relation to any other person, means a company of which that
15
person has control within the meaning of subsections (2) to (6)
of that section.
Dealers in securities etc: taxation of amounts taken to reserves
41    (1)
Section 149 does not apply in relation to periods of account beginning before
1st January 2005.
20
      (2)
But, in the case of a company required to prepare accounts—
(a)
under the Companies Act 1985 (c. 6), or
(b)
under the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032
(N.I. 6)),

that section does apply in relation to a period of account beginning before
25
that date for which the company is required or permitted to prepare such
accounts in accordance with international accounting standards.
Purchase or sale of woodlands
42
Section 156 does not apply if the purchase mentioned in subsection (2) of
that section was made under a contract entered into before 1st May 1963.
30
Ministers of religion
43    (1)
This paragraph applies if—
(a)
expenses have been incurred, but not borne, by a minister of a
religious denomination on any of the matters mentioned in section
159(3),
35
(b)
the expenses 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 part of the expenses corresponding to the amount under section
159(4) has not been taken into account in calculating the profits of the
40
profession or vocation of the minister of any tax year.

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 3 — Trading income
534

      (2)
A deduction is allowed under section 159(3) for that part of the expenses in
calculating the profits of the period of account in which the expenses are
borne.
Waste disposal
44
If the predecessor ceased to carry on the trade carried on by the trader, or
5
ceased to carry on a trade so far as relating to the site, before 21st March 2000,
section 165 applies as if—
(a)
“, or a predecessor,” in subsection (1) were omitted, and
(b)
subsections (3) and (4) were omitted.
45
If the trade carried on by the trader was started before 1st April 1993, the
10
definition of “waste disposal licence” in section 167(1) applies for the
purposes of sections 165 and 166 as if paragraphs (d) and (e) of the definition
were omitted (radioactive waste and nuclear site authorisations or licences).
46
Section 167(2) does not apply for the purposes of sections 165 and 166 if the
trade was started before 1st April 1993.
15
Valuation of trading stock on cessation
47    (1)
This paragraph applies if—
(a)
a period of account of a trade begins before 6th April 2004 and ends
on or after 6th April 2005 (“the straddling period of account”), and
(b)
as a result of paragraph 48, the profits or losses of the period of
20
account are to be calculated in accordance with Part 2 of this Act.
      (2)
Subsection (2) of section 173 (valuation of trading stock on cessation) does
not apply in relation to the part of the period of account which—
(a)
begins with the straddling period of account, and
(b)
ends with 5th April 2004,
25

and the profits or losses of the trade are to be calculated accordingly.
Apportionment of profits or losses to tax years before tax year 2005-06
48    (1)
This paragraph applies if—
(a)
a period of account of a trade, profession or vocation begins before
6th April 2005 and ends on or after that date,
30
(b)
the period of account, or part of the period of account, falls in the
basis period for the tax year 2005-06,
(c)
part of the period of account also falls in the basis period (or periods)
for an earlier tax year (or years), and
(d)
in order to arrive at the profits or losses of the basis period for any
35
earlier tax year it is necessary to apportion the profits or losses of the
period of account to any part of the period of account falling in that
basis period.
      (2)
The profits or losses of the period of account—
(a)
are calculated in accordance with Part 2 of this Act (and therefore, to
40
that extent, that Part has effect for tax years before the tax year 2005-
06), and

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 3 — Trading income
535

(b)
may be apportioned in accordance with section 203 to any part of the
period of account falling in a basis period for a tax year before the tax
year 2005-06.
Treatment of business start-up payments received in an overlap period
49    (1)
There is an exception to the rule that, subject to Part 8, the charge to tax
5
under Chapter 2 of Part 2 on the profits of a trade, profession or vocation of
a tax year operates by reference to the profits of the basis period for the tax
year (which may include a period falling before 6th April 2005).
      (2)
The exception is that section 207 does not apply to payments received before
6th April 2005.
10
Profits or losses of a trade, profession or vocation previously chargeable in accordance with
section 65(1) of ICTA
50    (1)
This paragraph applies if—
(a)
a person carries on a trade, profession or vocation wholly outside the
United Kingdom, and
15
(b)
the trade, profession or vocation was chargeable to income tax in
accordance with section 65(1) of ICTA (Case IV and V assessments:
general) for a tax year before 2005-06.
      (2)
If the trade, profession or vocation was so chargeable for the tax year 2004-
05, the person is treated for the purpose of determining the basis period for
20
the tax year 2005-06 and subsequent tax years as if the person started to carry
on the trade, profession or vocation on 6th April 2005.
      (3)
For the purposes of section 391 of ICTA (as substituted by Schedule 1 to this
Act), no account is to be taken of any loss made in any tax year before tax
year 2005-06 if the trade, profession or vocation was chargeable to income
25
tax in accordance with section 65(1) of ICTA for that tax year.
Profits of mines, quarries and other concerns not chargeable by reference to a basis period
51    (1)
This paragraph applies if any profits or losses arising out of land in the case
of any concern specified in section 55(2) of ICTA—
(a)
arose in the tax year 2004-05, and
30
(b)
were calculated for that tax year otherwise than by reference to a
basis period.
      (2)
For the purpose of determining the basis period for the tax year 2005-06 and
subsequent tax years, the concern is treated as if it were a trade which was
started to be carried on by a person on 6th April 2005.
35
      (3)
Paragraph 48 of this Schedule applies in relation to any case to which this
paragraph applies as if references to a basis period for a tax year (an “earlier
tax year”) before the tax year 2005-06 were references to that earlier tax year.
Overlap profit: pre-April 1994 trades, professions and vocations
52    (1)
This paragraph applies in the case of a trade, profession or vocation which
40
was—
(a)
set up and commenced by a person before 6th April 1994, and
(b)
continued by the person after 5th April 1997,

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 3 — Trading income
536


and the profits of which were chargeable to income tax under Case I or II of
Schedule D for the tax year 1997-98.
      (2)
For the purposes of Chapter 15 of Part 2 “overlap profit” includes the
amount of profits or gains of the basis period for the tax year 1997-98
which—
5
(a)
arose after the end of the basis period for the tax year 1996-97 or, in
the case of a trade or profession carried on by a firm, the basis period
of the firm for that year, and
(b)
arose before 6th April 1997.
      (3)
In calculating the amount of the profits or gains of the basis period for the
10
tax year 1997-98 which arose as mentioned above—
(a)
any deduction of a capital allowance, and
(b)
any addition of a balancing charge,

are ignored.
      (4)
But sub-paragraph (3) does not apply in the case of a trade or profession
15
carried on by a firm which included both an individual and a company.
      (5)
For the purposes of this paragraph the basis period for the tax year 1996-97
is determined in accordance with paragraph 1 of Schedule 20 to FA 1994
despite the repeal by this Act of that paragraph.
      (6)
This paragraph is subject to Schedule 22 to FA 1995 (prevention of
20
exploitation of the transitional rules facilitating self-assessment).
53    (1)
This paragraph applies in the case of income which—
(a)
was immediately derived from the carrying on of a trade, profession
or vocation set up and commenced by a person before 6th April 1994
and continued by the person after 5th April 1998, and
25
(b)
was chargeable to income tax under Case IV or V of Schedule D for
the tax year 1997-98.
      (2)
But, in the case of income which was chargeable to tax by reference to the
amounts of income received in the United Kingdom, this paragraph applies
only if the date on which the first amount of income was received in the
30
United Kingdom was before 6th April 1994.
      (3)
For the purposes of Chapter 15 of Part 2 “overlap profit” includes the
amount of profits or gains of the basis period for the tax year 1997-98 which
arose before 6th April 1997.
      (4)
This paragraph is subject to Schedule 22 to FA 1995 (prevention of
35
exploitation of the transitional rules facilitating self-assessment).
54
The repeal by this Act of paragraphs 2, 6 and 10 of Schedule 20 to FA 1994
(changes for facilitating self-assessment: transitional provisions and
savings) does not affect the continuing application of the assumptions
mentioned in paragraph 11(4) of that Schedule (double taxation relief).
40
Averaging profits of farmers and creative artists
55    (1)
The first tax years which may be the subject of an averaging claim under
section 222 are the tax years 2004-05 and 2005-06.
      (2)
If—