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Income Tax (Trading and Other Income) Bill


Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 13 — Deductions from profits: unremittable amounts

88

 

   

must be determined by the General or Special Commissioners in the same way

as an appeal.

(2)   

If the same General Commissioners have jurisdiction in relation to each of the

persons whose trade, profession or vocation is concerned (including any

company within the charge to corporation tax), the question must be

5

determined by those Commissioners.

(3)   

But this does not apply if all parties concerned agree that the question should

be determined by the Special Commissioners.

(4)   

In any other case, the question must be determined by the Special

Commissioners.

10

Chapter 13

Deductions from profits: unremittable amounts

187     

Professions and vocations

The provisions of this Chapter apply to professions and vocations as they

apply to trades.

15

188     

Application of Chapter

(1)   

This Chapter applies if—

(a)   

an amount received by, or owed to, a person carrying on a trade (“the

trader”) is brought into account as a receipt in calculating the profits of

the trade,

20

(b)   

the amount is paid or owed in a territory outside the United Kingdom,

and

(c)   

some or all of the amount is unremittable.

(2)   

An amount received is unremittable if it cannot be transferred to the United

Kingdom merely because of foreign exchange restrictions.

25

(3)   

An amount owed is unremittable if it cannot be paid in the United Kingdom

and—

(a)   

it temporarily cannot be paid in the territory in which it is owed merely

because of foreign exchange restrictions, or

(b)   

it can be paid in that territory but, if it were paid there, the amount paid

30

would not be transferable to the United Kingdom merely because of

foreign exchange restrictions.

(4)   

“Foreign exchange restrictions” are restrictions imposed by any of the

following—

(a)   

the laws of the territory where the amount is paid or owed,

35

(b)   

executive action of its government, and

(c)   

the impossibility of obtaining there currency that could be transferred

to the United Kingdom.

189     

Relief for unremittable amounts

(1)   

If—

40

(a)   

the trader has profits from the trade in a period of account, and

 
 

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 13 — Deductions from profits: unremittable amounts

89

 

(b)   

an unremittable amount has been brought into account as a receipt for

that period,

   

a deduction of the amount is allowed from those profits (but see subsection

(5)).

(2)   

If the trader has profits from the trade in a period of account and the total of—

5

(a)   

any unremittable amounts brought into account as receipts for that

period, and

(b)   

any amount carried forward under this subsection or subsection (3)

from the previous period of account,

   

exceeds the amount of those profits, the excess may be carried forward to the

10

next period of account.

(3)   

If the trader does not have profits from the trade in a period of account and an

unremittable amount has been brought into account as a receipt for that period,

the total of—

(a)   

any unremittable amounts brought into account as receipts for that

15

period, and

(b)   

any amount carried forward under this subsection or subsection (2)

from the previous period of account,

   

may be carried forward to the next period of account.

(4)   

If an amount is carried forward under this section to a period of account in

20

which the trader has profits from the trade, a deduction of the amount is

allowed from those profits (but see subsection (5)).

(5)   

The total amount deducted under this section from the profits from a trade in

a period of account must not exceed the amount of the profits.

190     

Restrictions on relief

25

(1)   

No deduction is allowed under section 189 in relation to an amount so far as—

(a)   

it is used to finance expenditure or investment outside the United

Kingdom, or

(b)   

it is applied outside the United Kingdom in another way.

(2)   

No deduction is allowed under section 189 in relation to an amount owed so

30

far as a deduction is allowed in respect of it under section 35 (bad and doubtful

debts).

(3)   

No deduction is allowed under section 189 in relation to an amount owed so

far as a payment under a contract of insurance has been received in relation to

it.

35

(4)   

No deduction is allowed under section 189 in relation to an amount brought

into account in calculating profits if relief under section 842 (unremittable

income) may be claimed in relation to that amount.

191     

Withdrawal of relief

(1)   

This section applies if—

40

(a)   

some or all of an unremittable amount has been deducted from profits

under section 189, and

(b)   

any of the following events occurs.

(2)   

The events are that—

 
 

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 14 — Disposal and acquisition of know-how

90

 

(a)   

the amount or part of it ceases to be unremittable,

(b)   

the amount or part of it is used to finance expenditure or investment

outside the United Kingdom,

(c)   

the amount or part of it is applied outside the United Kingdom in

another way,

5

(d)   

the amount or part of it is exchanged for, or discharged by, an amount

that is not unremittable,

(e)   

a deduction is allowed in respect of the amount or part of it under

section 35 (bad and doubtful debts), and

(f)   

if the amount is an amount owed, a payment under a contract of

10

insurance is received in relation to the amount or part of it.

(3)   

The amount or the part of it in question is brought into account as a receipt in

calculating the profits of the trade for the period of account in which the event

occurs, but only so far as—

(a)   

it has been deducted from profits under section 189, and

15

(b)   

it has not already been brought into account as a receipt in calculating

the profits of the trade as a result of this section.

(4)   

If the event is the receipt of a payment under a contract of insurance, the

amount brought into account as a receipt must not exceed the amount of the

payment.

20

Chapter 14

Disposal and acquisition of know-how

192     

Meaning of “know-how” etc.

(1)   

In this Chapter “know-how” means any industrial information or techniques

likely to assist in—

25

(a)   

manufacturing or processing goods or materials,

(b)   

working a source of mineral deposits (including searching for,

discovering or testing mineral deposits or obtaining access to them), or

(c)   

carrying out any agricultural, forestry or fishing operations.

(2)   

For this purpose

30

“mineral deposits” includes any natural deposits capable of being lifted or

extracted from the earth and for this purpose geothermal energy is treated as a

natural deposit, and

“source of mineral deposits” includes a mine, an oil well and a source of

geothermal energy.

35

(3)   

For the purposes of this Chapter any consideration received for giving, or

wholly or partly fulfilling, an undertaking which—

(a)   

is given in connection with a disposal of know-how, and

(b)   

restricts, or is designed to restrict, any person’s activities in any way,

   

is treated as consideration received for the disposal of the know-how.

40

(4)   

It does not matter whether or not the undertaking is legally enforceable.

(5)   

For the purposes of this Chapter references to a sale of know-how include an

exchange of know-how and any provision of this Chapter referring to a sale

has effect with the necessary modifications.

 
 

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 14 — Disposal and acquisition of know-how

91

 

(6)   

Those modifications include, in particular, reading references to the proceeds

of sale and to the price as including the consideration for the exchange.

193     

Disposal of know-how if trade continues to be carried on

(1)   

This section applies if—

(a)   

a person carrying on a trade receives consideration for the disposal of

5

know-how which has been used in the trade,

(b)   

the person continues to carry on the trade after the disposal, and

(c)   

neither section 194 (disposal of know-how as part of disposal of all or

part of a trade) nor section 195 (seller controlled by buyer etc.) applies.

(2)   

The amount or value of the consideration is treated for all purposes as a trading

10

receipt, except so far as it is brought into account under section 462 of CAA

2001 (disposal values).

(3)   

If the know-how is sold together with other property, the net proceeds of the

sale of the know-how are treated as being so much of the net proceeds of the

sale of all the property as, on a just and reasonable apportionment, is

15

attributable to the know-how.

(4)   

For this purpose all property sold as a result of one bargain is treated as sold

together even though—

(a)   

separate prices are, or purport to be, agreed for separate items of that

property, or

20

(b)   

there are, or purport to be, separate sales of separate items of that

property.

(5)   

Any question about the way in which a sum is to be apportioned under this

section must be determined in accordance with section 563(2) to (6) of CAA

2001 (procedure for determining certain questions affecting two or more

25

persons) if it materially affects two or more taxpayers.

(6)   

For this purpose a question materially affects two or more taxpayers if at the

time when the question falls to be determined it appears that the determination

is material to the liability to tax (for whatever period) of two or more persons.

194     

Disposal of know-how as part of disposal of all or part of a trade

30

(1)   

This section applies if —

(a)   

a person carrying on a trade receives consideration for the disposal of

know-how which has been used in the trade, and

(b)   

the know-how is disposed of as part of the disposal of all or part of the

trade.

35

(2)   

If the person disposing of the know-how is within the charge to income tax, the

consideration is treated for income tax purposes as a capital receipt for

goodwill.

(3)   

If the person acquiring the know-how—

(a)   

is within the charge to income tax, and

40

(b)   

provided the consideration,

   

the consideration is treated for income tax purposes as a capital payment for

goodwill.

 
 

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 15 — Basis periods

92

 

(4)   

But the consideration is not treated for income tax purposes as a capital

payment for goodwill if, before the acquisition, the trade was carried on wholly

outside the United Kingdom.

(5)   

If the person disposing of the know-how is within the charge to income tax—

(a)   

that person, and

5

(b)   

the person acquiring the know-how (whether or not within the charge

to income tax),

   

may jointly elect for this section not to apply (but see section 195).

(6)   

The election must be made within two years of the disposal.

(7)   

If—

10

(a)   

an election is made under subsection (3) of section 531 of ICTA

(corresponding corporation tax provision), and

(b)   

the person making the acquisition mentioned in that subsection is

within the charge to income tax,

   

the persons making the election under that subsection are treated as also

15

making an election under this section (even though the person disposing of the

know-how is not within the charge to income tax).

195     

Seller controlled by buyer etc.

(1)   

This section applies if a disposal of know-how is by way of sale and—

(a)   

the seller is a body of persons over which the buyer has control,

20

(b)   

the buyer is a body of persons over which the seller has control, or

(c)   

both the seller and the buyer are bodies of persons and another person

has control over both of them.

(2)   

In such a case—

(a)   

section 193 does not apply, and

25

(b)   

no election may be made under section 194.

(3)   

For this purposes of this section “body of persons” includes a firm.

Chapter 15

Basis periods

Introduction

30

196     

Professions and vocations

The provisions of this Chapter apply to professions and vocations as they

apply to trades.

Accounting date

197     

Meaning of “accounting date”

35

(1)   

In this Chapter “accounting date”, in relation to a tax year, means—

(a)   

the date in the tax year to which accounts are drawn up, or

(b)   

if there are two or more such dates, the latest of them.

 
 

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 15 — Basis periods

93

 

(2)   

This is subject to—

(a)   

section 211(2) (middle date treated as accounting date), and

(b)   

section 214(3) (date treated as accounting date if date changed in tax

year in which there is no accounting date).

The normal rules

5

198     

General rule

(1)   

The general rule is that the basis period for a tax year is the period of 12 months

ending with the accounting date in that tax year.

(2)   

This applies unless a different basis period is given by one of the following

sections—

10

section 199 (first tax year),

section 200 (second tax year),

section 201 (tax year in which there is no accounting date),

section 202 (final tax year),

section 209 or 210 (first accounting date shortly before end of tax year),

15

section 212 (tax year in which middle date treated as accounting date),

section 215 (change of accounting date in third tax year), and

section 216 (change of accounting date in later tax year).

199     

First tax year

(1)   

The basis period for the tax year in which a person starts to carry on a trade—

20

(a)   

begins with the date on which the person starts to carry on the trade,

and

(b)   

ends with 5th April in the tax year.

(2)   

But if a person starts and permanently ceases to carry on a trade in the same tax

year, the basis period for the tax year is that given by section 202(2).

25

200     

Second tax year

(1)   

The basis period for the second tax year in which a person carries on a trade is

determined as follows.

(2)   

If in that tax year—

(a)   

the accounting date falls less than 12 months after the date on which the

30

person starts to carry on the trade, and

(b)   

the person does not permanently cease to carry on the trade,

   

the basis period is the period of 12 months beginning with the date on which

the person starts to carry on the trade.

(3)   

If in that tax year—

35

(a)   

the accounting date falls 12 months or more after the date on which the

person starts to carry on the trade, and

(b)   

the person does not permanently cease to carry on the trade,

   

the basis period is that given by the general rule in section 198.

(4)   

If in that tax year—

40

(a)   

there is no accounting date, and

 
 

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 15 — Basis periods

94

 

(b)   

the person does not permanently cease to carry on the trade,

   

the basis period is the same as the tax year.

(5)   

If in that tax year the person permanently ceases to carry on the trade, the basis

period is that given by section 202(1).

201     

Tax year in which there is no accounting date

5

(1)   

If a person carries on a trade in a tax year and—

(a)   

there is no accounting date in the tax year, and

(b)   

the person does not start or permanently cease to carry on the trade in

the tax year,

   

the basis period for the tax year is the period of 12 months beginning

10

immediately after the end of the basis period for the previous tax year.

(2)   

But this is subject to—

(a)   

section 200 (second tax year), and

(b)   

sections 215 and 216 (change of accounting date in third tax year or later

tax year).

15

202     

Final tax year

(1)   

The basis period for the tax year in which a person permanently ceases to carry

on a trade—

(a)   

begins immediately after the end of the basis period for the previous tax

year, and

20

(b)   

ends with the date on which the person permanently ceases to carry on

the trade.

(2)   

But if a person starts and permanently ceases to carry on a trade in the same tax

year, the basis period—

(a)   

begins with the date on which the person starts to carry on the trade,

25

and

(b)   

ends with the date on which the person permanently ceases to carry on

the trade.

Apportionment of profits

203     

Apportionment etc. of profits to basis periods

30

(1)   

This section applies if the basis period for a tax year does not coincide with a

period of account.

(2)   

Any of the following steps may be taken if they are necessary in order to arrive

at the profits or losses of the basis period—

(a)   

apportioning the profits or losses of a period of account to the parts of

35

that period falling in different basis periods, and

(b)   

adding the profits or losses of a period of account (or part of a period)

to profits or losses of other periods of account (or parts).

(3)   

The steps must be taken by reference to the number of days in the periods

concerned.

40

 
 

 
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