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
Part 1 — Overview
1

The Bill is divided into three volumes. Volume I contains Clauses 1 to 364 to the
Bill. Volume II contains Clauses 365 to 886 to the Bill. Volume III contains the
Schedules to the Bill.
A
Bill
[As Amended in the Joint Committee]
To
Restate, with minor changes, certain enactments relating to income tax on
trading income, property income, savings and investment income and certain
other income; and for connected purposes.
Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and
consent of the Lords Spiritual and Temporal, and Commons, in this present
Parliament assembled, and by the authority of the same, as follows:—
Part 1
Overview
1
Overview of Act
(1)
This Act imposes charges to income tax under—
(a)
Part 2 (trading income),
5
(b)
Part 3 (property income),
(c)
Part 4 (savings and investment income), and
(d)
Part 5 (certain miscellaneous income).
(2)
Those charges to tax have effect for the purposes of section 1(1) of ICTA (the
general charge to income tax).
10
(3)
Exemptions from those charges are dealt with in Part 6 (exempt income) but
any Part 6 exemptions which are most obviously relevant to particular types of
income are also mentioned in the provisions about those types of income.
(4)
What is or is not mentioned in those provisions does not limit the effect of Part
6.
15
(5)
This Act also contains—
(a)
provision about rent-a-room relief and foster-care relief (see Part 7),
(b)
special rules for foreign income (see Part 8),

Bill 51 – I 53/4

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 1 — Introduction
2

(c)
special rules for partnerships (see Part 9), and
(d)
certain calculation rules and general provisions (see Part 10).
(6)
For abbreviations and defined expressions used in this Act, see section 885 and
Schedule 4.
2
Overview of priority rules
5
(1)
This Act contains some rules establishing an order of priority in respect of
certain amounts which would otherwise—
(a)
fall within a charge to income tax under two or more Chapters or Parts
of this Act, or
(b)
fall within a charge to income tax under a Chapter or Part of this Act
10
and ITEPA 2003.
(2)
See, in particular—
section 4 (provisions which must be given priority over Part 2),
section 261 (provisions which must be given priority over Part 3),
section 262 (priority between Chapters within Part 3),
15
section 366 (provisions which must be given priority over Part 4),
section 367 (priority between Chapters within Part 4),
section 575 (provisions which must be given priority over Part 5), and
section 576 (priority between Chapters within Part 5).
(3)
But the rules in those sections need to be read with other rules of law (whether
20
in this Act or otherwise) about the scope of particular provisions or the order
of priority to be given to them.
(4)
Section 171(2) of FA 1993 (profits of Lloyd’s underwriters charged only under
Chapter 2 of Part 2 of this Act) is one example of another rule of law.
Part 2
25
Trading income
Chapter 1
Introduction
3
Overview of Part 2
(1)
This Part imposes charges to income tax under—
30
(a)
Chapter 2 (the profits of a trade, profession or vocation which meet the
territorial conditions mentioned in section 6),
(b)
Chapter 17 (amounts treated as adjustment income under section 228),
and
(c)
Chapter 18 (post-cessation receipts that are chargeable under this Part).
35
(2)
Part 6 deals with exemptions from the charges under this Part.
(3)
See, in particular, the exemptions under sections 777 (VAT repayment
supplements) and 778 (incentives to use electronic communications).

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 2 — Income taxed as trade profits
3

(4)
The charges under this Part apply to non-UK residents as well as UK residents
but this is subject to sections 6(2) and (3) and 243(3) and (4) (charges on non-UK
residents only on UK income).
(5)
The rest of this Part contains rules relevant to the charges to tax under this Part.
(6)
This section needs to be read with the relevant priority rules (see sections 2 and
5
4).
4
Provisions which must be given priority over Part 2
(1)
Any receipt or other credit item, so far as it falls within—
(a)
Chapter 2 of this Part (receipts of trade, profession or vocation), and
(b)
Chapter 3 of Part 3 so far as it relates to a UK property business,
10

is dealt with under Part 3.
(2)
Any receipt or other credit item, so far as it falls within—
(a)
this Part, and
(b)
Part 2, 9 or 10 of ITEPA 2003 (employment income, pension income or
social security income),
15

is dealt with under the relevant Part of ITEPA 2003.
Chapter 2
Income taxed as trade profits
Charge to tax on trade profits
5
Charge to tax on trade profits
20
Income tax is charged on the profits of a trade, profession or vocation.
6
Territorial scope of charge to tax
(1)
Profits of a trade arising to a UK resident are chargeable to tax under this
Chapter wherever the trade is carried on.
(2)
Profits of a trade arising to a non-UK resident are chargeable to tax under this
25
Chapter only if they arise—
(a)
from a trade carried on wholly in the United Kingdom, or
(b)
in the case of a trade carried on partly in the United Kingdom and
partly elsewhere, from the part of the trade carried on in the United
Kingdom.
30
(3)
This section applies to professions and vocations as it applies to trades.
7
Income charged
(1)
Tax is charged under this Chapter on the full amount of the profits of the tax
year.
(2)
For this purpose the profits of a tax year are the profits of the basis period for
35
the tax year.

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 2 — Income taxed as trade profits
4

(3)
For the rules identifying the basis period for a tax year, see Chapter 15.
(4)
This section is subject to Part 8 (foreign income: special rules).
(5)
And, for the purposes of section 830 (meaning of “relevant foreign income”),
the profits of a trade, profession or vocation arise from a source outside the
United Kingdom only if the trade, profession or vocation is carried on wholly
5
outside the United Kingdom.
8
Person liable
The person liable for any tax charged under this Chapter is the person
receiving or entitled to the profits.
Trades and trade profits
10
9
Farming and market gardening
(1)
Farming or market gardening in the United Kingdom is treated for income tax
purposes as the carrying on of a trade or part of a trade (whether or not the land
is managed on a commercial basis and with a view to the realisation of profits).
(2)
All farming in the United Kingdom carried on by a person, other than farming
15
carried on as part of another trade, is treated for income tax purposes as one
trade.
(3)
In the case of farming carried on by a firm, this rule is explained by section
859(1).
10
Commercial occupation of land other than woodlands
20
(1)
The commercial occupation of land in the United Kingdom is treated for
income tax purposes as the carrying on of a trade or part of a trade.
(2)
For this purpose the occupation of land is commercial if the land is managed—
(a)
on a commercial basis, and
(b)
with a view to the realisation of profits.
25
(3)
This section does not apply—
(a)
to farming or market gardening (which is dealt with by section 9),
(b)
if the land is being prepared for forestry purposes, or
(c)
if the land comprises woodlands (which is dealt with by section 11).
11
Commercial occupation of woodlands
30
(1)
The commercial occupation of woodlands in the United Kingdom is not a trade
or part of a trade for any income tax purpose.
(2)
For this purpose the occupation of woodlands is commercial if the woodlands
are managed—
(a)
on a commercial basis, and
35
(b)
with a view to the realisation of profits.

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 2 — Income taxed as trade profits
5

(3)
See also sections 267 and 768 (which, when read with this section, secure that
profits or losses from the commercial occupation of woodlands in the United
Kingdom are ignored for income tax purposes).
12
Profits of mines, quarries and other concerns
(1)
Profits or losses arising out of land in the case of a concern to which this section
5
applies are calculated as if the concern were a trade.
(2)
Any profits arising out of the land are charged to income tax as if the concern
were a trade carried on in the United Kingdom.

But this does not impose a charge to tax on a non-UK resident in the case of a
concern outside the United Kingdom.
10
(3)
Any losses arising out of the land are treated for the purposes of Chapter 1 of
Part 10 of ICTA (loss relief) as losses of a trade carried on in the United
Kingdom.
(4)
The concerns to which this section applies are—
(a)
mines and quarries (including gravel pits, sand pits and brickfields),
15
(b)
ironworks, gasworks, salt springs or works, alum mines or works,
waterworks and streams of water,
(c)
canals, inland navigation, docks and drains or levels,
(d)
rights of fishing,
(e)
rights of markets and fairs, tolls, bridges and ferries,
20
(f)
railways and other kinds of way, and
(g)
a concern of the same kind as one specified in paragraph (b), (c), (d) or
(e).
(5)
This section does not apply to a concern if section 10 (commercial occupation
of land other than woodlands) applies to the occupation of the land out of
25
which the profits or losses arise.
13
Visiting performers
(1)
This section applies if an entertainer, sportsman or sportswoman of a
prescribed description (a “performer”)—
(a)
is non-UK resident in a tax year, and
30
(b)
performs a relevant activity in the United Kingdom in the tax year.
(2)
If a payment or transfer connected with the relevant activity is made, the
performer is treated for income tax purposes as performing the relevant
activity in the course of a trade, profession or vocation carried on in the United
Kingdom.
35
(3)
It does not matter whether the payment or transfer is made to the performer or
anyone else.
(4)
Subsection (2) does not apply—
(a)
so far as the performer would otherwise be performing the relevant
activity in the course of a trade, profession or vocation carried on in the
40
United Kingdom, or
(b)
if the relevant activity is performed in the course of an employment or
office.

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 2 — Income taxed as trade profits
6

(5)
If a payment or transfer connected with the relevant activity is made to —
(a)
a person other than the performer, and
(b)
that person is of a prescribed description,

the payment or transfer is treated for income tax purposes as made instead to
the performer in the course of a trade, profession or vocation carried on in the
5
United Kingdom.
(6)
Subsection (5) does not apply in such circumstances as may be prescribed.
(7)
If—
(a)
income tax is chargeable on profits arising from payments or transfers
(made to any person), and
10
(b)
the payments or transfers are connected with the relevant activity,

the tax is charged as if the payments or transfers were received in the course of
a separate trade, profession or vocation (distinct from any other trade,
profession or vocation carried on by the performer).
(8)
In this section and section 14—
15
“payment” means a payment from which income tax is to be deducted
under section 555(2) of ICTA,
“prescribed” means prescribed by regulations,
“regulations” means regulations made by the Treasury,
“relevant activity” means an activity of a prescribed description, and
20
“transfer” means a transfer in respect of which income tax is to be
accounted for under section 555(3) of ICTA,

and a payment or transfer is connected with a relevant activity if it has a
connection of the prescribed kind with that activity.
14
Visiting performers: supplementary
25
(1)
Regulations may provide—
(a)
for the deduction, in calculating any profits of the performer arising
from the payment or transfer, of expenses incurred by other persons in
relation to the payment or transfer,
(b)
that any liability to income tax (whether of the performer or anyone
30
else) which would, apart from section 13(5), arise in relation to the
payment or transfer is not to arise (or is to arise so far as prescribed).
(2)
Regulations may provide—
(a)
for the apportionment of profits between different trades, professions
or vocations of the performer,
35
(b)
for the apportionment between different tax years of the profits arising
from relevant activities of the performer,
(c)
for losses made in any trade, profession or vocation of the performer to
be deducted from or set off against the profits of another trade,
profession or vocation of the performer,
40
(d)
that prescribed provisions of the Income Tax Acts about losses, or about
expenses, are not to apply (or are to apply with prescribed
modifications) in prescribed circumstances relating to the performer.
(3)
References in this section to a trade, profession or vocation of the performer
include references to the separate one referred to in section 13(7) as well as to
45
any other carried on by the performer.

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 2 — Income taxed as trade profits
7

(4)
Regulations may—
(a)
make provision generally for giving effect to section 13, and
(b)
make different provision for different cases or descriptions of cases.
15
Divers and diving supervisors
(1)
This section applies if—
5
(a)
a person performs the duties of employment as a diver or diving
supervisor in the United Kingdom or in any area designated by Order
in Council under section 1(7) of the Continental Shelf Act 1964 (c. 29),
(b)
the duties consist wholly or mainly of seabed diving activities, and
(c)
any employment income from the employment would otherwise be
10
chargeable to tax under Part 2 of ITEPA 2003.
(2)
The performance of the duties of employment is instead treated for income tax
purposes as the carrying on of a trade in the United Kingdom.
(3)
For the purposes of this section the following are seabed diving activities—
(a)
taking part as a diver in diving operations concerned with the
15
exploration or exploitation of the seabed, its subsoil and their natural
resources, and
(b)
acting as a diving supervisor in relation to any such diving operations.
16
Oil extraction and related activities
(1)
If a person carries on any oil-related activities as part of a trade, those activities
20
are treated for income tax purposes as a separate trade, distinct from all other
activities carried on by the person as part of the trade.
(2)
For this purpose the following are oil-related activities—
(a)
oil extraction activities, and
(b)
any activities consisting of the acquisition, enjoyment or exploitation of
25
oil rights.
(3)
“Oil extraction activities” and “oil rights” have the meaning given by section
502(1) of ICTA.
Starting and ceasing to trade
17
Effect of becoming or ceasing to be a UK resident
30
(1)
This section applies if—
(a)
an individual carries on a trade wholly or partly outside the United
Kingdom otherwise than in partnership, and
(b)
the individual becomes or ceases to be UK resident.
(2)
The individual is treated for income tax purposes—
35
(a)
as permanently ceasing to carry on the trade at the time of the change
of residence, and
(b)
so far as the individual continues to carry on the trade, as starting to
carry on a new trade immediately afterwards.