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
Part 2 — Trading income
Chapter 18 — Post-cessation receipts
113

247
Other rules about what counts as post-cessation receipts
(1)
The following provisions treat certain amounts as post-cessation receipts for
the purposes of this Part—
section 82(6) (contributions to local enterprise organisations or urban
regeneration companies),
5
section 104(3) (distribution of assets of mutual concerns),
section 109(2) (receipt by donor or connected person of benefit
attributable to certain gifts),
section 185(1) (election for valuation at cost),
section 248 (debts paid after cessation),
10
section 249 (debts released after cessation), as qualified, where
appropriate, by section 48(4) (car or motor cycle hire),
section 250 (receipts relating to post-cessation expenditure),
section 251 (transfer of rights if transferee does not carry on trade), and
section 844 (income charged on withdrawal of relief after source ceases:
15
unremittable income).
(2)
Section 98 (acquisition of trade: receipts from transferor’s trade) and section
251 (transfer of rights if transferee does not carry on trade) treat certain
amounts as not being post-cessation receipts for the purposes of this Part.
Sums treated as post-cessation receipts
20
248
Debts paid after cessation
(1)
Subsection (2) applies if, in calculating the profits of a trade for income or
corporation tax purposes, a deduction is made in respect of a debt under—
(a)
section 35 (bad and doubtful debts), or
(b)
section 74(1)(j) of ICTA (corresponding corporation tax provision),
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and a person permanently ceases to carry on the trade.
(2)
A sum received after the cessation is treated as a post-cessation receipt so far
as the deduction is made.
(3)
Subsection (4) applies if relief is given under section 109A(4) or (4A) of ICTA
(relief for post-cessation expenditure) in respect of a debt owed to a person
30
who has permanently ceased to carry on a trade.
(4)
A sum received by the person in payment of the debt is treated as a post-
cessation receipt so far as relief is given in respect of the sum.
249
Debts released after cessation
(1)
This section applies if—
35
(a)
in calculating the profits of a trade for any period for income or
corporation tax purposes, a deduction is allowed for the expense giving
rise to a debt owed by the person who carried on the trade,
(b)
the person has permanently ceased to carry on the trade at or after the
end of that period,
40
(c)
after the cessation, all or part of the debt is released, and
(d)
the release is not part of a statutory insolvency arrangement.
(2)
The amount released is treated as a post-cessation receipt.

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 18 — Post-cessation receipts
114

(3)
For the purposes of this section the reference to a person permanently ceasing
to carry on a trade includes the occurrence of an event which under section
337(1) of ICTA is treated as the discontinuance of a trade.
250
Receipts relating to post-cessation expenditure
(1)
This section applies if a person who has permanently ceased to carry on a trade
5
makes a payment in circumstances where relief is available under section 109A
of ICTA (relief for post-cessation expenditure).
(2)
The following sums are treated as post-cessation receipts—
(a)
in the case of a payment within section 109A(2)(a) or (b) of ICTA
(payment to remedy defective work etc. or to defray expenses of a
10
claim), the proceeds of insurance, or other sum received, for the
purpose of enabling the payment to be made or by means of which it is
reimbursed,
(b)
in the case of a payment within section 109A(2)(c) of ICTA (payment to
insure against claims for defective work etc.), a refund of the premium,
15
or other sum received, in connection with the insurance, and
(c)
in the case of a payment within section 109A(2)(d) of ICTA (payment
for the purpose of collecting a debt), any sum received towards the cost
of collecting the debt.
(3)
If a sum mentioned in subsection (2) is received in a tax year earlier than the
20
tax year in which the related payment is made, it is treated as having been
received in the later tax year (and not the earlier tax year).
(4)
Any adjustment required to give effect to subsection (3) is to be made by way
of—
(a)
amendment of an assessment, or
25
(b)
discharge or repayment of tax.
251
Transfer of rights if transferee does not carry on trade
(1)
This section applies if—
(a)
a person (“the transferor”) permanently ceases to carry on a trade,
(b)
the transferor transfers to another person (“the transferee”) for value
30
the right to receive sums arising from the carrying on of the trade, and
(c)
the transferee does not subsequently carry on the trade.
(2)
The transferor is treated as receiving a post-cessation receipt.
(3)
The amount of the receipt is—
(a)
the amount or value of the consideration for the transfer, if the transfer
35
is at arm’s length, or
(b)
the value of the rights transferred as between parties at arm’s length, if
the transfer is not at arm’s length.
(4)
Any sums mentioned in subsection (1)(b) which are received after the cessation
of the trade are not post-cessation receipts.
40
(5)
This section is subject to—
(a)
section 252 (transfer of trading stock or work in progress), and
(b)
section 253 (lump sums paid to personal representatives for copyright
etc.).

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 18 — Post-cessation receipts
115

Sums that are not post-cessation receipts
252
Transfer of trading stock or work in progress
(1)
When a person permanently ceases to carry on a trade, a sum realised by—
(a)
the transfer of trading stock, or
(b)
the transfer of work in progress,
5

is not a post-cessation receipt if a valuation of the stock or work is brought into
account in accordance with Chapter 12 (valuation of stock and work in
progress).
(2)
This does not prevent a sum from being treated as a post-cessation receipt as a
result of an election under section 185 (election for valuation of work in
10
progress at cost).
(3)
In this section—
(a)
“trading stock” has the meaning given by section 174, and
(b)
“work in progress” and “transfer of work in progress” have the
meaning given by section 183.
15
253
Lump sums paid to personal representatives for copyright etc.
(1)
A lump sum which is paid to the personal representatives of the author of a
literary, dramatic, musical or artistic work as consideration for the assignment
by them of—
(a)
the copyright in the work, or
20
(b)
the public lending right in the work,

is not a post-cessation receipt.
(2)
A lump sum which is paid to the personal representatives of the designer of a
design in which design right subsists as consideration for the assignment by
them of that right is not a post-cessation receipt.
25
(3)
For the purposes of this section it does not matter whether the whole or a part
of the right is assigned.
Deductions
254
Allowable deductions
(1)
In calculating the amount on which tax is charged under this Chapter,
30
deductions are allowed in accordance with—
(a)
this section, and
(b)
section 255,

from the amount which would otherwise be chargeable to tax under this
Chapter.
35
(2)
A deduction is allowed for a loss, expense or debit which, if the person carrying
on the trade had not permanently ceased to do so—
(a)
would have been deducted in calculating the profits of the trade for
income or corporation tax purposes, or
(b)
would have been deducted from or set off against the profits of the
40
trade for income or corporation tax purposes,

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 18 — Post-cessation receipts
116


but no deduction is allowed if the loss, expense or debit arises directly or
indirectly from the cessation itself.
(3)
No deduction for an amount is allowed under this section if the amount has
been allowed—
(a)
under any other provision of the Tax Acts, or
5
(b)
as a result of section 90(4) of FA 1995 (capital gains tax relief for post-
cessation expenditure).
255
Further rules about allowable deductions
(1)
An amount may not be deducted more than once under section 254.
(2)
A deduction under that section of a loss must be made from post-cessation
10
receipts charged for an earlier tax year in preference to those charged for a later
tax year.
(3)
But this does not authorise the deduction of a loss from post-cessation receipts
charged for a tax year before the tax year in which the loss is made.
(4)
No deduction may be made under section 254 from any amount that is treated
15
as a post-cessation receipt under—
(a)
section 248(4) (debts paid after cessation), or
(b)
section 250 (receipts relating to post-cessation expenditure).
Reliefs
256
Treatment of post-cessation receipts
20
(1)
This section applies if—
(a)
an individual has permanently ceased to carry on a trade, and
(b)
the income arising to the individual from the trade was earned income
within section 833(4)(c) of ICTA or relevant UK earnings within section
189(2)(b) of FA 2004.
25
(2)
Any post-cessation receipts arising to the individual from the trade are
similarly earned income or relevant UK earnings.
257
Election to carry back
(1)
This section applies if a post-cessation receipt is received by a person (or a
person’s personal representatives) in a tax year beginning no later than 6 years
30
after the person permanently ceased to carry on the trade.
(2)
The person (or the person’s personal representatives) may elect that the tax
chargeable in respect of the receipt is to be charged as if the receipt had been
received on the date of the cessation.
(3)
But this is subject to paragraph 5 of Schedule 1B to TMA 1970 (election given
35
effect in the tax year in which the receipt is actually received).
(4)
The election must be made on or before the first anniversary of the normal self-
assessment filing date for the tax year.

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 1 — Introduction
117

Chapter 19
Supplementary
258
Changes in trustees and personal representatives
(1)
This section applies if there is a change—
(a)
in the trustees of a trust, or
5
(b)
in the personal representatives of a person,

at a time when they are carrying on a trade, profession or vocation.
(2)
For income tax purposes, the change does not result in—
(a)
any of the trustees or personal representatives before the change
permanently ceasing to carry on the trade, profession or vocation, or
10
(b)
any of the trustees or personal representatives after the change starting
to carry on the trade, profession or vocation.
259
Meaning of “statutory insolvency arrangement”
In this Part “statutory insolvency arrangement” means—
(a)
a voluntary arrangement which has taken effect under or as a result of
15
the Insolvency Act 1986 (c. 45), Schedule 4 or 5 to the Bankruptcy
(Scotland) Act 1985 (c. 66) or the Insolvency (Northern Ireland) Order
1989 (S.I. 1989/2405 (N.I. 19)), or
(b)
a compromise or arrangement which has taken effect under section 425
of the Companies Act 1985 (c. 6) or Article 418 of the Companies
20
(Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)).
Part 3
Property income
Chapter 1
Introduction
25
260
Overview of Part 3
(1)
This Part imposes charges to income tax under—
(a)
Chapter 3 (the profits of a UK property business or an overseas
property business),
(b)
Chapter 7 (amounts treated as adjustment income under section 330),
30
(c)
Chapter 8 (rent receivable in connection with a UK section 12(4)
concern),
(d)
Chapter 9 (rent receivable for UK electric-line wayleaves),
(e)
Chapter 10 (post-cessation receipts arising from a UK property
business), and
35
(f)
Chapter 11 (overseas property income of a person to whom the
remittance basis applies).
(2)
Part 6 deals with exemptions from the charges under this Part.

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 2 — Property businesses
118

(3)
See, in particular, the exemptions under sections 769 (housing grants), 777
(VAT repayment supplements) and 778 (incentives to use electronic
communications).
(4)
The charges under Chapters 3, 7, 8, 9 and 10 apply to non-UK residents as well
as UK residents but this is subject to section 269 (charges on non-UK residents
5
only on UK source income).
(5)
This section needs to be read with the relevant priority rules (see sections 2 and
261).
261
Provisions which must be given priority over Part 3
Any receipt or other credit item, so far as it falls within—
10
(a)
Chapter 3 of this Part so far as it relates to an overseas property business
or Chapter 8 or 9 of this Part (rent receivable in connection with a UK
section 12(4) concern or for UK electric-line wayleaves), and
(b)
Chapter 2 of Part 2 (receipts of a trade, profession or vocation),
is dealt with under Part 2.
15
262
Priority between Chapters within Part 3
(1)
Any receipt, so far as it falls within—
(a)
Chapter 3 so far as it relates to a UK property business, and
(b)
Chapter 8 (rent receivable in connection with a UK section 12(4)
concern),
20

is dealt with under Chapter 8.
(2)
Any receipt, so far as it falls within—
(a)
Chapter 3 so far as it relates to a UK property business, and
(b)
Chapter 9 (rent receivable for UK electric-line wayleaves),

is dealt with under Chapter 9.
25
(3)
Any receipt, so far as it falls within Chapter 8 (rent receivable in connection
with a UK section 12(4) concern) and Chapter 9 (rent receivable for UK electric-
line wayleaves), is dealt with under Chapter 9.
Chapter 2
Property businesses
30
Introduction
263
Introduction
(1)
This Chapter explains for the purposes of this Act what is meant by—
(a)
a person’s UK property business (see section 264), and
(b)
a person’s overseas property business (see section 265).
35
(2)
Both those sections need to be read with—
(a)
section 266 (which explains what is meant by generating income from
land), and

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 2 — Property businesses
119

(b)
section 267 (which provides that certain activities do not count as
activities for generating income from land).
(3)
In the case of the property business of a firm, the basic rules in sections 264 and
265 are explained in section 859(2) and (3).
(4)
References in this Act to an overseas property business are to an overseas
5
property business so far as any profits of the business are chargeable to tax
under Chapter 3 (as to which see, in particular, section 269).
(5)
Accordingly, nothing in Chapter 4 or 5 is to be read as treating an amount as a
receipt of an overseas property business if the profits concerned would not be
chargeable to tax under Chapter 3.
10
(6)
In this Act “property business” means a UK property business or an overseas
property business.
Basic meaning of UK and overseas property business
264
UK property business
A person’s UK property business consists of—
15
(a)
every business which the person carries on for generating income from
land in the United Kingdom, and
(b)
every transaction which the person enters into for that purpose
otherwise than in the course of such a business.
265
Overseas property business
20
A person’s overseas property business consists of—
(a)
every business which the person carries on for generating income from
land outside the United Kingdom, and
(b)
every transaction which the person enters into for that purpose
otherwise than in the course of such a business.
25
Generating income from land
266
Meaning of “generating income from land”
(1)
In this Chapter “generating income from land” means exploiting an estate,
interest or right in or over land as a source of rents or other receipts.
(2)
“Rents” includes payments by a tenant for work to maintain or repair leased
30
premises which the lease does not require the tenant to carry out.
(3)
“Other receipts” includes—
(a)
payments in respect of a licence to occupy or otherwise use land,
(b)
payments in respect of the exercise of any other right over land, and
(c)
rentcharges and other annual payments reserved in respect of, or
35
charged on or issuing out of, land.
(4)
For the purposes of this section a right to use a caravan or houseboat at only
one location is treated as a right deriving from an estate or interest in land.