|
| |
|
| |
For the purpose of calculating the profits of a trade, interest is an item of a |
| |
revenue nature, whatever the nature of the loan. |
| |
30 | Animals kept for trade purposes |
| |
(1) | Animals or other living creatures kept for the purposes of a trade are treated as |
| 5 |
trading stock if they are not kept wholly or mainly— |
| |
(a) | for the work they do in connection with the carrying on of the trade, |
| |
(b) | for public exhibition, or |
| |
(c) | for racing or other competitive purposes. |
| |
(2) | But they are not treated as trading stock if they are part of a herd in relation to |
| 10 |
which a herd basis election has effect (see Chapter 8). |
| |
(3) | This section applies to shares in animals or other living creatures as it applies |
| |
to the creatures themselves. |
| |
(4) | This section does not apply to professions or vocations. |
| |
31 | Relationship between rules prohibiting and allowing deductions |
| 15 |
(1) | Any relevant permissive rule in this Part— |
| |
(a) | has priority over any relevant prohibitive rule in this Part, but |
| |
(b) | is subject to sections 48 (car or motor cycle hire) and 55 (crime-related |
| |
| |
(2) | In this section “any relevant permissive rule in this Part” means any provision |
| 20 |
| |
(a) | Chapter 5 (apart from sections 60 to 67), |
| |
| |
| |
| which allows a deduction in calculating the profits of a trade. |
| 25 |
(3) | In this section “any relevant prohibitive rule in this Part”, in relation to any |
| |
deduction, means any provision of this Part (apart from sections 48 and 55) |
| |
which might otherwise be read as— |
| |
(a) | prohibiting the deduction, or |
| |
(b) | restricting the amount of the deduction. |
| 30 |
| |
Trade profits: rules restricting deductions |
| |
| |
32 | Professions and vocations |
| |
The provisions of this Chapter apply to professions and vocations as they |
| 35 |
| |
|
| |
|
| |
|
| |
| |
In calculating the profits of a trade, no deduction is allowed for items of a |
| |
| |
Wholly and exclusively and losses rules |
| 5 |
34 | Expenses not wholly and exclusively for trade and unconnected losses |
| |
(1) | In calculating the profits of a trade, no deduction is allowed for— |
| |
(a) | expenses not incurred wholly and exclusively for the purposes of the |
| |
| |
(b) | losses not connected with or arising out of the trade. |
| 10 |
(2) | If an expense is incurred for more than one purpose, this section does not |
| |
prohibit a deduction for any identifiable part or identifiable proportion of the |
| |
expense which is incurred wholly and exclusively for the purposes of the trade. |
| |
| |
35 | Bad and doubtful debts |
| 15 |
(1) | In calculating the profits of a trade, no deduction is allowed for a debt owed to |
| |
the person carrying on the trade, except so far as— |
| |
| |
(b) | the debt is estimated to be bad, or |
| |
(c) | the debt is released wholly and exclusively for the purposes of the trade |
| 20 |
as part of a statutory insolvency arrangement. |
| |
(2) | If the debtor is bankrupt or insolvent, the whole of the debt is estimated to be |
| |
bad for the purposes of subsection (1)(b), except so far as any amount may |
| |
reasonably be expected to be received on the debt. |
| |
| 25 |
| |
(1) | This section applies if, in calculating the profits of a trade of a period of |
| |
| |
(a) | an amount is charged in the accounts for the period in respect of |
| |
employees’ remuneration, and |
| 30 |
(b) | a deduction for the remuneration would otherwise be allowable for the |
| |
| |
(2) | No deduction is allowed for the remuneration for the period of account unless |
| |
it is paid before the end of the period of 9 months immediately following the |
| |
end of the period of account. |
| 35 |
(3) | If the remuneration is paid after the end of that 9 month period, a deduction for |
| |
it is allowed for the period of account in which it is paid. |
| |
|
| |
|
| |
|
37 | Unpaid remuneration: supplementary |
| |
(1) | For the purposes of section 36 an amount charged in the accounts in respect of |
| |
employees’ remuneration includes an amount for which provision is made in |
| |
the accounts with a view to its becoming employees’ remuneration. |
| |
(2) | For the purposes of section 36 it does not matter whether an amount is charged |
| 5 |
| |
(a) | particular employments, or |
| |
(b) | employments generally. |
| |
(3) | If the profits of the trade are calculated before the end of the 9 month period |
| |
mentioned in section 36(2)— |
| 10 |
(a) | it must be assumed, in making the calculation, that any remuneration |
| |
which is unpaid when the calculation is made will not be paid before |
| |
the end of that period, but |
| |
(b) | if the remuneration is subsequently paid before the end of that period, |
| |
nothing in this subsection prevents the calculation being revised and |
| 15 |
any tax return being amended accordingly. |
| |
(4) | For the purposes of this section and section 36 remuneration is paid when it— |
| |
(a) | is treated as received by an employee for the purposes of ITEPA 2003 |
| |
by section 18, 19, 31 or 32 of that Act (receipt of money and non-money |
| |
| 20 |
(b) | would be so treated if it were not exempt income. |
| |
(5) | In this section and section 36— |
| |
“employee” includes an office-holder and “employment” therefore |
| |
| |
“remuneration” means an amount which is or is treated as earnings for the |
| 25 |
| |
Employee benefit contributions |
| |
38 | Restriction of deductions |
| |
(1) | This section applies if, in calculating the profits of a person’s trade of a |
| |
| 30 |
(a) | the profits of the trade of the period are required to be calculated for |
| |
| |
(b) | a deduction would otherwise be allowable for the period for any |
| |
employee benefit contributions made or to be made by the person (“the |
| |
employer”) (but see subsection (4)). |
| 35 |
(2) | No deduction is allowed for the contributions for the period except so far as— |
| |
(a) | qualifying benefits are provided, or qualifying expenses are paid, out |
| |
of the contributions during the period or within 9 months from the end |
| |
| |
(b) | if the making of the contributions is itself the provision of qualifying |
| 40 |
benefits, the contributions are made during the period or within 9 |
| |
months from the end of it. |
| |
(3) | An amount disallowed under subsection (2) is allowed as a deduction for a |
| |
subsequent period so far as— |
| |
|
| |
|
| |
|
(a) | qualifying benefits are provided out of the contributions before the end |
| |
of the subsequent period, or |
| |
(b) | if the making of the contributions is itself the provision of qualifying |
| |
benefits, the contributions are made before the end of the subsequent |
| |
| 5 |
(4) | This section does not apply to any deduction that is allowable for— |
| |
(a) | anything given as consideration for goods or services provided in the |
| |
course of a trade or profession, |
| |
(b) | contributions under a registered pension scheme or under a |
| |
superannuation fund to which section 615(3) of ICTA applies, |
| 10 |
(c) | contributions under a qualifying overseas pension scheme in respect of |
| |
an individual who is a relevant migrant member of the pension scheme |
| |
in relation to the contributions, or |
| |
(d) | contributions under an accident benefit scheme. |
| |
| For the purposes of paragraph (c) “qualifying overseas pension scheme” and |
| 15 |
“relevant migrant member” have the same meaning as in Schedule 33 to FA |
| |
2004 (see paragraphs 4 to 6 of that Schedule). |
| |
| |
section 39 (making of “employee benefit contributions”), |
| |
section 40 (provision of qualifying benefits), |
| 20 |
section 41 (timing and amount of certain qualifying benefits), |
| |
section 42 (provision or payment out of employee benefit contributions), |
| |
section 43 (profits calculated before end of 9 month period), and |
| |
section 44 (interpretation of sections 38 to 44). |
| |
39 | Making of “employee benefit contributions” |
| 25 |
(1) | For the purposes of section 38 the employer makes an “employee benefit |
| |
| |
(a) | the employer pays money or transfers an asset to another person (“the |
| |
| |
(b) | the third party is entitled or required, under the terms of an employee |
| 30 |
benefit scheme, to hold or use the money or asset for or in connection |
| |
with the provision of benefits to, or in respect of, present or former |
| |
employees of the employer. |
| |
(2) | For this purpose “employee benefit scheme” means a trust, scheme or other |
| |
arrangement for the benefit of persons who are, or include, present or former |
| 35 |
employees of the employer. |
| |
40 | Provision of qualifying benefits |
| |
(1) | For the purposes of section 38 qualifying benefits are provided if there is— |
| |
(a) | a payment of money, or |
| |
(b) | a transfer of assets, |
| 40 |
| which meets condition A, B, C or D. |
| |
(2) | Condition A is that the payment or transfer gives rise both to an employment |
| |
income tax charge and to an NIC charge. |
| |
(3) | Condition B is that the payment or transfer would give rise to both charges if— |
| |
|
| |
|
| |
|
(a) | the duties of the employment in respect of which the payment or |
| |
transfer was made were performed in the United Kingdom, and |
| |
(b) | the person in respect of whose employment the payment or transfer |
| |
was made met at all relevant times the conditions as to residence or |
| |
presence in Great Britain or Northern Ireland prescribed under section |
| 5 |
1(6) of the Contributions and Benefits Act. |
| |
(4) | Condition C is that the payment or transfer is made in connection with the |
| |
termination of the recipient’s employment with the employer. |
| |
(5) | Condition D is that the payment or transfer is made under an employer- |
| |
financed retirement benefits scheme. |
| 10 |
(6) | None of the conditions is met if the payment or transfer is by way of loan. |
| |
| |
“the Contributions and Benefits Act” means— |
| |
(a) | the Social Security Contributions and Benefits Act 1992 (c. 4), or |
| |
(b) | the Social Security Contributions and Benefits (Northern |
| 15 |
Ireland) Act 1992 (c. 7), |
| |
“employment income tax charge” means a charge to tax under ITEPA |
| |
2003 (whether on the recipient or on someone else), and |
| |
“NIC charge” means a liability to pay national insurance contributions |
| |
under section 6 (Class 1 contributions), section 10 (Class 1A |
| 20 |
contributions) or section 10A (Class 1B contributions) of the |
| |
Contributions and Benefits Act. |
| |
41 | Timing and amount of certain qualifying benefits |
| |
(1) | If the provision of a qualifying benefit— |
| |
(a) | takes the form of a payment of money, and |
| 25 |
(b) | is not made under an employer-financed retirement benefits scheme, |
| |
| the benefit is provided for the purposes of section 38 when the money is treated |
| |
as received for the purposes of Chapter 4 of Part 2 of ITEPA 2003 (applying the |
| |
rules in section 18 of that Act (receipt of money earnings)). |
| |
(2) | If the provision of a qualifying benefit takes the form of a transfer of an asset, |
| 30 |
the amount provided for the purposes of section 38 is the total of— |
| |
(a) | the amount (if any) spent on the asset by the third party, and |
| |
(b) | in a case where the asset was transferred to the third party by the |
| |
employer, the amount of the deduction that would be allowable as |
| |
mentioned in subsection (1) of that section in respect of the transfer. |
| 35 |
(3) | But if the amount given by subsection (2) is more than the amount that— |
| |
(a) | is charged to tax under ITEPA 2003 in respect of the transfer, or |
| |
(b) | would be so charged if condition B in section 40 were met, |
| |
| the deduction allowable under section 38(2) or (3) is limited to that lower |
| |
| 40 |
42 | Provision or payment out of employee benefit contributions |
| |
(1) | For the purposes of section 38(2)(a)— |
| |
(a) | any qualifying benefits provided, or |
| |
(b) | any qualifying expenses paid, |
| |
|
| |
|
| |
|
| by the third party after the receipt by the third party of employee benefit |
| |
contributions are treated as being provided or paid out of the contributions. |
| |
(2) | This operates up to the total amount of the contributions reduced by the |
| |
amount of any benefits or expenses previously provided or paid as mentioned |
| |
| 5 |
(3) | For the purposes of section 38(3)(a) any qualifying benefits provided by the |
| |
third party after the receipt by the third party of employee benefit |
| |
contributions are treated as being provided out of the contributions. |
| |
(4) | This operates up to the total amount of the contributions reduced by the |
| |
amount of any benefits or expenses previously provided or paid as mentioned |
| 10 |
in section 38(2)(a) or (3)(a). |
| |
(5) | For the purposes of this section no account is taken of any other amount |
| |
received or paid by the third party. |
| |
43 | Profits calculated before end of 9 month period |
| |
(1) | This section applies if the profits of the trade are calculated before the end of |
| 15 |
the 9 month period mentioned in section 38(2). |
| |
(2) | It must be assumed, in making the calculation, that any benefits, expenses or |
| |
contributions which are not provided, paid or made when the calculation is |
| |
made will not be provided, paid or made before the end of that period. |
| |
(3) | But if the benefits, expenses or contributions are subsequently provided, paid |
| 20 |
or made before the end of that period, nothing in this section prevents the |
| |
calculation being revised and any tax return being amended accordingly. |
| |
44 | Interpretation of sections 38 to 44 |
| |
(1) | In this section and sections 38 to 43— |
| |
“accident benefit scheme” means an employee benefit scheme under |
| 25 |
which benefits may be provided only by reason of a person’s |
| |
disablement, or death, caused by an accident occurring during the |
| |
person’s service as an employee of the employer, |
| |
“employee benefit contribution” is to be read in accordance with section |
| |
| 30 |
“employee benefit scheme” has the meaning given by section 39(2), |
| |
“the employer” is to be read in accordance with section 38(1), |
| |
“employer-financed retirement benefits scheme” has the same meaning as |
| |
in Chapter 2 of Part 6 of ITEPA 2003 (see section 393A of that Act), |
| |
“qualifying benefits” is to be read in accordance with section 40, |
| 35 |
“qualifying expenses” includes any expenses of the third party (other than |
| |
the provision of benefits to employees of the employer)— |
| |
(a) | which are incurred in operating the employee benefit scheme, |
| |
| |
(b) | which, if incurred by the employer, would be deductible in |
| 40 |
calculating for income tax purposes the employer’s profits for |
| |
| |
“the third party” is to be read in accordance with section 39(1). |
| |
|
| |
|
| |
|
(2) | A reference in this section and sections 38 to 43 to a person’s employee includes |
| |
the holder of an office under that person, and “employment” is to be read |
| |
| |
Business entertainment and gifts |
| |
45 | Business entertainment and gifts: general rule |
| 5 |
(1) | The general rule is that no deduction is allowed in calculating the profits of a |
| |
trade for expenses incurred in providing entertainment or gifts in connection |
| |
| |
(2) | A deduction for expenses which are incurred— |
| |
(a) | in paying sums to or on behalf of an employee of the person carrying |
| 10 |
on the trade (“the trader”), or |
| |
(b) | in putting sums at the disposal of an employee of the trader, |
| |
| is prohibited by the general rule if (and only if) the sums are paid, or put at the |
| |
employee’s disposal, exclusively for meeting expenses incurred or to be |
| |
incurred by the employee in providing the entertainment or gift. |
| 15 |
(3) | The general rule is subject to exceptions— |
| |
for entertainment (see section 46), and |
| |
for gifts (see section 47). |
| |
(4) | For the purposes of this section and those two sections— |
| |
(a) | “employee”, in relation to a company, includes a director of the |
| 20 |
company and a person engaged in the management of the company, |
| |
(b) | “entertainment” includes hospitality of any kind, and |
| |
(c) | the expenses incurred in providing entertainment or a gift include |
| |
expenses incurred in providing anything incidental to the provision of |
| |
| 25 |
46 | Business entertainment: exceptions |
| |
(1) | The prohibition in section 45 on deducting expenses incurred in providing |
| |
entertainment does not apply in either of cases A and B. |
| |
| |
(a) | the entertainment is of a kind which it is the trader’s trade to provide, |
| 30 |
| |
(b) | the entertainment is provided in the ordinary course of the trade either |
| |
for payment or free of charge in order to advertise to the public |
| |
| |
(3) | Case B is where the entertainment is provided for employees of the trader |
| 35 |
| |
(a) | the entertainment is also provided for others, and |
| |
(b) | the provision of the entertainment for the employees is incidental to its |
| |
provision for the others. |
| |
47 | Business gifts: exceptions |
| 40 |
(1) | The prohibition in section 45 on deducting expenses incurred in providing gifts |
| |
does not apply in any of cases A, B, C and D. |
| |
|
| |
|