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 4 — Trade profits: rules restricting deductions
19

(2)
Case A is where—
(a)
the gift is of an item which it is the trader’s trade to provide, and
(b)
the item is given away in the ordinary course of the trade in order to
advertise to the public generally.
(3)
Case B is where the gift incorporates a conspicuous advertisement for the
5
trader unless—
(a)
the gift is food, drink, tobacco or a token or voucher exchangeable for
goods, or
(b)
the cost of the gift to the trader, together with any other gifts (except
food, drink, tobacco or a token or voucher exchangeable for goods)
10
given to the same person in the same basis period, exceeds £50.

The Treasury may by order amend the sum for the time being specified in
paragraph (b) so as to increase it.
(4)
Case C is where gifts are provided for employees of the trader unless—
(a)
gifts are also provided for others, and
15
(b)
the provision of the gifts for the employees is incidental to the provision
of gifts for the others.
(5)
Case D is where the gift is given to—
(a)
a charity,
(b)
the Historic Buildings and Monuments Commission for England, or
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(c)
the Trustees of the National Heritage Memorial Fund.
Car or motor cycle hire
48
Car or motor cycle hire
(1)
This section applies if, in calculating the profits of a trade, a deduction is
allowed for expenses incurred on the hiring of a car or motor cycle—
25
(a)
which is not a qualifying hire car or motor cycle (see section 49(2)), and
(b)
the retail price of which when new exceeds £12,000.
(2)
The amount of the deduction which would otherwise be allowable is reduced
by multiplying the amount by the fraction— $equation: over[plus[string["\xa3 12,000"],times[char[R],char[P]]],cross[num[2.0000000000000000, "2"],times[char[R],char[P]]]]$

where RP is the retail price of the car or motor cycle when new.
30
(3)
Subsection (4) applies if the deduction is reduced as a result of subsection (2)
and subsequently—
(a)
there is a rebate (however described) of the hire charges, or
(b)
a debt in respect of any of the hire charges is released otherwise than as
part of a statutory insolvency arrangement.
35
(4)
The amount that, as a result of the rebate or release—
(a)
is brought into account as a receipt of the trade under section 97 (debts
incurred and later released), or
(b)
is treated as a post-cessation receipt under section 249 (debts released
after cessation),
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Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 4 — Trade profits: rules restricting deductions
20


is reduced by multiplying it by the fraction in subsection (2).
(5)
The power under section 74(4) of CAA 2001 to increase or further increase the
sums of money specified in Chapter 8 of Part 2 of CAA 2001 includes the power
to increase or further increase the sum of money specified in subsection (1)(b)
or (2).
5
49
Car or motor cycle hire: supplementary
(1)
In section 48 “car or motor cycle” means a mechanically propelled road vehicle
other than one—
(a)
of a construction primarily suited for the conveyance of goods or
burden of any description, or
10
(b)
of a type not commonly used as a private vehicle and unsuitable for
such use.
(2)
In section 48 “a qualifying hire car or motor cycle” means a car or motor cycle
which—
(a)
is hired under a hire-purchase agreement (see subsection (3)) under
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which there is no option to purchase,
(b)
is hired under a hire-purchase agreement under which there is an
option to purchase exercisable on the payment of a sum equal to not
more than 1% of the retail price of the car when new, or
(c)
is a qualifying hire car for the purposes of Part 2 of CAA 2001 (under
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section 82 of CAA 2001).
(3)
For this purpose “hire-purchase agreement” means an agreement under
which—
(a)
goods are bailed or (in Scotland) hired in return for periodical
payments by the person to whom they are bailed or hired, and
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(b)
the property in the goods will pass to that person if the terms of the
agreement are complied with and one or more of the following events
occurs,

but does not include a conditional sale agreement (see subsection (5)).
(4)
The events are—
30
(a)
the exercise of an option to purchase by that person,
(b)
the doing of any other specified act by any party to the agreement, and
(c)
the happening of any other specified event.
(5)
A “conditional sale agreement” means an agreement for the sale of goods
under which—
35
(a)
the purchase price or part of it is payable by instalments, and
(b)
the goods are to remain the property of the seller (even though they are
to be in the possession of the buyer) until specified conditions as to the
payment of instalments or otherwise are met.
(6)
In this section and section 48 “new” means unused and not second-hand.
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50
Hiring cars (but not motor cycles) with low carbon dioxide emissions
(1)
Section 48 does not apply to expenses incurred on the hiring of—
(a)
a car with low CO2 emissions, or
(b)
an electrically-propelled car.

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 4 — Trade profits: rules restricting deductions
21

(2)
For this purpose—
“car with low CO2 emissions” has the meaning given by section 45D of
CAA 2001, and
“electrically-propelled car” has the meaning given by that section.
(3)
This section does not apply to expenses incurred on the hiring of any such
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car—
(a)
under a contract entered into after 31st March 2008, or
(b)
for a period of hire which begins after that date.
Patent royalties
51
Patent royalties
10
In calculating the profits of a trade, no deduction is allowed for royalties or
other sums paid for the use of patents.
Interest payments
52
Exclusion of double relief for interest
(1)
In calculating the profits of a trade, no deduction is allowed—
15
(a)
for any tax year for the interest paid on a debt or liability in respect of
which relief is given under section 353 of ICTA (see subsection (5)
below), or
(b)
for any relevant tax year for other interest on the same debt or liability.
(2)
A tax year is a relevant one if the interest in respect of which the relief is given
20
could, but for the relief, have been brought into account in calculating the
profits of a trade of the tax year.
(3)
For the purposes of subsection (1)(b) all interest which—
(a)
is capable of being brought into account in calculating the profits of a
trade, and
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(b)
is payable by any person on money advanced to the person on current
account,

is treated as interest on the same debt.
(4)
It does not matter if the money is advanced—
(a)
on one or more accounts, or
30
(b)
by the same or separate banks or other persons.
(5)
For the purposes of this section relief under section 353 of ICTA is to be treated
as given only when the claim for the relief can no longer be varied (whether on
appeal or otherwise).
(6)
For a rule excluding relief under section 353 of ICTA if interest on a debt or
35
liability is brought into account in calculating the profits of a trade, see section
368(3) of ICTA.

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 4 — Trade profits: rules restricting deductions
22

Social security contributions
53
Social security contributions
(1)
In calculating the profits of a trade, no deduction is allowed for any
contribution paid by any person under—
(a)
Part 1 of the Social Security Contributions and Benefits Act 1992 (c. 4),
5
or
(b)
Part 1 of the Social Security Contributions and Benefits (Northern
Ireland) Act 1992 (c. 7).
(2)
But this prohibition does not apply to an employer’s contribution.
(3)
For this purpose “an employer’s contribution” means—
10
(a)
a secondary Class 1 contribution,
(b)
a Class 1A contribution, or
(c)
a Class 1B contribution,

within the meaning of Part 1 of the Social Security Contributions and Benefits
Act 1992 or of the Social Security Contributions and Benefits (Northern
15
Ireland) Act 1992.
Penalties, interest and VAT surcharges
54
Penalties, interest and VAT surcharges
(1)
In calculating the profits of a trade, no deduction is allowed for any penalty or
interest mentioned in the first column of the following table.
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(2)
This is the table—

Penalty or interest
Description of tax, levy or duty

Interest under any provision of Part 9 of
Income tax, capital gains tax

TMA 1970
and corporation tax

Interest required to be paid by

25

regulations made under section 71 of

FA 2004 (construction industry)

Penalty under any of sections 60 to 70 of
Value added tax

VATA 1994

Interest under section 74 of VATA 1994

30

Penalty under any of sections 8 to 11 of
Excise duties

FA 1994

Penalty under any of paragraphs 12 to
Insurance premium tax

19 of Schedule 7 to FA 1994

Interest under paragraph 21 of that

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Schedule

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 4 — Trade profits: rules restricting deductions
23

Penalty or interest
Description of tax, levy or duty

Penalty under any provision of Part 5 of
Landfill tax

Schedule 5 to FA 1996

Interest under paragraph 26 or 27 of

that Schedule

5

Penalty under any provision of
Climate change levy

Schedule 6 to FA 2000

Interest under any of paragraphs 70, 81

to 85 and 109 of that Schedule

Penalty under any provision of Part 2 of
Aggregates levy

10

FA 2001

Interest under any of paragraphs 5 to 9

of Schedule 5 to, paragraph 6 of

Schedule 8 to and paragraph 5 of

Schedule 10 to FA 2001

15

Penalty under section 25 or 26 of FA
Customs, export and import

2003
duties

Penalty under any provision of Part 4 of
Stamp duty land tax

FA 2003

Interest under any provision of that Part

20

(3)
In calculating the profits of a trade, no deduction is allowed for any surcharge
under section 59 of VATA 1994.
Crime-related payments
55
Crime-related payments
(1)
In calculating the profits of a trade, no deduction is allowed for expenses
25
incurred—
(a)
in making a payment if the making of the payment constitutes a
criminal offence, or
(b)
in making a payment outside the United Kingdom if the making of a
corresponding payment in any part of the United Kingdom would
30
constitute a criminal offence in that part.
(2)
In calculating the profits of a trade, no deduction is allowed for expenses
incurred in making a payment induced by a demand which constitutes—
(a)
the offence of blackmail under section 21 of the Theft Act 1968 (c. 60)
(England and Wales),
35
(b)
the offence of extortion (Scotland), or
(c)
the offence of blackmail under section 20 of the Theft Act (Northern
Ireland) 1969 (c. 16 (N.I.)) (Northern Ireland).

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
24

Chapter 5
Trade profits: rules allowing deductions
Introduction
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Professions and vocations
Apart from sections 87 to 90 (scientific research and expenses connected with
5
patents, designs and trade marks), the provisions of this Chapter apply to
professions and vocations as they apply to trades.
Pre-trading expenses
57
Pre-trading expenses
(1)
This section applies if a person incurs expenses for the purposes of a trade
10
before (but not more than 7 years before) the date on which the person starts to
carry on the trade (“the start date”).
(2)
If, in calculating the profits of the trade—
(a)
no deduction would otherwise be allowed for the expenses, but
(b)
a deduction would be allowed for them if they were incurred on the
15
start date,

the expenses are treated as if they were incurred on the start date (and therefore
a deduction is allowed for them).
Incidental costs of obtaining finance
58
Incidental costs of obtaining finance
20
(1)
In calculating the profits of a trade, a deduction is allowed for incidental costs
of obtaining finance by means of—
(a)
a loan, or
(b)
the issue of loan stock,

if the interest on the loan or stock is deductible in calculating the profits of the
25
trade.
(2)
“Incidental costs of obtaining finance” means expenses—
(a)
which are incurred on fees, commissions, advertising, printing and
other incidental matters, and
(b)
which are incurred wholly and exclusively for the purpose of obtaining
30
the finance, providing security for it or repaying it.
(3)
Expenses incurred wholly and exclusively for the purpose of—
(a)
obtaining finance, or
(b)
providing security for it,

are incidental costs of obtaining the finance even if it is not in fact obtained.
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(4)
But the following are not incidental costs of obtaining finance—
(a)
sums paid because of losses resulting from movements in the rate of
exchange between different currencies,

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
25

(b)
sums paid for the purpose of protecting against such losses,
(c)
the cost of repaying a loan or loan stock so far as attributable to its being
repayable at a premium or having been obtained or issued at a
discount, and
(d)
stamp duty.
5
(5)
This section needs to be read with section 59 (which provides for restrictions in
relation to convertible loans and loan stock etc.).
59
Convertible loans and loan stock etc.
(1)
No deduction is allowed under section 58 in respect of a loan or loan stock if—
(a)
it carries the right of conversion into, or to the acquisition of, shares or
10
other securities, and
(b)
the right is exercisable before the end of the period of 3 years from the
date when the loan was obtained or the stock issued (“the 3 year
period”).
(2)
“Other securities” does not include a loan or loan stock—
15
(a)
the interest on which is deductible in calculating the profits of the
person’s trade, and
(b)
which does not carry such a right as is mentioned in subsection (1).
(3)
But the restriction imposed by subsection (1) does not apply if the right is not,
or is not wholly, exercised before the end of the 3 year period.
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(4)
In such a case any incidental costs of obtaining finance incurred before the end
of the 3 year period are treated as incurred immediately after the end of it.
(5)
If the right is exercised within the 3 year period as to part of the loan or loan
stock, only the following incidental costs of obtaining finance are treated as
incurred.
25
(6)
The costs are those corresponding to the proportion of the loan or loan stock in
respect of which the right is not exercised within that period.
Tenants under taxed leases
60
Tenants under taxed leases: introduction
(1)
Sections 61 to 67 apply if land used in connection with a trade is subject to a
30
taxed lease.
(2)
Section 61 (tenants occupying land for purposes of trade treated as incurring
expenses) applies in calculating the profits of a trade carried on by the tenant
under the taxed lease for the purpose of making deductions for the expenses of
the trade.
35
(3)
But any deduction for an expense under section 61 is subject to the application
of any provision of Chapter 4 of this Part.
(4)
In this section and sections 61 to 67 the following expressions have the same
meaning as in Chapter 4 of Part 3 (profits of property businesses: lease
premiums etc.)—
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“receipt period” (see section 288(6)),
“taxed lease” (see section 287(4)),