Income Tax (Trading and Other Income) Bill

House of Commons

Session 2004 - 05
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Other Bills before Parliament

Income Tax (Trading and Other Income) Bill

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
26

“taxed receipt” (see section 287(4)), and
“unreduced amount” (see section 290(2)).
(5)
Section 290(3) and (4) (unreduced amount of taxed receipt under section 277 as
a result of section 278) applies for the purposes of sections 61 to 65.
(6)
In sections 64 to 67 references to a reduction under section 288 by reference to
5
a taxed receipt have the same meaning as in Chapter 4 of Part 3 (see section
290(6)).
(7)
In the application of sections 64 to 67 to Scotland—
(a)
references to a lease being granted out of a taxed lease are to the grant
of a sublease of land subject to the taxed lease, and
10
(b)
references to the lease so granted are to be read as references to the
sublease.
61
Tenants occupying land for purposes of trade treated as incurring expenses
(1)
The tenant under the taxed lease is treated as incurring an expense of a revenue
nature in respect of the land subject to the taxed lease for each qualifying day.
15
(2)
If there is more than one taxed receipt, this section applies separately in
relation to each of them.
(3)
A day is a “qualifying day”, in relation to a taxed receipt, if it is a day—
(a)
that falls within the receipt period of the taxed receipt, and
(b)
on which the tenant occupies the whole or part of the land subject to the
20
taxed lease for the purposes of carrying on a trade.
(4)
If on the qualifying day the tenant occupies the whole of the land subject to the
taxed lease for the purposes of the trade, the amount of the expense for the
qualifying day by reference to the taxed receipt is given by the formula—

where—
25
A is the unreduced amount of the taxed receipt, and
TRP is the number of days in the receipt period of the taxed receipt.
(5)
If on the qualifying day the tenant occupies part of the land subject to the taxed
lease for the purposes of the trade, the amount of the expense for the qualifying
day by reference to the taxed receipt is given by the formula—
30

where—
F is the fraction of the land that is so occupied calculated on a just and
reasonable basis, and
A and TRP have the same meaning as in subsection (4).
(6)
This section is subject to section 62 (limit on deductions if tenant entitled to
35
mineral extraction allowance).

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
27

62
Limit on deductions if tenant entitled to mineral extraction allowance
(1)
This section applies if the tenant under the taxed lease has become entitled, in
respect of expenditure on the acquisition of an interest in the land subject to the
taxed lease, to an allowance for a tax year under Part 5 of CAA 2001 (mineral
extraction allowances) in respect of expenditure falling within section 403 of
5
that Act (qualifying expenditure on acquiring a mineral asset).
(2)
If the allowance is in respect of the whole of the expenditure, no deduction is
allowed for expenses under section 61 for a qualifying day falling within that
or a later tax year.
(3)
If the allowance is in respect of only part of the expenditure (“the allowable
10
part”) the amount of the deduction for expenses under section 61 for a
qualifying day falling within that or a later tax year is calculated by
multiplying the amount that, apart from this section, would be the amount of
the deduction for the qualifying day by—

where—
15
WE is the whole of the expenditure, and
AP is the allowable part of the expenditure.
63
Tenants dealing with land as property employed for purposes of trade
(1)
This section applies if the tenant under the taxed lease—
(a)
does not occupy the land subject to the taxed lease, or a part of it, but
20
(b)
deals with the tenant’s interest in the land, or the part of it, as property
employed for the purposes of carrying on a trade.
(2)
Section 61 applies as if the land or the part of it were occupied by the tenant for
the purposes of the trade.
(3)
But the tenant is not treated as incurring an expense in respect of the land for a
25
qualifying day as a result of this section so far as the tenant is treated as
incurring an expense under section 292 (tenants under taxed leases treated as
incurring expenses) in respect of the land for the day in calculating the profits
of the tenant’s property business.
(4)
This section is subject to sections 64 and 65 (restrictions on section 61 expenses
30
where the additional calculation rule is relevant).
64
Restrictions on section 61 expenses: lease premium receipts
(1)
This section applies if—
(a)
a lease has been granted out of the taxed lease, and
(b)
in calculating the amount of a receipt of a property business under
35
Chapter 4 of Part 3 (profits of property businesses: lease premiums etc.)
in respect of the lease, there is a reduction under section 288 (the
additional calculation rule) by reference to the taxed receipt.

In this section and sections 65 and 67 such a receipt is referred to as a “lease
premium receipt”.
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Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
28

(2)
Subsections (3) to (5) provide for the application of section 61 as a result of
section 63 for a qualifying day that falls within the receipt period of the lease
premium receipt.
(3)
The tenant under the taxed lease is treated as incurring an expense under
section 61 as a result of section 63 for the qualifying day by reference to the
5
taxed receipt only if the daily amount of the taxed receipt exceeds the daily
reduction of the lease premium receipt.
(4)
If the condition in subsection (3) is met, the amount of that expense for the
qualifying day by reference to the taxed receipt is equal to that excess.
(5)
If the qualifying day falls within the receipt period of more than one lease
10
premium receipt, the reference in subsection (3) to the daily reduction of the
lease premium receipt is to be read as a reference to the total of the daily
reductions of each of the lease premium receipts whose receipt period includes
the qualifying day.
(6)
In this section—
15
the “daily amount” of the taxed receipt is given by the formula—
where—
A is the unreduced amount of the taxed receipt, and
TRP is the number of days in the receipt period of the taxed receipt, and

20
the “daily reduction” of a lease premium receipt is given by the formula—
where—
AR is the reduction under section 288 by reference to the taxed receipt,
and
RRP is the number of days in the receipt period of the lease premium
25
receipt.
(7)
Section 65 explains how this section operates if the lease does not extend to the
whole of the premises subject to the taxed lease.
65
Restrictions on section 61 expenses: lease of part of premises
(1)
This section applies if—
30
(a)
the conditions in section 64(1)(a) and (b) are met, and
(b)
the lease granted out of the taxed lease does not extend to the whole of
the premises subject to the taxed lease.
(2)
Subsections (3) to (5) apply for a qualifying day that falls within the receipt
period of the lease premium receipt.
35
(3)
Sections 61, 63 and 64 apply separately in relation to the part of the premises
subject to the lease and to the remainder of the premises.

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
29

(4)
If—
(a)
more than one lease that does not extend to the whole of the premises
subject to the taxed lease has been granted out of the taxed lease, and
(b)
the qualifying day falls within the receipt period of two or more lease
premium receipts that relate to different leases,
5

sections 61, 63 and 64 apply separately in relation to each part of the premises
subject to a lease to which such a lease premium receipt relates and to the
remainder of the premises.
(5)
Where sections 61, 63 and 64 apply in relation to a part of the premises, A
becomes the amount calculated by multiplying the unreduced amount of the
10
taxed receipt by the fraction of the premises constituted by the part.
(6)
This fraction is calculated on a just and reasonable basis.
66
Corporation tax receipts treated as taxed receipts
Section 296 (corporation tax receipts treated as taxed receipts) applies for the
purposes of sections 60 to 67.
15
67
Restrictions on section 61 expenses: corporation tax receipts
(1)
This section provides for the application of section 61 as a result of section 63
if—
(a)
a lease has been granted out of the taxed lease,
(b)
in calculating the amount of a corporation tax receipt in respect of the
20
lease, there is a reduction under section 37(2) or (3) of ICTA by
reference to the amount chargeable on the superior interest for the
purposes of that section, and
(c)
the amount chargeable on the superior interest is the taxed receipt for
the purposes of section 61.
25
(2)
Sections 61 and 63 to 65 apply as follows—
(a)
the corporation tax receipt is treated as if it were a lease premium
receipt for the purposes of sections 64 and 65,
(b)
references in those sections to the reduction under section 288 by
reference to the taxed receipt are, in relation to the corporation tax
30
receipt, to the reduction under section 37(2) or (3) of ICTA by reference
to the amount chargeable on the superior interest, and
(c)
for the purposes of those sections the receipt period of the corporation
tax receipt is—
(i)
in the case of a corporation tax receipt as a result of section 34 of
35
ICTA, the period treated in calculating the amount of the receipt
as being the duration of the lease, and
(ii)
in the case of a corporation tax receipt as a result of section 35 of
ICTA, the period treated in calculating the amount of the receipt
as being the duration of the lease remaining at the date of the
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assignment.
(3)
There is a corporation tax receipt in respect of a lease if—
(a)
there is a receipt of a Schedule A business or an overseas property
business (within the meaning of section 70A(4) of ICTA) as a result of
section 34 or 35 of ICTA (treatment of premiums etc. as rent and
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Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
30

assignments for profit of lease granted at an undervalue) in respect of
the lease for an accounting period ending after 5th April 2005, or
(b)
there would be such a receipt, but for the operation of section 37(2) or
(3) of ICTA (reductions in certain receipts under section 34 or 35 of
ICTA).
5
(4)
References to a reduction under section 37(2) or (3) of ICTA in a corporation tax
receipt by reference to the amount chargeable on the superior interest are to the
difference between—
(a)
the amount of the corporation tax receipt before the operation of section
37(2) or (3) of ICTA, and
10
(b)
the amount of the corporation tax receipt after the operation of that
subsection,

so far as attributable to the amount chargeable on the superior interest for the
purposes of section 37 of ICTA.
Renewals
15
68
Replacement and alteration of trade tools
(1)
This section applies if—
(a)
expenses are incurred on replacing or altering any tool used for the
purposes of a trade, and
(b)
a deduction for the expenses would not otherwise be allowable in
20
calculating the profits of the trade because (and only because) they are
items of a capital nature.
(2)
In calculating the profits of the trade, a deduction is allowed for the expenses.
(3)
In this section “tool” means any implement, utensil or article.
Payments for restrictive undertakings
25
69
Payments for restrictive undertakings
(1)
In calculating the profits of a trade, a deduction is allowed for a payment—
(a)
which is treated as earnings of an employee by virtue of section 225 of
ITEPA 2003 (payments for restrictive undertakings), and
(b)
which is made, or treated as made for the purposes of section 226 of that
30
Act (valuable consideration given for restrictive undertakings), by the
person carrying on the trade.
(2)
The deduction is allowed for the period of account in which the payment—
(a)
is made, or
(b)
is treated as made for the purposes of section 226 of ITEPA 2003.
35
Seconded employees
70
Employees seconded to charities and educational establishments
(1)
This section applies if a person carrying on a trade (“the employer”) makes the
services of a person employed for the purposes of the trade available to—
(a)
a charity, or
40

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
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(b)
an educational establishment,

on a basis that is stated and intended to be temporary.
(2)
In calculating the profits of the trade, a deduction is allowed for expenses of the
employer that are attributable to the employee’s employment during the
period of the secondment.
5
(3)
In this section—
“educational establishment” means—
(a)
in England and Wales, any of the bodies mentioned in section
71(1),
(b)
in Scotland, any of the bodies mentioned in section 71(2),
10
(c)
in Northern Ireland, any of the bodies mentioned in section
71(3), and
(d)
any other educational body which is for the time being
approved for the purposes of this section by the Secretary of
State or, in Northern Ireland, the Department of Education, and
15
“the period of the secondment” means the period for which the
employee’s services are made available to the charity or educational
establishment.
71
Educational establishments
(1)
A body in England and Wales is an educational establishment for the purposes
20
of section 70 if it is—
(a)
a local education authority,
(b)
an educational institution maintained or otherwise supported by a
local education authority,
(c)
an independent school within the meaning of the Education Act 1996
25
(c. 56) registered under section 161 of the Education Act 2002 (c. 32), or
(d)
an institution within the further education sector, or the higher
education sector, within the meaning of the Further and Higher
Education Act 1992 (c. 13).
(2)
A body in Scotland is an educational establishment for the purposes of section
30
70 if it is—
(a)
an education authority within the meaning of the Education (Scotland)
Act 1980 (c. 44),
(b)
an educational establishment within the meaning of the Education
(Scotland) Act 1980 managed by an education authority within the
35
meaning of that Act,
(c)
a public or grant-aided school within the meaning of the Education
(Scotland) Act 1980,
(d)
an independent school within the meaning of the Education (Scotland)
Act 1980,
40
(e)
a central institution within the meaning of the Education (Scotland) Act
1980,
(f)
an institution within the higher education sector within the meaning of
section 56(2) of the Further and Higher Education (Scotland) Act 1992
(c. 37), or
45
(g)
a college of further education within the meaning of section 36(1) of the
Further and Higher Education (Scotland) Act 1992.

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
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(3)
A body in Northern Ireland is an educational establishment for the purposes
of section 70 if it is—
(a)
an education or library board within the meaning of the Education and
Libraries (Northern Ireland) Order 1986 (S.I. 1986/594 (N.I. 3)),
(b)
a college of education or a controlled, maintained, grant-maintained
5
integrated, controlled integrated, voluntary or independent school
within the meaning of the Education and Libraries (Northern Ireland)
Order 1986, or
(c)
an institution of further education within the meaning of the Further
Education (Northern Ireland) Order 1997 (S.I. 1997/1772 (N.I. 15)).
10
Contributions to agents’ expenses
72
Payroll deduction schemes: contributions to agents’ expenses
(1)
This section applies if—
(a)
a person carrying on a trade (“the employer”) is liable to make
payments to an individual,
15
(b)
income tax falls to be deducted from those payments as a result of
PAYE regulations, and
(c)
the employer withholds sums from those payments in accordance with
an approved scheme and pays the sums to an approved agent.
(2)
In calculating the profits of the employer’s trade, a deduction is allowed for
20
expenses incurred by the employer in making a payment to the agent for
expenses which—
(a)
have been incurred, or
(b)
are to be incurred,

by the agent in connection with the agent’s functions under the scheme.
25
(3)
In this section “approved agent” and “approved scheme” have the same
meaning as in section 714 of ITEPA 2003.
Counselling and retraining expenses
73
Counselling and other outplacement services
(1)
In calculating the profits of a trade, a deduction is allowed for counselling
30
expenses if—
(a)
the person carrying on the trade (“the employer”) incurs the expenses,
(b)
the expenses are incurred in relation to a person (“the employee”) who
holds or has held an office or employment under the employer for the
purposes of the trade, and
35
(c)
the relevant conditions are met.
(2)
In this section “counselling expenses” means expenses incurred—
(a)
in the provision of services to the employee in connection with the
cessation of the office or employment,
(b)
in the payment or reimbursement of fees for such provision, or
40
(c)
in the payment or reimbursement of travelling expenses in connection
with such provision.
(3)
In this section “the relevant conditions” means—