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
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(b)
it is expected to seek to perform that function by creating a plan for the
development of that area and trying to secure that the plan is carried
into effect, and
(c)
in co-ordinating the regeneration of that area, it is expected to work
together with some or all local or other public authorities which
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exercise functions in relation to the whole or part of that area.
(3)
An order under this section may be framed so as to take effect on a date earlier
than the making of the order, but not earlier than three months before the date
on which the order is made.
Scientific research
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Expenses of research and development
(1)
If a person carrying on a trade incurs expenses of a revenue nature on research
and development—
(a)
related to the trade, and
(b)
directly undertaken by or on behalf of the person,
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a deduction is allowed for the expenses in calculating the profits of the trade.
(2)
For this purpose expenses incurred on research and development—
(a)
do not include expenses incurred in the acquisition of rights in, or
arising out of, research and development, but
(b)
subject to that, include all expenses incurred in carrying out, or
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providing facilities for carrying out, research and development.
(3)
The reference in this section to research and development related to a trade
includes—
(a)
research and development which may lead to or facilitate an extension
of the trade, and
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(b)
research and development of a medical nature which has a special
relation to the welfare of workers employed in the trade.
(4)
The same expenses may not be brought into account under this section in
relation to more than one trade.
(5)
In this section “research and development” has the meaning given by section
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837A of ICTA and includes oil and gas exploration and appraisal.
(6)
This section does not apply to professions or vocations.
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Payments to research associations, universities etc.
(1)
If a person carrying on a trade—
(a)
pays any sum to an approved scientific research association which has
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as its object scientific research related to the class of trade to which the
trade belongs, or
(b)
pays any sum to be used for such scientific research to an approved
university, college research institute or other similar institution,

a deduction is allowed for the sum in calculating the profits of the trade.
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(2)
The deduction is allowed for the period of account in which the payment is
made.

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
41

(3)
“Scientific research” means any activities in the fields of natural or applied
science for the extension of knowledge.
(4)
For the purposes of this section—
(a)
a scientific research association, or
(b)
a university, college research institute or other similar institution,
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is approved if it is for the time being approved for the purposes of this section
by the Secretary of State.
(5)
The references in this section to scientific research related to a class of trade
include—
(a)
scientific research which may lead to or facilitate an extension of trades
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of the class, and
(b)
scientific research of a medical nature which has a special relation to the
welfare of workers employed in trades of the class.
(6)
If a question arises as to—
(a)
whether, or
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(b)
what extent,

any activities constitute or constituted scientific research, the Inland Revenue
must refer the question for decision to the Secretary of State, whose decision is
final.
(7)
The same expenses may not be brought into account under this section in
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relation to more than one trade.
(8)
This section does not apply to professions or vocations.
Expenses connected with patents, designs and trade marks
89
Expenses connected with patents
(1)
In calculating the profits of a trade, a deduction is allowed for expenses
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incurred—
(a)
in obtaining for the purposes of the trade the grant of a patent or the
extension of a patent’s term, or
(b)
in connection with a rejected or abandoned application for a patent
made for the purposes of the trade.
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(2)
This section does not apply to professions or vocations.
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Expenses connected with designs or trade marks
(1)
In calculating the profits of a trade, a deduction is allowed for expenses
incurred in obtaining for the purposes of the trade—
(a)
the registration of a design or trade mark,
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(b)
the extension of a period for which the right in a registered design
subsists, or
(c)
the renewal of registration of a trade mark.
(2)
This section does not apply to professions or vocations.

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 5 — Trade profits: rules allowing deductions
42

Export Credits Guarantee Department
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Payments to Export Credits Guarantee Department
In calculating the profits of a trade, a deduction is allowed for a sum payable
by the person carrying on the trade to the Export Credits Guarantee
Department—
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(a)
under an agreement entered into as a result of arrangements made
under section 2 of the Export and Investment Guarantees Act 1991
(c. 67) (insurance in connection with overseas investment), or
(b)
with a view to entering into such an agreement.
Expenses connected with foreign trades
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92
Expenses connected with foreign trades
(1)
This section applies if—
(a)
an individual (“the trader”) carries on a foreign trade (alone or in
partnership),
(b)
the trader is absent from the United Kingdom wholly and exclusively
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for the purpose of carrying on the foreign trade or the foreign trade and
one or more other trades (whether or not foreign trades),
(c)
qualifying expenses are incurred in connection with the foreign trade,
and
(d)
a deduction for the expenses would not otherwise be allowable in
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calculating the profits of the foreign trade because (and only because)
they were not incurred wholly and exclusively for the purposes of the
foreign trade.
(2)
In calculating any profits of the foreign trade which are not charged in
accordance with section 832 (relevant foreign income charged on the
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remittance basis), a deduction is allowed for the expenses.
(3)
Any of the following expenses are qualifying expenses incurred in connection
with the foreign trade—
(a)
expenses incurred by the trader in travelling between a place in the
United Kingdom and a place where the foreign trade is carried on,
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(b)
expenses incurred by the trader on board and lodging at a place where
the foreign trade is carried on,
(c)
if the trader’s absence from the United Kingdom is for a continuous
period of 60 days or more, family expenses (as defined in section 94),
and
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(d)
if the trader also carries on another trade outside the United Kingdom
(whether or not a foreign trade), expenses incurred by the trader in
travelling between a place where the foreign trade is carried on and a
place outside the United Kingdom where the other trade is carried on.
(4)
In this section and section 93 “foreign trade” means a trade carried on wholly
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outside the United Kingdom.
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Allocation of expenses
(1)
Expenses within section 92(3)(a), (b) or (c) are allocated to the foreign trade.

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 6 — Trade profits: receipts
43

(2)
If—
(a)
the expenses are within section 92(3)(a) or (b), and
(b)
the trader carries on more than one foreign trade at the place in
question outside the United Kingdom,

those expenses are allocated between the foreign trades on a just and
5
reasonable basis.
(3)
If—
(a)
the expenses are within section 92(3)(c), and
(b)
the trader’s absence is for the purpose of carrying on more than one
foreign trade,
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those expenses are allocated between the foreign trades on a just and
reasonable basis.
(4)
Expenses within section 92(3)(d) are allocated—
(a)
to the trade carried on at the trader’s place of destination, if that trade
is a foreign trade, and
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(b)
in any other case, to the foreign trade carried on at the trader’s place of
departure.
(5)
If the trader carries on more than one foreign trade at—
(a)
the place of destination (in a case falling within subsection (4)(a)), or
(b)
the place of departure (in a case falling within subsection (4)(b)),
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the expenses are allocated between the foreign trades on a just and reasonable
basis.
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Family expenses
(1)
In section 92(3)(c) “family expenses” means expenses of a journey made by the
trader’s spouse or child if the journey—
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(a)
is between a place in the United Kingdom and a place outside the
United Kingdom where any of the trades is carried on, and
(b)
is made in order to accompany the trader at the beginning of the period
of absence or to visit the trader during that period or to return after a
journey made for either purpose.
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(2)
But no more than two outward and two return journeys made by the same
person in a tax year fall within subsection (1).
(3)
In this section “child” includes a stepchild but does not include a person who
is aged 18 or over at the start of the outward journey.
Chapter 6
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Trade profits: receipts
Introduction
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Professions and vocations
Apart from section 105 (industrial development grants), the provisions of this
Chapter apply to professions and vocations as they apply to trades.
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