Income Tax (Trading and Other Income) Bill

House of Commons

Session 2004 - 05
Internet Publications
Other Bills before Parliament

Income Tax (Trading and Other Income) Bill

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
408

      (2)
In subsection (1) after “section 231” insert “above or section 397(1) of ITTOIA
2005”.
      (3)
In subsection (1A)—
(a)
for “a relevant person”, “section 233(1)” and “Schedule F” substitute
“a person resident in the United Kingdom”, “section 399(2) of
5
ITTOIA 2005” and “dividend” respectively, and
(b)
omit the second sentence.
116
In section 231B(4)(b) (consequences of certain arrangements to pass on value
of a tax credit) for “section 231(3)” substitute “section 397(2) of ITTOIA
2005”.
10
117
Omit section 232 (tax credits for non-UK residents).
118
Omit section 233 (taxation of certain recipients of distributions and in
respect of non-qualifying distributions).
119   (1)
Amend section 249 (stock dividends treated as income) as follows.
      (2)
In subsection (1) for “subsections (7) to (9) below, this section applies”
15
substitute “subsections (8) and (9) below, this section applies (and
accordingly section 230 above and section 410 of ITTOIA 2005 apply)”.
      (3)
Omit subsections (4) to (7).
      (4)
In subsection (8)—
(a)
for “subsection (4)” substitute “section 410(2), (3) or (4) of ITTOIA
20
2005”, and
(b)
omit the words from “and subsections (5)” onwards.
      (5)
In subsection (9)(b) for “an individual” to “an amount of income” substitute
“income to be treated as arising to an individual as a result of section 410(2)
of ITTOIA 2005”.
25
120   (1)
Amend section 250 (returns) as follows.
      (2)
In subsection (5)(c) for “the appropriate amount in cash” substitute “the cash
equivalent of the share capital in accordance with section 412 of ITTOIA
2005”.
      (3)
In subsection (7) at the end insert “of this Act or Chapter 5 of Part 4 of
30
ITTOIA 2005”.
121
In section 251 (interpretation of sections 249 and 250), omit subsections (2) to
(6).
122
Omit sections 251A to 251D (approved share incentive plans).
123
In section 271(1)(a) (deemed surrender in cases of certain loans) for “under
35
section 547” substitute “by virtue of section 465 of ITTOIA 2005”.
124
In section 273 (payments securing annuities)—
(a)
renumber the existing text as subsection (1),
(b)
in that subsection after “Subject to” insert “subsection (2) and”,
(c)
in that subsection omit “, 617(3)”, and
40

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
409

(d)
after that subsection insert—
“(2)
No deduction may be made under this section in respect of
any contribution paid by any person under Part 1 of the
Social Security Contributions and Benefits Act 1992 or Part 1
of the Social Security Contributions and Benefits (Northern
5
Ireland) Act 1992.”
125
In section 282A(4)(b) (jointly held property) for “section 111” substitute “Part
9 of ITTOIA 2005 (partnerships)”.
126
In section 291A(3)(f) (connected persons: directors)—
(a)
in sub-paragraph (i) after “trade or profession” insert “carried on
10
wholly or partly in the United Kingdom”, and
(b)
in sub-paragraph (ii) for the words from “in computing” to the end
substitute “in calculating for tax purposes the profits of that trade or
profession”.
127
In section 307(1) (withdrawal of enterprise investment scheme relief) for “to
15
tax under Case VI of Schedule D” substitute “to income tax”.
128
Omit section 314 (divers and diving supervisors).
129
Omit section 322 (consular officers and employees).
130
Omit section 324 (designated international organisations).
131
Omit section 325 (interest on deposits with National Savings Bank).
20
132
Omit section 326 (interest etc. under contractual savings schemes).
133
Omit sections 326A to 326D (tax-exempt special savings accounts).
134
Omit section 327 (disabled person’s vehicle maintenance grant).
135
Omit section 327A (payments to adopters).
136
Omit sections 329 to 329AB (exemption of interest on damages for personal
25
injury and personal injury damages in the form of periodical payments).
137
Omit section 331 (scholarship income).
138
Omit section 331A (student loans: certain interest to be disregarded).
139
Omit section 332(3) (expenditure and houses of ministers of religion).
140
In section 332A (venture capital trusts: reliefs) omit “and distributions by
30
such trusts”.
141
For section 333 substitute—
“333
Investment plan regulations
Regulations under Chapter 3 of Part 6 of ITTOIA 2005 (income from
individual investment plans) may include provision generally for
35
the purpose of the administration of corporation tax in relation to
plans.”
142
Omit section 333A (personal equity plans: tax representatives).
143   (1)
Amend section 333B (involvement of insurance companies with plans and
accounts) as follows.
40

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
410

      (2)
In subsections (1), (2)(b) and (3) for “section 333 business” substitute “plan
business”.
      (3)
In subsection (4)—
(a)
after “this section” insert “or Chapter 3 of Part 6 of ITTOIA 2005
(except sections 697 and 698)”, and
5
(b)
for “section 333A” substitute “section 697 or 698 of ITTOIA 2005
(requirements concerning foreign plan managers)”.
      (4)
In subsection (5)(a) and (b) for “section 333 business” substitute “plan
business”.
      (5)
In subsection (8) for “section 333 business” substitute “plan business”.
10
      (6)
In subsection (9)—
(a)
after the definition of “long-term insurance fund” insert—
““plan business”, in relation to an insurance company,
means the business of the company that is
attributable to the making of investments with that
15
company under plans for which provision is made by
regulations under Chapter 3 of Part 6 (except sections
697 and 698) of ITTOIA 2005 (income from individual
investment plans)”, and
(b)
omit the definition of “section 333 business”.
20
144
In section 336(1A) (exception from certain charges for temporary residents
in the United Kingdom) for paragraph (a) substitute—
“(a)
any charge under ITTOIA 2005 on relevant foreign income,”.
145   (1)
Amend section 337 (company beginning or ceasing to carry on trade) as
follows.
25
      (2)
In subsection (1) after “shall be computed” insert “for the purposes of
corporation tax”.
      (3)
In subsection (2) after “overseas property business” insert “(within the
meaning given by section 70A(4))”.
146   (1)
Amend section 347A (general rule: annual payments) as follows.
30
      (2)
In subsection (1)(b)—
(a)
after “not” insert “, for the purposes of corporation tax,”,
(b)
for “the person” substitute “any company”, and
(c)
for “other person” substitute “other company”.
      (3)
After subsection (2) insert—
35
“(2A)
This section applies to any annual payment made by an individual
which—
(a)
arises in the United Kingdom, and
(b)
is exempt from any charge under Part 5 of ITTOIA 2005
(miscellaneous income) as a result of section 727 of that Act.”
40
      (4)
Omit subsections (4) and (5).
      (5)
In subsection (6) after “(2)” insert “or (2A)”.

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
411

147   (1)
Amend section 348 (payments out of profits or gains brought into charge to
income tax: deduction of tax) as follows.
      (2)
In subsection (1A), after paragraph (a), insert—
“(aa)
which—
(i)
is charged with tax under Chapter 7 of Part 4 of
5
ITTOIA 2005 (purchased life annuity payments),
Chapter 10 of that Part (distributions from
unauthorised unit trusts), section 579 of that Act
(royalties etc. from intellectual property), Chapter 4 of
Part 5 of that Act (certain telecommunication rights:
10
non-trading income) or Chapter 7 of Part 5 of that Act
(annual payments not otherwise charged), and
(ii)
is not relevant foreign income,”.
      (3)
After subsection (3) insert—
“(4)
For the purposes of this section and section 349(1), the following
15
income shall be treated as not brought into charge to income tax—
(a)
income on which income tax is treated as paid under section
399(2) or 400(2) of ITTOIA 2005 (distributions from UK
resident companies etc. on which there is no tax credit),
(b)
income on which an individual is liable to income tax as a
20
result of section 413(2) of that Act or trustees are so liable as
a result of section 413(3) of that Act (stock dividend income),
(c)
income on which any person is liable to income tax under
Chapter 6 of Part 4 of that Act (release of loan to participator
in close company),
25
(d)
income on which an individual is liable to income tax as a
result of section 465 of that Act or trustees are so liable as a
result of section 467 of that Act (gains from contracts for life
insurance etc.), being income to which section 530 of that Act
applies (income tax treated as paid etc.), and
30
(e)
income which is included in the aggregate income of an
estate as a result of section 664(2)(c), (d) or (e) of that Act
(income arising to personal representatives and
corresponding to income within paragraph (b), (c) or (d)).”
148   (1)
Amend section 349 (payments not out of profits or gains brought into charge
35
to income tax, and annual interest) as follows.
      (2)
In subsection (1A), after paragraph (a), insert—
“(aa)
which—
(i)
is charged with tax under Chapter 7 of Part 4 of
ITTOIA 2005 (purchased life annuity payments),
40
Chapter 10 of that Part (distributions from
unauthorised unit trusts), section 579 of that Act
(royalties etc. from intellectual property), Chapter 4 of
Part 5 of that Act (certain telecommunication rights:
non-trading income) or Chapter 7 of Part 5 of that Act
45
(annual payments not otherwise charged), and
(ii)
is not relevant foreign income,”.
      (3)
In subsection (2) for “chargeable to” substitute “which falls within Chapter 2
of Part 4 of ITTOIA 2005 (interest) (excluding anything specially exempted

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
412

from income tax and discounts treated as interest by section 381 of that Act)
or which is chargeable to corporation”.
      (4)
In subsection (3) before paragraph (a) insert—
“(za)
to interest chargeable to income tax as relevant foreign
income; or”.
5
      (5)
In subsection (4)—
(a)
insert the following definitions in the appropriate places—
““certificate of deposit” means a document falling
within the definition of that expression in section
56(5) above or section 552(2) of ITTOIA 2005;”,
10
““uncertificated eligible debt security units” has the
same meaning as in section 552(2) of ITTOIA 2005;”,
(b)
in the definition of “qualifying certificate of deposit”—
(i)
omit “, as defined in section 56(5),”, and
(ii)
after “under which” insert “, or uncertificated eligible debt
15
security units under which”, and
(c)
in the definition of “qualifying deposit right”—
(i)
at the end of paragraph (a) insert “above or is an
uncertificated right, as defined in section 552(2) of ITTOIA
2005”, and
20
(ii)
in paragraph (b) omit “, as defined in section 56(5),” and after
“issued” insert “, and no uncertificated eligible debt security
units have been issued,”.
      (6)
For subsection (7) substitute—
“(7)
This section is subject to section 101 of the Finance Act 2004 (payment
25
of royalties without deduction at source).”
149
After section 349 insert—
“349ZA
  Extension of section 349: proceeds of sale of UK patent rights
(1)
Subsection (2) applies if—
(a)
a person who is a non-UK resident is chargeable to tax under
30
section 587 of ITTOIA 2005 on profits from the sale of the
whole or part of any patent rights, and
(b)
the net proceeds of the sale consist wholly or partly of a
capital sum.
(2)
Subsection (1) of section 349 of this Act applies to any payment of the
35
net proceeds of sale, or of an instalment of them, as if the net
proceeds or instalment were, so far as consisting of the capital sum—
(a)
an annual sum to which paragraph (a) of that subsection
applies, and
(b)
payable otherwise than out of profits or gains charged to
40
income tax.
(3)
For the purposes of this section the net proceeds of the sale is the
amount of the proceeds net of any incidental expenses of the sale
which are deducted before payment.

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
413

(4)
Sections 597 to 599 of ITTOIA 2005 (licences connected with patents
etc.) apply for the purposes of this section as they apply for the
purposes of sections 587 to 596 of that Act.
(5)
Section 4 of the Capital Allowances Act 2001 (meaning of “capital
sums” etc.) applies in relation to this section as it applies in relation
5
to Chapter 2 of Part 5 of ITTOIA 2005 (receipts from intellectual
property).
(6)
In this section “a non-UK resident” means a person who is not
resident in the United Kingdom.”
150
In section 349A(3) (exceptions to section 349 for payments between
10
companies etc.) for “524(3)(b)” substitute “349ZA(2)”.
151   (1)
Amend section 349B (conditions mentioned in section 349A(1)) as follows.
      (2)
In subsection (4)(b) for “section 333 (personal equity plans and individual
savings accounts)” substitute “Chapter 3 of Part 6 of ITTOIA 2005 (income
from individual investment plans)”.
15
      (3)
Omit subsection (5).
152
In section 353(1) (relief for payments of interest) after “sections 359 to 368”
insert “of this Act and section 52 of ITTOIA 2005”.
153
In section 360A(2)(b) (meaning of “material interest” in section 360) for
“Chapter 1A of Part XV (see section 660G(1) and (2))” substitute “Chapter 5
20
of Part 5 of ITTOIA 2005 (see section 620 of that Act)”.
154   (1)
Amend section 368 (exclusion of double relief etc) as follows.
      (2)
In subsection (3) for “for the purposes of Schedule A or Case I or II of
Schedule D” substitute “of any trade, profession or vocation, or of any UK
property business or overseas property business,”.
25
      (3)
Omit subsection (4).
      (4)
In subsection (5)—
(a)
for “subsections (3) and (4)” substitute “subsection (3)”, and
(b)
for “those subsections” substitute “that subsection”.
      (5)
For subsection (6) substitute—
30
“(6)
Any reference in subsection (3) above to an amount taken into
account is a reference to an amount taken into account in an
assessment which has been finally determined.”
155
In section 370(2)(b) (relevant loan interest) for the words from “either” to the
end substitute “would be eligible for relief under section 353”.
35
156   (1)
Amend section 379A (Schedule A losses) as follows.
      (2)
In subsection (1) for “Schedule A business” substitute “UK property
business”.
      (3)
In subsection (2) for “Schedule A business”, in both places where it occurs,
substitute “UK property business”.
40
      (4)
In subsection (3) for “Schedule A business” substitute “UK property
business”.

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
414

      (5)
In subsection (4) for “Schedule A business” substitute “UK property
business”.
      (6)
In subsection (7)—
(a)
for “Schedule A business” substitute “UK property business”, and
(b)
for “applicable to” to the end substitute “applicable to UK property
5
businesses”.
      (7)
In the side-note for “Schedule A losses” substitute “Losses from UK property
business”.
      (8)
In the italic cross-heading before the section for “Schedule A” substitute “UK
property”.
10
157
In section 379B (losses from overseas property business)—
(a)
after “overseas property business” insert “(within the meaning given
by Chapter 2 of Part 3 of ITTOIA 2005)”, and
(b)
for “Schedule A business” substitute “UK property business”.
158
In section 382(3) (provisions supplementary to sections 380 and 381) omit
15
“under the provisions of the Income Tax Acts applicable to Case I or II of
Schedule D”.
159   (1)
Amend section 384 (restrictions on right of set-off for trade etc. losses) as
follows.
      (2)
In subsection (4) for the words from “a trade” to “subsections (1) to (3)
20
above” substitute “—
(a)
a trade is carried on for part only of a year of assessment by
reason of its being set up and commenced, or discontinued,
or both, in that year, or
(b)
a person carries on, or is treated as carrying on, a trade for
25
part only of a year of assessment by reason of—
(i)
a succession to the trade during the year which
involves all the persons carrying it on before the
succession permanently ceasing to carry it on, or
(ii)
a change of residence within section 17 of ITTOIA
30
2005,

subsections (1) to (3) above”.
      (3)
In subsection (8) for “under Case VI of Schedule D” substitute “to income
tax”.
160
In section 384A(6) (restriction of set-off of allowances against general
35
income) for “under Case VI of Schedule D” substitute “to income tax”.
161
In section 385(4) (carry-forward against subsequent profits) omit “under
Case I of Schedule D” and, in both places where it occurs, “under that Case”.
162
In section 386(1) (carry-forward where business transferred to a company)
omit “under Schedule D”.
40
163
In section 387(3)(d) (carry-forward as losses of amounts taxed under section
350) for “under section 349(1) by virtue of section 524” substitute “under
section 349(1) of this Act by virtue of section 595 of ITTOIA 2005”.
164   (1)
Amend section 388 (carry-back of terminal losses) as follows.