Income Tax (Trading and Other Income) Bill

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Session 2004 - 05
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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
422

      (3)
In subsection (6)—
(a)
omit “year of assessment or”,
(b)
for “person” substitute “company”,
(c)
omit “year or” in each place where it occurs,
(d)
for “he” substitute “the company”, and
5
(e)
for “him” substitute “the company”.
      (4)
In subsection (6A) for “above is—” to the end substitute “above is the period
of two years beginning at the end of the accounting period in which the
accommodation was let.”
      (5)
In subsection (7)—
10
(a)
omit “year of assessment or”, and
(b)
omit “year or” in both places where it occurs.
      (6)
In subsection (8) omit “year of assessment or”.
      (7)
In subsection (9)—
(a)
for “a person” substitute “a company”, and
15
(b)
for “he” substitute “it”.
197
After section 504 insert—
“504A
  Letting of furnished holiday accommodation treated as trade for
certain income tax purposes
(1)
For the purposes specified in subsection (2)—
20
(a)
a UK property business which consists in, or so far as it
consists in, the commercial letting of furnished holiday
accommodation is treated as if it were a trade the profits of
which are chargeable to income tax under Part 2 of ITTOIA
2005, and
25
(b)
all such lettings made by a particular person or partnership
or body of persons are treated as one trade.

The “commercial letting of furnished holiday accommodation” has
the same meaning as it has for the purposes of Chapter 6 of Part 3 of
ITTOIA 2005.
30
(2)
Subsection (1) applies for the purposes of—
(a)
Chapter 1 of Part 10 (loss relief for income tax),
(b)
section 833(4)(c) (income regarded as earned income), and
(c)
section 189(2)(b) of the Finance Act 2004 (income regarded as
relevant UK earnings for pension purposes).
35
(3)
Chapter 1 of Part 10 as applied by this section has effect with the
following adaptations—
(a)
no relief is to be given to an individual under section 381
(relief for losses in early years of trade) in respect of a year of
assessment if any of the accommodation in respect of which
40
the trade is carried on in that year was first let by that person
as furnished accommodation more than three years before
the beginning of that year of assessment;
(b)
section 384 (restrictions on right of set-off) has effect with the
omission of subsections (6) to (8) (which relate to certain
45
losses attributable to capital allowances);

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
423

(c)
section 390 (treatment of interest as loss) has effect as if the
reference to a trade carried on wholly or partly in the United
Kingdom were a reference to the UK property business so far
as it is treated as a trade.
(4)
If there is a letting of accommodation only part of which is holiday
5
accommodation, such apportionments are to be made for the
purposes of this section as are just and reasonable.
(5)
Relief is not to be given for the same loss, or the same portion of a
loss, both under a provision of Chapter 1 of Part 10 as applied by this
section and under any other provision of the Income Tax Acts.”
10
198   (1)
Amend section 505 (charities: general) as follows.
      (2)
In subsection (1)—
(a)
in paragraph (a) after “Schedules A and D” insert “, or under Parts 2
and 3 of ITTOIA 2005,”,
(b)
in paragraph (c)(ii) after “Schedule D” insert “or under Chapter 2, 7,
15
8 or 10 of Part 4 of ITTOIA 2005 (interest, purchased life annuity
payments, profits from deeply discounted securities and
distributions from unauthorised unit trusts), section 579 of that Act
so far as it relates to annual payments (royalties etc. from intellectual
property), Chapter 4 of Part 5 of that Act so far as it relates to annual
20
payments (certain telecommunication rights: non-trading income) or
Chapter 7 of Part 5 of that Act (annual payments not otherwise
charged)”,
(c)
in paragraph (c)(iia) omit “IV or”,
(d)
after paragraph (c)(iia) insert—
25
“(iiaa)
from tax under Chapter 4 of Part 4 of ITTOIA
2005 (dividends from non-UK resident
companies) or from tax under Chapter 8 of
Part 5 of that Act (income not otherwise
charged) so far as it applies to relevant foreign
30
distributions,”,
(e)
in paragraph (c)(iib) from “income” to “and” at the end of sub-
paragraph (iib) substitute “such dividends as would, in the case of
income tax, be chargeable to tax under Chapter 4 of Part 4 of ITTOIA
2005 or such distributions (other than dividends) as would, in the
35
case of income tax, be chargeable to tax under Chapter 8 of Part 5 of
that Act so far as it would apply to what would be a relevant foreign
distribution,”,
(f)
in paragraph (c)(iii) for “Schedule F” substitute “Chapter 3 of Part 4
of ITTOIA 2005 (dividends etc. from UK resident companies etc.)”,
40
(g)
in paragraph (d) after “Schedule D” insert “or Chapter 2 of Part 4 of
ITTOIA 2005 (interest)”,
(h)
in paragraph (e) after “Schedule D” insert “or Part 2 of ITTOIA 2005
(trading income)”, and
(i)
in paragraph (f) after “Schedule D” insert “or Part 2 or 5 of ITTOIA
45
2005 (trading and miscellaneous income)”.

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
424

      (3)
After subsection (1) insert—
“(1AA)
In section (1)(c)(ii)(aa) and (iib) “relevant foreign distribution” means
any distribution of a company not resident in the United Kingdom
which—
(a)
is not chargeable under Chapter 4 of Part 4 of ITTOIA 2005,
5
but
(b)
would be chargeable under Chapter 3 of that Part of that Act
if the company were resident in the United Kingdom.”
      (4)
In subsection (2) after “chargeable to”, in the second place where it occurs,
insert “income tax under Chapter 7 of Part 5 of ITTOIA 2005 (annual
10
payments not otherwise charged) so far as it does not apply to relevant
foreign income and shall be chargeable to corporation”.
199
In section 512(1) (exemptions for Atomic Energy Authority and National
Radiological Protection Board)—
(a)
in paragraph (a) after “under” insert “Part 3 of ITTOIA 2005 so far as
15
it relates to the profits of a UK property business and under”,
(b)
in paragraph (b)—
(i)
after “under” insert “ITTOIA 2005 and”, and
(ii)
after “dividends” insert “or income within Chapter 10 of Part
4 of ITTOIA 2005 (distributions from unauthorised unit
20
trusts)”, and
(c)
in paragraph (c) for “Schedule F” substitute “Chapter 3 of Part 4 of
ITTOIA 2005 (dividends etc. from UK resident companies etc.)”.
200
Omit section 514 (funds for reducing the national debt).
201   (1)
Amend section 524 (taxation of receipts from sale of patent rights) as follows.
25
      (2)
In subsection (1)—
(a)
for “person”, “he” and “him” substitute “company”, “the company”
and “it” respectively,
(b)
for “tax” substitute “corporation tax”, and
(c)
for “chargeable”, in both places where it occurs, substitute
30
“accounting”.
      (3)
In subsection (2)—
(a)
for “person” substitute “company”,
(b)
after “charged to”, in both places where it occurs, insert
“corporation”, and
35
(c)
for “chargeable” substitute “accounting”.
      (4)
In subsection (2A)—
(a)
omit paragraph (a), and
(b)
in paragraph (b) omit “in the case of an election for the purposes of
corporation tax,”.
40
      (5)
In subsection (3)—
(a)
for the words from the beginning to “in the United Kingdom”
substitute “Where a relevant non-resident company”, and
(b)
in paragraph (a), for “he shall be chargeable to tax” substitute “the
company shall be chargeable to corporation tax”.
45
      (6)
Omit subsection (4).

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
425

      (7)
For subsection (5) substitute—
“(5)
In subsection (3) above “relevant non-resident company” means a
company not resident in the United Kingdom which would be
within the charge to corporation tax in respect of any proceeds of the
sale of the patent rights not consisting of a capital sum.”
5
      (8)
In subsection (6) omit “subsection (4) shall not apply, but”.
      (9)
In subsection (7)—
(a)
for “person” substitute “company”,
(b)
for “him”, in both places where it occurs, substitute “it”, and
(c)
for “he” substitute “it”.
10
     (10)
In subsection (8) for “him” substitute “it”.
202   (1)
Amend section 525 (receipts from sale of patent right: death, winding up or
partnership change) as follows.
      (2)
For subsection (1) substitute—
“(1)
Where a body corporate on which, by reason of the receipt of a
15
capital sum, a charge falls or would otherwise fall to be made under
section 524 commences to be wound up—
(a)
no sums shall be charged under that section on that body for
any accounting period subsequent to that in which the
winding up commences; and
20
(b)
the amount falling to be charged for the accounting period in
which the winding up commences shall be increased by the
total amounts which, but for the winding up, would have
fallen to be charged for subsequent accounting periods.”
      (3)
Omit subsection (2).
25
      (4)
In subsection (4)—
(a)
in paragraph (a)—
(i)
for “chargeable period” substitute “accounting period”,
(ii)
omit “(or, if he is dead, his personal representatives)”, and
(iii)
for “his” substitute “its”, and
30
(b)
omit paragraph (b) and the word “and” immediately preceding it.
      (5)
In the sidenote omit “death,”.
203   (1)
Amend section 526 (relief for expenses) as follows.
      (2)
In subsection (1)—
(a)
for “person” substitute “company”,
35
(b)
for “him”, in the first place where it occurs, substitute “it”,
(c)
for “him”, in the second place where it occurs, substitute “the
company for the purposes of corporation tax”, and
(d)
for “chargeable” substitute “accounting”.
      (3)
Omit subsection (2).
40
204
In section 527(4) (spreading of royalties over several years) at the end insert
“of this Act or by virtue of section 595 of ITTOIA 2005”.

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
426

205   (1)
Amend section 528 (manner of making allowances under section 526) as
follows.
      (2)
Omit subsection (2).
      (3)
In subsection (3) omit “as that provision applies for the purposes of
corporation tax”.
5
      (4)
In subsection (3A) omit “a person’s or” and “479 or”.
206
Omit section 529 (patent income to be earned income in certain cases).
207   (1)
Amend section 531 (disposals of know-how) as follows.
      (2)
In subsection (1)—
(a)
for “a person” substitute “a company”,
10
(b)
for “him”, in both places where it occurs, substitute “the company”,
(c)
for “tax”, in both places where it occurs, substitute “corporation tax”,
and
(d)
for “all purposes” substitute “the purposes of corporation tax”.
      (3)
For subsection (2) substitute—
15
“(2)
Subject to subsection (3) below, where—
(a)
a person carrying on a trade receives consideration for the
disposal of know-how which has been used in the trade, and
(b)
the know-how is disposed of as part of the disposal of all or
part of the trade,
20

the consideration shall for the purposes of corporation tax be treated
as a payment for goodwill in relation both to the person making the
disposal and to the person acquiring the know-how (if that person
provided the consideration).”
      (4)
In subsection (3)(a) for “to either of the persons concerned if they so elect”
25
substitute “if, in the case of the person disposing of the know-how being
within the charge to corporation tax, that person and the person acquiring
the know-how (whether or not within the charge to corporation tax) elect for
that subsection not to apply”.
      (5)
After subsection (3) insert—
30
“(3A)
If—
(a)
an election is made under section 194 of ITTOIA 2005
(provision corresponding to subsections (2) and (3) of this
section for the purposes of income tax), and
(b)
the person making the acquisition mentioned in that section
35
is within the charge to corporation tax,

the persons making the election under that section are treated as also
making an election under subsection (3) of this section (even though
the person disposing of the know-how is not within the charge to
corporation tax).”
40
      (6)
In subsection (4)—
(a)
for “person” substitute “company”,
(b)
for “him” substitute “the company”, and
(c)
for “tax”, in both places where it occurs, substitute “corporation tax”.

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
427

      (7)
In subsection (5)—
(a)
for “person” substitute “company”, and
(b)
for “tax” substitute “corporation tax”.
      (8)
Omit subsection (6).
      (9)
In subsection (7) for “(6)” substitute “(5)”.
5
208
In section 532 (application of Capital Allowances Act) for “529” substitute
“528”.
209   (1)
Amend section 533 (interpretation of intellectual property provisions) as
follows.
      (2)
In subsection (1)—
10
(a)
for “529” substitute “528”, and
(b)
for the definition of “income from patents” substitute—
““income from patents” means—
(a)
any royalty or other sum paid in respect of the
use of a patent; and
15
(b)
any amount on which tax is payable for any
accounting period by virtue of section 524 or
525 above or section 472(5) of, or paragraph
100 of Schedule 3 to, the Capital Allowances
Act,
20

but does not include any amount chargeable
to income tax.”
      (3)
In each of subsections (2) to (5) for “529” substitute “528”.
210   (1)
Amend section 539 (life policies, life annuities and capital redemption
policies: introductory) as follows.
25
      (2)
In subsection (1) for “tax” substitute “corporation tax”.
      (3)
In subsection (3) for the definition of “life annuity” substitute—
““life annuity” means—
(a)
any annuity to which section 656 (as read with section 657)
applies, or
30
(b)
any annuity that—
(i)
is a purchased life annuity for the purposes of Chapter 7
of Part 4 of ITTOIA 2005 (see section 423 of that Act), and
(ii)
is not specified in section 718 of that Act (annuities the
payments under which are not within section 717 of that
35
Act (exemption for part of purchased life annuity
payments));”.
      (4)
Omit subsection (8).
211
After that section insert—
“539ZA
Application of this Chapter etc. to policies and contracts in which
40
persons other than companies are interested
(1)
This section applies where, for the purposes of determining the
application of this Chapter in relation to a policy or contract at any
time, it is necessary to have regard to its application at another time.

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
428

(2)
It makes no difference to the application of this Chapter at that other
time whether liability in respect of a gain arising at that time would
have arisen or (as the case may be) would arise because of the
application of this Chapter or Chapter 9 of Part 4 of ITTOIA 2005
(which makes provision for income tax purposes corresponding to
5
that made by this Chapter).
(3)
References in this section to this Chapter include references to
paragraph 20 of Schedule 15 to this Act and section 79 of the Finance
Act 1997 (payments under certain life insurance policies).”
212
In section 543(1)(a)(i) (life annuity contracts: computation of gain) for “one
10
or more payments” to the end of the sub-paragraph substitute “any
payments have been made on account of the annuity, by so much of those
payments as is determined to be the capital element in them under section
656 of this Act or is exempt under section 717 of ITTOIA 2005; and”.
213
In section 544(6)(a) (second and subsequent assignment of life policies and
15
contracts) for “section 547(1)(a)” substitute “section 547A(17)”.
214
In section 545(1)(a) (capital redemption policies) for “to tax” to the end of the
paragraph substitute “—
(i)
to corporation tax under Schedule D,
(ii)
to income tax under Part 9 of ITEPA 2003 (pension
20
income) because section 609, 610 or 611 of that Act
applies to them (certain employment related
annuities), or
(iii)
to income tax under Chapter 7 of Part 4 (purchased
life annuity payments) or Chapter 7 of Part 5 (annual
25
payments not otherwise charged) of ITTOIA 2005;”.
215
In section 546C(8) (charging the section 546 excess to tax where section 546B
applies)—
(a)
for “any provision of section 547” substitute “section 547(1)(b)”,
(b)
for “body or person” substitute “company”,
30
(c)
omit paragraph (a) and the word “or” at the end of it,
(d)
in paragraph (b) for “it” substitute “the chargeable event in
question”, and
(e)
omit “year of assessment or”.
216   (1)
Amend section 547 (method of charging gain to tax) as follows.
35
      (2)
In subsection (1) omit paragraph (a) and paragraphs (c) to (e).
      (3)
In paragraph (b) of that subsection for “that event, those rights” substitute
“the chargeable event in question, the rights conferred by the policy or
contract”.
      (4)
In subsection (1A)—
40
(a)
for “their” substitute “its”, and
(b)
for “and subsections (9) to (11) below are” substitute “is”.
      (5)
Omit subsections (4A) to (7A) and (9) to (14).
217   (1)
Amend section 547A (method of charging gain to tax: multiple interests) as