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
450

(a)
in subsection (7) after “set up and commenced” insert “, or when a
trade is subject to a relevant change,”, and
(b)
after that subsection insert—
“(7A)
For the purposes of subsection (7) above a trade is subject to
a relevant change—
5
(a)
when there is a change in the persons carrying on the
trade which involves all of the persons carrying it on
before the change permanently ceasing to carry it on,
or
(b)
when a company starts to be within the charge to
10
income tax under Chapter 2 of Part 2 of ITTOIA 2005
in respect of the trade.”
303
In section 732(1A) (dealers in securities) for the words from “by virtue of” to
the end substitute “either—
(a)
by virtue of section 366(1) of ITTOIA 2005 in computing
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profits chargeable to income tax under Chapter 2 of Part 2 of
that Act, or
(b)
by virtue of section 95(1) of this Act in computing profits
chargeable to corporation tax in accordance with the
provisions of this Act applicable to Case I or II of Schedule
20
D.”
304   (1)
Amend section 740 (liability of non-transferors) as follows.
      (2)
In subsection (2)—
(a)
in paragraph (a) after “for that year” insert “and be charged to
income tax on that individual for that year”, and
25
(b)
in paragraph (b) after “his income for the next following year” insert
“and be charged to income tax on him for that year”.
      (3)
Omit subsection (4).
      (4)
In subsection (5) for the words from “; and subsections (6) to (9)” to the end
substitute “; and sections 833 and 834 of ITTOIA 2005 shall apply for the
30
purposes of this subsection as they would apply for the purposes of section
832 (remittance basis) of that Act if the benefit were relevant foreign
income.”
305   (1)
Amend section 743 (transfer of assets abroad: supplemental provision) as
follows.
35
      (2)
In subsection (1) for “Schedule F” substitute “dividend” and for “income tax
so chargeable shall be charged” to the end substitute “income to which
section 739 applies shall be charged to income tax.”
      (3)
After subsection (1) insert—
“(1ZA)
The charge to income tax under subsection (1) above operates on
40
income falling within subsection (1A) below by treating the income
as if it were income to which section 1A applies by virtue of
subsection (2)(b) of that section.”
      (4)
In subsection (1A) for paragraphs (a) to (g) substitute—
“(a)
income chargeable under Chapter 3 of Part 4 of ITTOIA 2005
45
(dividends etc. from UK resident companies etc.);

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
451

(b)
income chargeable under Chapter 4 of that Part (dividends
from non-UK resident companies);
(c)
income chargeable under Chapter 5 of that Part (stock
dividends from UK resident companies);
(d)
income chargeable under Chapter 6 of that Part (release of
5
loan to participator in close company); or
(e)
a relevant foreign distribution chargeable under Chapter 8 of
Part 5 of that Act (income not otherwise charged).”
      (5)
After that subsection insert—
“(1B)
In subsection (1A) “relevant foreign distribution” means any
10
distribution of a company not resident in the United Kingdom
which—
(a)
is not chargeable under Chapter 4 of Part 4 of ITTOIA 2005,
but
(b)
would be chargeable under Chapter 3 of that Part if the
15
company were resident in the United Kingdom.”
306
In section 745(6) (transfer of assets abroad: information powers) for “section
660G(1) and (2)” substitute “section 620 of ITTOIA 2005”.
307   (1)
Amend section 746 (persons resident in the Republic of Ireland) as follows.
      (2)
Renumber the existing text as subsection (1).
20
      (3)
In that subsection for “any provision of section 34, 35 or 36” substitute “the
lease premium rules”.
      (4)
After that subsection insert—
“(2)
Corporation tax chargeable by virtue of subsection (1)(b) above shall
be charged under Case VI of Schedule D.
25
(3)
In this section “the lease premium rules” means any provision of
sections 277 to 285 of ITTOIA 2005 or sections 34 to 36 of this Act.”
308   (1)
Amend section 761 (charge to income tax or corporation tax of offshore
income gain) as follows.
      (2)
In subsection (1) for the words from “of that gain shall be treated for all” to
30
the end substitute “of that gain—
(a)
shall be treated for all the purposes of the Tax Acts as income
arising at the time of the disposal to the person making the
disposal, and
(b)
shall be charged—
35
(i)
to income tax for the year of assessment in which the
disposal is made, or
(ii)
to corporation tax as a profit or gain under Case VI of
Schedule D for the accounting period in which the
disposal is made.”
40
      (3)
After that subsection insert—
“(1A)
The income tax charged by virtue of subsection (1)(b)(i) above shall
be charged on the full amount of the income treated as arising in the
year of assessment.”

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
452

309
In section 762(6) (offshore income gains accruing to persons resident or
domiciled abroad)—
(a)
after “740” insert “above”, and
(b)
for “Part XV” substitute “Chapter 5 of Part 5 of ITTOIA 2005”.
310
In section 774(1) (transactions between dealing company and associated
5
company)—
(a)
after “shall be chargeable” insert “to tax”, and
(b)
for “under Case VI of Schedule D” substitute “(in the case of
corporation tax, under Case VI of Schedule D)”.
311   (1)
Amend section 775 (sale by individual of income derived from his personal
10
activities) as follows.
      (2)
In subsection (2) omit the words from “, and which is” to the end.
      (3)
After subsection (2) insert—
“(2A)
Any such earned income shall be charged to income tax on the
individual and the tax so charged shall be charged on the full amount
15
of the earned income treated as arising in the year of assessment.”
312   (1)
Amend section 776 (transactions in land: taxation of capital gains) as follows.
      (2)
In subsection (3)(a) omit the words from “, and which constitutes” to “period
in which the gain is realised”.
      (3)
After subsection (3) insert—
20
“(3A)
The gain treated as income shall be charged—
(a)
to income tax for the year of assessment in which the gain is
realised, or
(b)
to corporation tax as profits or gains under Case VI of
Schedule D for the accounting period in which the gain is
25
realised.
(3B)
The income tax charged by virtue of subsection (3A)(a) shall be
charged on the full amount of the income treated as arising in the
year of assessment; and the person liable for any tax so charged is the
person whose income it is.”
30
      (4)
In subsection (6)—
(a)
in paragraph (a) after “the profits under” insert “Part 2 of ITTOIA
2005 or”, and
(b)
in paragraph (b) for “subsections (2) and (3) of section 99” substitute
“section 158 of ITTOIA 2005 or (as the case may be) subsections (2)
35
and (3) of section 99 above”.
      (5)
In subsection (7) after “the treatment under” insert “Part 2 of ITTOIA 2005
or”.
313   (1)
Amend section 777 (tax avoidance: provisions supplementary to sections
775 and 776) as follows.
40
      (2)
In subsection (9) after “tax under” insert “Chapter 7 of Part 5 of ITTOIA 2005
(annual payments not otherwise charged) or”.
      (3)
In subsection (10) for “Part XV” substitute “Chapter 5 of Part 5 of ITTOIA
2005 (settlements: amounts treated as income of settlor)”.

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
453

314   (1)
Amend section 779 (sale and lease-back: limitation on tax reliefs) as follows.
      (2)
In subsection (10)—
(a)
after “include references to” insert “—

(a)”,
(b)
after “section 37” insert “or under section 37A”,
5
(c)
after “87” insert “or 87A”,
(d)
after “comprised in the lease,” insert “and
(b)
expenses which the tenant under the lease is treated
as incurring in respect of the land subject to the lease
under sections 61 to 67 or 292 to 297 of ITTOIA 2005,”,
10
and
(e)
at end insert “and such expenses shall be treated for those purposes
as having been paid as soon as they have been incurred.”
      (3)
In subsection (13)—
(a)
after paragraph (a) insert—
15
“(aa)
a deduction in calculating the profits of a UK property
business;”,
(b)
in paragraph (c) omit “392 or”, and
(c)
after that paragraph insert—
“(ca)
a deduction in computing profits or other income or
20
gains chargeable to income tax under or by virtue of
any provision to which section 836B applies, or in
computing any loss for which relief is allowable
under section 392;”.
315   (1)
Amend section 780 (sale and lease-back: taxation of consideration received)
25
as follows.
      (2)
In subsection (3)(b) for “a profit or gain chargeable under Case VI of
Schedule D” substitute “an amount chargeable to tax in accordance with
subsection (3A)”.
      (3)
After subsection (3) insert—
30
“(3A)
The amount shall be charged—
(a)
to income tax, or
(b)
to corporation tax as a profit or gain under Case VI of
Schedule D.
(3B)
The income tax charged by virtue of subsection (3A)(a) above shall
35
be charged on the full amount of the proportion of the consideration
concerned arising in the year of assessment; and the person liable for
any tax so charged is the lessee.”
316   (1)
Amend section 781 (assets leased to traders and others) as follows.
      (2)
In subsection (1) for “under Case VI of Schedule D for the chargeable period
40
in which the sum is obtained with tax” substitute “to tax (in the case of
corporation tax, under Case VI of Schedule D) for the chargeable period in
which the sum is obtained”.
      (3)
In subsection (4) after paragraph (a) insert—
“(ab)
a deduction in computing profits or other income or gains
45
chargeable to income tax under or by virtue of any provision

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
454

to which section 836B applies, or in computing any loss for
which relief is allowable under section 392;”.
      (4)
In subsection (4)(b) omit “392 or”.
317
In section 782(9) (leased assets: special cases) for “section 113 or 337(1)”
substitute “section 18 of ITTOIA 2005 or section 337(1) above (companies
5
beginning or ceasing to carry on trade)”.
318
In section 783(10)(b) (leased assets: supplemental) for “section 660G(1) and
(2)” substitute “section 620 of ITTOIA 2005”.
319
In section 785 (meaning of “asset”, “capital sum” and “lease” for purposes of
sections 781 to 784), in the definition of “capital sum”, after “chargeable”
10
insert “to income tax under or by virtue of any provision to which section
836B applies or to corporation tax”.
320   (1)
Amend section 786 (transactions associated with loans or credit) as follows.
      (2)
In subsection (3) for the words from “annuity” to “Schedule D” substitute
“relevant annual payment”.
15
      (3)
After that subsection insert—
“(3A)
In subsection (3) “relevant annual payment” means a payment which
is not interest but is—
(a)
an annuity or other annual payment falling within Part 5 of
ITTOIA 2005 and chargeable to income tax otherwise than as
20
relevant foreign income; or
(b)
an annuity or other annual payment chargeable to
corporation tax under Case III of Schedule D.”
      (4)
In subsection (5) for “he shall be chargeable to tax under Case VI of Schedule
D on a sum” substitute “he shall be chargeable—
25
(a)
to income tax, or
(b)
to corporation tax under Case VI of Schedule D,

on a sum”.
      (5)
After that subsection insert—
“(5A)
Income tax charged by virtue of subsection (5)(a) above shall be
30
charged on the full amount of the income assigned, surrendered,
waived or forgone in the year of assessment.”
321   (1)
Amend section 788 (relief by agreement with other territories) as follows.
      (2)
In subsection (3)(d) for “section 231” substitute “section 397(1) of ITTOIA
2005”.
35
      (3)
In subsection (7) after “and, in the case of an assessment” insert “to
corporation tax”.
322
In section 790(11) (unilateral relief) after “and, in the case of an assessment”
insert “to corporation tax”.
323   (1)
Amend section 804 (relief against income tax in respect of earlier years of
40
commencement) as follows.
      (2)
In subsections (5)(b) and (5A)(b) for “section 63A(1) or (3)” substitute
“section 205 or 220 of ITTOIA 2005”.

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
455

      (3)
In subsection (5B)(a)—
(a)
for “under Case VI of Schedule D” substitute “to income tax”, and
(b)
after “equal to the excess” insert “and be liable for any tax so
chargeable”.
      (4)
In subsection (5C) for “section 63A(1)” substitute “section 220 of ITTOIA
5
2005”.
      (5)
In subsection (8), in the definition of “overlap profit” for “sections 60 to 62”
substitute “Chapter 15 of Part 2 of ITTOIA 2005”.
324
In section 806K(2) (application of foreign dividend provisions to branches or
agencies in the UK of persons resident elsewhere) after paragraph (b)
10
insert—
“(bb)
in relation to income tax, take any reference to a dividend
chargeable under Case V of Schedule D as a reference to a
dividend chargeable under Chapter 4 of Part 4 of ITTOIA
2005;”.
15
325
In section 807(1)(b) (sale of securities with or without accrued interest) for
“Case IV or V of Schedule D” substitute “ITTOIA 2005 on relevant foreign
income”.
326
In section 812(1) (withdrawal of right to tax credit of certain non-resident
companies connected with unitary states)—
20
(a)
for “section 231(3)” substitute “section 397(2)(a) of ITTOIA 2005”,
and
(b)
for “or, where” substitute “nor, by virtue of section 30(9) of the
Finance (No. 2) Act 1997, where”.
327   (1)
Amend section 817 (deductions not to be allowed in computing profits or
25
gains) as follows.
      (2)
In subsection (1)—
(a)
before “tax purposes” insert “corporation”, and
(b)
for “the Tax Acts” substitute “the Corporation Tax Acts”.
      (3)
In subsection (2)—
30
(a)
after “profits or gains” insert “for corporation tax purposes”,
(b)
for “the Tax Acts” substitute “the Corporation Tax Acts”,
(c)
omit “or employment”, and
(d)
for “or in any profession, employment or vocation” substitute “or
profession”.
35
328   (1)
Amend section 818 (arrangements for payments of interest less tax or of
fixed net amount) as follows.
      (2)
In subsection (2) for the words from “interest”, in the first place where it
occurs, to “and” substitute “relevant interest”.
      (3)
After subsection (2) insert—
40
“(3)
In subsection (2) “relevant interest” means—
(a)
interest on which the recipient is chargeable to income tax,
which falls within Chapter 2 of Part 4 of ITTOIA 2005 but
which is not relevant foreign income, or

Income Tax (Trading and Other Income) Bill
Schedule 1 — Consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
456

(b)
interest on which the recipient is chargeable to corporation
tax under Case III of Schedule D.”
329
In section 819(2) (old references to standard rate tax) for “Schedule F”, in
both places where it occurs, substitute “dividend”.
330
In section 821(1) (under-deductions from payments made before passing of
5
annual Act)—
(a)
after “assessment” insert “or accounting period”,
(b)
after “quarterly payments” insert “(or half-periodic or quarterly
payments)”,
(c)
after “income” insert “or corporation”,
10
(d)
after “year”, in the second and third places where it occurs, insert “or
period”,
(e)
after “charged”, in the fourth place where it occurs, insert “in respect
of those payments to income tax under Chapter 2 of Part 4 of ITTOIA
2005 (interest) or shall be charged to corporation tax under”, and
15
(f)
omit “in respect of those payments”.
331   (1)
Section 824 (repayment supplements: individuals and others) is amended as
follows.
      (2)
In subsection (4A)(b) for “section 231” substitute “section 397(1) of ITTOIA
2005”.
20
      (3)
Omit subsection (8).
      (4)
In subsection (9) for “to (8)” substitute “to (7)”.
332
In section 827 (VAT penalties etc.)—
(a)
for “for any tax purposes”, in each place where it occurs, substitute
“for any corporation tax purposes (but see also subsection (3)(a)
25
below)”,
(b)
in subsection (2) for “and income tax” substitute “(but see also
subsection (3)(b) below)”, and
(c)
at the end insert—
“(3)
For income tax purposes—
30
(a)
provision corresponding to that made by this section
(other than subsection (2) above) is made by sections
54 and 869 of ITTOIA 2005, and
(b)
provision corresponding to that made by subsection
(2) above is made by section 777 of ITTOIA 2005 (as
35
read with Chapter 10 of Part 6 of that Act).”
333
After section 827 insert—
“827A
  Territorial scope of charges under certain provisions to which
section 836B applies
(1)
This section applies in relation to any amount chargeable to income
40
tax under or by virtue of any provision to which section 836B applies
(other than a provision listed in Part 2 of the table in that section).
(2)
An amount arising to a person who is resident in the United
Kingdom is chargeable to tax whether or not it is from a source in the
United Kingdom.
45