Income Tax (Trading and Other Income) Bill

House of Commons

Session 2004 - 05
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Income Tax (Trading and Other Income) Bill

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 3 — Trading income
527

(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).

In this paragraph and paragraph 20 such a receipt is referred to as a “pre-
commencement receipt”.
5
      (2)
For the purposes of sections 60 to 67—
(a)
the lease is treated as a taxed lease, and
(b)
the pre-commencement receipt is treated as a taxed receipt.
      (3)
For the purposes of those sections, the “receipt period” of a taxed receipt
which is a pre-commencement receipt is—
10
(a)
in the case of a pre-commencement receipt as a result of section 34 of
ICTA, the period treated in calculating the amount of the receipt as
being the duration of the lease, and
(b)
in the case of a pre-commencement receipt as a result of section 35 of
ICTA, the period treated in calculating the amount of the receipt as
15
being the duration of the lease remaining at the date of the
assignment.
      (4)
For the purposes of sections 60 to 67 the “unreduced amount” of a taxed
receipt which is a pre-commencement receipt is the amount of the pre-
commencement receipt as a result of section 34 or 35 of ICTA, before the
20
operation of section 37(2) or (3) of ICTA.
      (5)
Sub-paragraph (6) applies to a taxed receipt which is a pre-commencement
receipt arising as a result of section 34(2) of ICTA (obligation on tenant to
carry out work under lease).
      (6)
If the obligation to carry out work included the carrying out of work which
25
gave or will give rise to expenditure for which an allowance has been, or
may be, made under the enactments relating to capital allowances, the
unreduced amount of the taxed receipt is calculated as if the obligation had
not included the carrying out of that work.
20    (1)
This paragraph provides for the application of section 61 as a result of
30
section 63 if—
(a)
a lease is a taxed lease as a result of paragraph 19,
(b)
another lease is granted out of the taxed lease,
(c)
in calculating the amount of a pre-commencement receipt in respect
of the other lease, there is a reduction under section 37(2) or (3) of
35
ICTA by reference to the amount chargeable on the superior interest
for the purposes of that section, and
(d)
as a result of paragraph 19 the amount chargeable on the superior
interest is the taxed receipt for the purposes of section 61.
      (2)
Sections 61 to 65 apply as follows—
40
(a)
the pre-commencement 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 pre-
commencement receipt, to the reduction under section 37(2) or (3) of
45
ICTA by reference to the amount chargeable on the superior interest,
and

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 3 — Trading income
528

(c)
for the purposes of those sections the receipt period of the pre-
commencement receipt is—
(i)
in the case of a pre-commencement receipt as a result of
section 34 of ICTA, the period treated in calculating the
amount of the receipt as being the duration of the lease, and
5
(ii)
in the case of a pre-commencement 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 assignment.
      (3)
References to a reduction under section 37(2) or (3) of ICTA in a pre-
10
commencement receipt by reference to the amount chargeable on the
superior interest are to the difference between—
(a)
the amount of the pre-commencement receipt before the operation of
section 37(2) or (3) of ICTA, and
(b)
the amount of the receipt after the operation of that subsection,
15

so far as attributable to the amount chargeable on the superior interest for
the purposes of section 37 of ICTA.
Seconded employees
21    (1)
This paragraph applies if—
(a)
the period of account of a trade begins before 1st April 2003 and ends
20
on or after 6th April 2005, and
(b)
in that period of account the person carrying on the trade made the
services of a person employed for the purposes of the trade available
to a self-governing school within the meaning of the Self-Governing
Schools etc. (Scotland) Act 1989 (c. 39) on a basis that was stated and
25
intended to be temporary.
      (2)
For the purposes of section 70 an “educational establishment”, in Scotland,
includes such a school (despite the fact that, following the abolition of such
schools on 1st April 2003, section 86(5)(d) of ICTA is not re-written in this
Act).
30
      (3)
This paragraph applies to professions and vocations as it applies to trades.
Training courses for employees
22    (1)
This paragraph applies if, without the modifications to section 588 of ICTA
(training courses for employees) made by this Act—
(a)
section 588(5) of ICTA would operate in relation to an employee by
35
virtue of paragraph (a) of that provision and paragraph 37 of
Schedule 7 to ITEPA 2003 (savings in relation to tax years before
2003-04),
(b)
section 588(5) of ICTA would operate in relation to an employer by
virtue of paragraph (b) of that provision and paragraph 37 of
40
Schedule 7 to ITEPA 2003, or
(c)
section 588(6) and (7) of ICTA would operate in relation to an
employer by virtue of paragraph 37 of Schedule 7 to ITEPA 2003.
      (2)
Those modifications do not apply in relation to—
(a)
the operation of section 588(5) of ICTA in relation to the employee as
45
mentioned in sub-paragraph (1)(a),

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 3 — Trading income
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(b)
the operation of section 588(5) of ICTA in relation to the employer as
mentioned in sub-paragraph (1)(b), and
(c)
the operation of section 588(6) and (7) of ICTA in relation to the
employer as mentioned in sub-paragraph (1)(c).
23    (1)
This paragraph applies if—
5
(a)
at any time during the period beginning with 6th April 2003 and
ending with 5th April 2005, a person (“the employer”) incurred
expenditure in paying or reimbursing retraining course expenses
within the meaning of section 311 of ITEPA 2003,
(b)
the employer’s liability to income tax for any tax year has been
10
determined (before or after the passing of this Act, and by
assessment or otherwise) on the assumption that, by virtue only of
section 588(3) of ICTA, the employer is entitled to a deduction on
account of the expenditure, and
(c)
before 6th April 2005, no assessment has been made under section
15
29(1) of TMA 1970 by virtue of section 588(5) of ICTA of an amount
due in consequence of the failure by the person in respect of whom
the expenditure was incurred to meet a condition of the kind
mentioned in section 312(1)(b)(i) or (ii) of ITEPA 2003.
      (2)
Section 75 (retraining courses: recovery of tax) applies in relation to the
20
employer as if the condition in subsection (1) were met.
      (3)
In the application of that section to the employer, references to “the
employee” are to the person in respect of whom the expenditure was
incurred by the employer.
Contributions to urban regeneration companies
25
24
Section 82 does not apply to any contribution which was made to an urban
regeneration company before 1st April 2003.
Local enterprise agencies
25
To the extent that any function of the Scottish Ministers under section 79 of
ICTA was, before 6th April 2005, also exercisable by the Secretary of State for
30
the purposes specified in section 2(2) of the European Communities Act 1972
(c. 68) that function as rewritten in—
(a)
section 83(2) (meaning of “local enterprise agency”),
(b)
section 84 (approval of local enterprise agencies), or
(c)
section 85 (supplementary provisions with respect to approvals),
35

continues to be also exercisable by the Secretary of State for those purposes.
Expenses connected with patents, designs and trade marks
26    (1)
This paragraph applies if—
(a)
fees have been incurred, but not paid, for the purposes of a trade in
connection with any of the matters mentioned in section 89 or 90,
40
(b)
the fees were incurred in a period of account no part of which falls in
the basis period for the tax year 2005-06 or a subsequent tax year, and
(c)
the fees have not been taken into account in calculating the profits of
the trade of any tax year.

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 3 — Trading income
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      (2)
A deduction is allowed for the fees in calculating the profits of the period of
account in which they are paid.
Payments to Export Credits Guarantee Department
27    (1)
This paragraph applies if—
(a)
a sum is payable, but not paid, by the person carrying on a trade to
5
the Export Credits Guarantee Department under an agreement
mentioned in section 91(1)(a) or with a view to entering into such an
agreement,
(b)
the sum was incurred in a period of account no part of which falls in
the basis period for the tax year 2005-06 or a subsequent tax year, and
10
(c)
the sum has not been taken into account in calculating the profits of
the trade of any tax year.
      (2)
A deduction is allowed for the sum in calculating the profits of the period of
account in which it is paid.
      (3)
This paragraph applies to professions and vocations as it applies to trades.
15
Reverse premiums
28    (1)
Sections 101 and 102 do not apply to a reverse premium—
(a)
which was received before 9th March 1999, or
(b)
to which the recipient was entitled immediately before that date.
      (2)
In determining whether a reverse premium was one to which the recipient
20
was entitled immediately before 9th March 1999, no account is to be taken of
any arrangements made on or after that date.
Sums recovered under insurance policies etc.
29    (1)
Section 106 does not apply if—
(a)
a person carrying on a trade recovers a sum mentioned in that
25
section, and
(b)
the sum has been taken into account in calculating the profits of the
trade of a tax year before the tax year 2005-06.
      (2)
This paragraph applies to professions and vocations as it applies to trades.
Meaning of “designated educational establishment”
30
30
To the extent that the power of the National Assembly for Wales to make
regulations under section 84(5) of ICTA was, before 6th April 2005, also
exercisable by the Secretary of State for the purpose of—
(a)
implementing any Community obligation of the United Kingdom,
(b)
enabling any such obligation to be implemented,
35
(c)
enabling any rights enjoyed or to be enjoyed by the United Kingdom
under or by virtue of the Community Treaties to be exercised, or
(d)
dealing with matters arising out of or related to any such obligation
or rights or the operation of section 2(1) of the European
Communities Act 1972 (c. 68),
40

that power as rewritten in section 110 continues to be also exercisable by the
Secretary of State for those purposes.

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 3 — Trading income
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Films and sound recordings
31    (1)
This paragraph applies to—
(a)
production expenditure in respect of the original master version of a
film which (within the meaning of Chapter 9 of Part 2) was
completed before 21st March 2000,
5
(b)
production expenditure in respect of the original master version of a
film which (within the meaning of that Chapter) is completed on or
after that date, if the first day of principal photography was before
that date (but see sub-paragraph (4)), and
(c)
acquisition expenditure in respect of the original master version of a
10
film which was incurred before 6th April 2000.
      (2)
For this purpose acquisition expenditure in respect of the original master
version of a film includes the acquisition of any description of rights in the
original master version of a film (whether or not held or acquired with it).
      (3)
In relation to expenditure to which this paragraph applies—
15
(a)
section 130(4) applies with the omission of “that are held or acquired
with it”,
(b)
section 131(5) applies with the insertion at the end of “or, if the
expenditure is acquisition expenditure and the acquisition takes
place after that time, at the time of the acquisition”, and
20
(c)
section 134(1) applies with the insertion after “acquisition
expenditure,” of “and the expenditure would otherwise constitute
capital expenditure on the provision of plant or machinery for the
purposes of Part 2 of CAA 2001,”.
      (4)
This paragraph does not apply to expenditure falling within sub-paragraph
25
(1)(b) if the person incurring the expenditure so elects.
      (5)
Any such election is irrevocable.
32    (1)
Sections 134 and 135 do not apply in relation to expenditure incurred by a
person carrying on a trade which consists of or includes the exploitation of
original master versions of films if—
30
(a)
the expenditure is incurred on the production or acquisition of an
original master version of a film completed before 10th March 1992
(within the meaning of Chapter 9 of Part 2),
(b)
the original master version is a certified master version,
(c)
its value is expected to be realised over a period of not less than two
35
years, and
(d)
the film is genuinely intended for theatrical release.
      (2)
Sub-paragraph (1)(d) does not apply if—
(a)
the original master version of the film was certified before 17th April
2002 by the Secretary of State under Schedule 1 to the Films Act 1985
40
(c. 21) as a qualifying film, tape or disc, or
(b)
an application for such certification was received by the Secretary of
State before that date.
33
Section 137 does not apply in relation to expenditure which was incurred
before 10th March 1992.
45

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 3 — Trading income
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34
Section 138 does not apply in relation to production or acquisition
expenditure in respect of the original master version of a film which was
completed before 10th March 1992.
35    (1)
Any requirement in Chapter 9 of Part 2 for a film to be genuinely intended
for theatrical release does not apply to a film completed (within the meaning
5
of that Chapter)—
(a)
on or after 17th April 2002 if—
(i)
an application for certification was received by the Secretary
of State before that date, or
(ii)
the film is a qualifying drama (see sub-paragraph (2)),
10
(b)
before 1st January 2002 if—
(i)
the film was certified by the Secretary of State before 17th
April 2002, or
(ii)
an application for certification was received by the Secretary
of State before 17th April 2002, or
15
(c)
at any time in the period beginning with 1st January 2002 and ending
with 16th April 2002.

References in this sub-paragraph to certification are to certification of the
original master version of the film under Schedule 1 to the Films Act 1985
(c. 21) as a qualifying film, tape or disc.
20
      (2)
A film is a qualifying drama if—
(a)
it is a drama with an average production expenditure per hour of
running time of the completed film greater than £500,000,
(b)
it was commissioned on or before 17th April 2002, and
(c)
the first day of principal photography was on or before 30th June
25
2002.
      (3)
For the purposes of sub-paragraph (2) “drama” does not include—
(a)
anything in the nature of—
(i)
an advertisement or promotional film,
(ii)
a discussion programme, news or current affairs programme,
30
quiz show, panel show, variety show or similar
entertainment, or
(iii)
a training film, or
(b)
a film of a live event or of a theatrical or artistic performance given
otherwise than for the purpose of being filmed,
35

but it includes a documentary involving the dramatic reconstruction of
events if the dramatic content forms 50% or more of the running time.
      (4)
For the purposes of sub-paragraph (2) the production expenditure on a film
means the total production expenditure in respect of the original master
version of the film (as defined by section 141).
40
36
Sections 139 and 140 do not apply if—
(a)
the expenditure was incurred before 2nd July 1997 (as determined by
section 142), or
(b)
the film was completed before that date (within the meaning of
Chapter 9 of Part 2).
45
37
Sections 139(4) and 141(3) do not apply to any film which was completed
before 17th April 2002.

Income Tax (Trading and Other Income) Bill
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Part 3 — Trading income
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38
The requirement in section 140 for the acquisition to be a relevant acquisition
does not apply in relation to expenditure which was incurred before 30th
June 2002 (as determined by section 142).
Certain telecommunication rights
39
Chapter 10 of Part 2 does not apply to an indefeasible right to use a
5
telecommunications cable system (“IRU”) acquired before 21st March 2000.
40    (1)
That Chapter also does not apply to an IRU acquired by a person on or after
that date (directly or indirectly) from an associate or an associated company
if the associate or associated company acquired the IRU before that date.
      (2)
In sub-paragraph (1)—
10
“associate” has the meaning given by section 417(3) and (4) of ICTA,
and
“associated company”—
(a)
in relation to another company, has the meaning given by
section 416(1) of that Act, and
15
(b)
in relation to any other person, means a company of which that
person has control within the meaning of subsections (2) to (6)
of that section.
Dealers in securities etc: taxation of amounts taken to reserves
41    (1)
Section 149 does not apply in relation to periods of account beginning before
20
1st January 2005.
      (2)
But, in the case of a company required to prepare accounts—
(a)
under the Companies Act 1985 (c. 6), or
(b)
under the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032
(N.I. 6)),
25

that section does apply in relation to a period of account beginning before
that date for which the company is required or permitted to prepare such
accounts in accordance with international accounting standards.
Purchase or sale of woodlands
42
Section 156 does not apply if the purchase mentioned in subsection (2) of
30
that section was made under a contract entered into before 1st May 1963.
Ministers of religion
43    (1)
This paragraph applies if—
(a)
expenses have been incurred, but not borne, by a minister of a
religious denomination on any of the matters mentioned in section
35
159(3),
(b)
the expenses were incurred in a period of account no part of which
falls in the basis period for the tax year 2005-06 or a subsequent tax
year, and
(c)
the part of the expenses corresponding to the amount under section
40
159(4) has not been taken into account in calculating the profits of the
profession or vocation of the minister of any tax year.