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
534

      (2)
A deduction is allowed under section 159(3) for that part of the expenses in
calculating the profits of the period of account in which the expenses are
borne.
Waste disposal
44
If the predecessor ceased to carry on the trade carried on by the trader, or
5
ceased to carry on a trade so far as relating to the site, before 21st March 2000,
section 165 applies as if—
(a)
“, or a predecessor,” in subsection (1) were omitted, and
(b)
subsections (3) and (4) were omitted.
45
If the trade carried on by the trader was started before 1st April 1993, the
10
definition of “waste disposal licence” in section 167(1) applies for the
purposes of sections 165 and 166 as if paragraphs (d) and (e) of the definition
were omitted (radioactive waste and nuclear site authorisations or licences).
46
Section 167(2) does not apply for the purposes of sections 165 and 166 if the
trade was started before 1st April 1993.
15
Valuation of trading stock on cessation
47    (1)
This paragraph applies if—
(a)
a period of account of a trade begins before 6th April 2004 and ends
on or after 6th April 2005 (“the straddling period of account”), and
(b)
as a result of paragraph 48, the profits or losses of the period of
20
account are to be calculated in accordance with Part 2 of this Act.
      (2)
Subsection (2) of section 173 (valuation of trading stock on cessation) does
not apply in relation to the part of the period of account which—
(a)
begins with the straddling period of account, and
(b)
ends with 5th April 2004,
25

and the profits or losses of the trade are to be calculated accordingly.
Apportionment of profits or losses to tax years before tax year 2005-06
48    (1)
This paragraph applies if—
(a)
a period of account of a trade, profession or vocation begins before
6th April 2005 and ends on or after that date,
30
(b)
the period of account, or part of the period of account, falls in the
basis period for the tax year 2005-06,
(c)
part of the period of account also falls in the basis period (or periods)
for an earlier tax year (or years), and
(d)
in order to arrive at the profits or losses of the basis period for any
35
earlier tax year it is necessary to apportion the profits or losses of the
period of account to any part of the period of account falling in that
basis period.
      (2)
The profits or losses of the period of account—
(a)
are calculated in accordance with Part 2 of this Act (and therefore, to
40
that extent, that Part has effect for tax years before the tax year 2005-
06), and

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 3 — Trading income
535

(b)
may be apportioned in accordance with section 203 to any part of the
period of account falling in a basis period for a tax year before the tax
year 2005-06.
Treatment of business start-up payments received in an overlap period
49    (1)
There is an exception to the rule that, subject to Part 8, the charge to tax
5
under Chapter 2 of Part 2 on the profits of a trade, profession or vocation of
a tax year operates by reference to the profits of the basis period for the tax
year (which may include a period falling before 6th April 2005).
      (2)
The exception is that section 207 does not apply to payments received before
6th April 2005.
10
Profits or losses of a trade, profession or vocation previously chargeable in accordance with
section 65(1) of ICTA
50    (1)
This paragraph applies if—
(a)
a person carries on a trade, profession or vocation wholly outside the
United Kingdom, and
15
(b)
the trade, profession or vocation was chargeable to income tax in
accordance with section 65(1) of ICTA (Case IV and V assessments:
general) for a tax year before 2005-06.
      (2)
If the trade, profession or vocation was so chargeable for the tax year 2004-
05, the person is treated for the purpose of determining the basis period for
20
the tax year 2005-06 and subsequent tax years as if the person started to carry
on the trade, profession or vocation on 6th April 2005.
      (3)
For the purposes of section 391 of ICTA (as substituted by Schedule 1 to this
Act), no account is to be taken of any loss made in any tax year before tax
year 2005-06 if the trade, profession or vocation was chargeable to income
25
tax in accordance with section 65(1) of ICTA for that tax year.
Profits of mines, quarries and other concerns not chargeable by reference to a basis period
51    (1)
This paragraph applies if any profits or losses arising out of land in the case
of any concern specified in section 55(2) of ICTA—
(a)
arose in the tax year 2004-05, and
30
(b)
were calculated for that tax year otherwise than by reference to a
basis period.
      (2)
For the purpose of determining the basis period for the tax year 2005-06 and
subsequent tax years, the concern is treated as if it were a trade which was
started to be carried on by a person on 6th April 2005.
35
      (3)
Paragraph 48 of this Schedule applies in relation to any case to which this
paragraph applies as if references to a basis period for a tax year (an “earlier
tax year”) before the tax year 2005-06 were references to that earlier tax year.
Overlap profit: pre-April 1994 trades, professions and vocations
52    (1)
This paragraph applies in the case of a trade, profession or vocation which
40
was—
(a)
set up and commenced by a person before 6th April 1994, and
(b)
continued by the person after 5th April 1997,

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 3 — Trading income
536


and the profits of which were chargeable to income tax under Case I or II of
Schedule D for the tax year 1997-98.
      (2)
For the purposes of Chapter 15 of Part 2 “overlap profit” includes the
amount of profits or gains of the basis period for the tax year 1997-98
which—
5
(a)
arose after the end of the basis period for the tax year 1996-97 or, in
the case of a trade or profession carried on by a firm, the basis period
of the firm for that year, and
(b)
arose before 6th April 1997.
      (3)
In calculating the amount of the profits or gains of the basis period for the
10
tax year 1997-98 which arose as mentioned above—
(a)
any deduction of a capital allowance, and
(b)
any addition of a balancing charge,

are ignored.
      (4)
But sub-paragraph (3) does not apply in the case of a trade or profession
15
carried on by a firm which included both an individual and a company.
      (5)
For the purposes of this paragraph the basis period for the tax year 1996-97
is determined in accordance with paragraph 1 of Schedule 20 to FA 1994
despite the repeal by this Act of that paragraph.
      (6)
This paragraph is subject to Schedule 22 to FA 1995 (prevention of
20
exploitation of the transitional rules facilitating self-assessment).
53    (1)
This paragraph applies in the case of income which—
(a)
was immediately derived from the carrying on of a trade, profession
or vocation set up and commenced by a person before 6th April 1994
and continued by the person after 5th April 1998, and
25
(b)
was chargeable to income tax under Case IV or V of Schedule D for
the tax year 1997-98.
      (2)
But, in the case of income which was chargeable to tax by reference to the
amounts of income received in the United Kingdom, this paragraph applies
only if the date on which the first amount of income was received in the
30
United Kingdom was before 6th April 1994.
      (3)
For the purposes of Chapter 15 of Part 2 “overlap profit” includes the
amount of profits or gains of the basis period for the tax year 1997-98 which
arose before 6th April 1997.
      (4)
This paragraph is subject to Schedule 22 to FA 1995 (prevention of
35
exploitation of the transitional rules facilitating self-assessment).
54
The repeal by this Act of paragraphs 2, 6 and 10 of Schedule 20 to FA 1994
(changes for facilitating self-assessment: transitional provisions and
savings) does not affect the continuing application of the assumptions
mentioned in paragraph 11(4) of that Schedule (double taxation relief).
40
Averaging profits of farmers and creative artists
55    (1)
The first tax years which may be the subject of an averaging claim under
section 222 are the tax years 2004-05 and 2005-06.
      (2)
If—

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 3 — Trading income
537

(a)
an individual carries on a trade of farming or market gardening in
the United Kingdom in partnership, and
(b)
but for the repeal by this Act of section 96 of ICTA the individual
could have made a claim under that section in relation to the profits
of that trade for the tax years 2004-05 and 2005-06,
5

the individual may make an averaging claim under section 222 of this Act in
relation to those profits for those tax years (despite anything in Chapter 16
of Part 2 of this Act to the contrary).
Adjustment on change of basis
56    (1)
Chapter 17 of Part 2 applies to a change of basis taking effect for a period of
10
account which ends on or after 6th April 2005.
      (2)
For this purpose the period of account for which a change of basis takes
effect is the first period of account for which the new basis is adopted.
57    (1)
Subject to sub-paragraph (3), section 232 applies before 6th April 2006 with
the following amendment.
15
      (2)
In subsection (4)—
(a)
before paragraph (a) insert—
“(aa)
relevant earnings within section 623(2)(c) or 644(2)(c)
of ICTA, or”,
(b)
omit paragraph (b) and the word “or” before it, and
20
(c)
for “earned income or relevant UK earnings” substitute “relevant
earnings or earned income”.
      (3)
The power of the Treasury to make an order under section 281 or 283 of FA
2004 has effect as if Schedule 35 to that Act contained an amendment
substituting section 232(4) of this Act for that subsection as amended by sub-
25
paragraph (2) above.
58
If—
(a)
an individual has made an election under paragraph 12 of Schedule
22 to FA 2002 (election by barrister or advocate to accelerate
adjustment charge),
30
(b)
as a result of the election sub-paragraph (4) of that paragraph applies
in relation to the tax year 2004-05, and
(c)
the election is in force immediately before 6th April 2005,

the election continues to apply in relation to the tax year 2005-06 and
subsequent tax years (despite paragraph 3 of this Schedule).
35
59
Section 104(4) of ICTA (which, despite its repeal, applies in relation to any
change of accounting basis occurring before 6th April 1999) does not apply
if the person who would be liable to tax as a result of the change was born
before 6th April 1917.
Post-cessation receipts
40
60    (1)
Subject to sub-paragraph (4), section 256 applies before 6th April 2006 with
the following amendments.
      (2)
In subsection (1)(b)—
(a)
after “from the trade was” insert “relevant earnings within section
623(2)(c) or 644(2)(c) of ICTA or”, and
45

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 4 — Property income
538

(b)
omit “or relevant UK earnings within section 189(2)(b) of FA 2004”.
      (3)
In subsection (2) for “earned income or relevant UK earnings” substitute
“relevant earnings or earned income”.
      (4)
The power of the Treasury to make an order under section 281 or 283 of FA
2004 has effect as if Schedule 35 to that Act contained an amendment
5
substituting section 256 of this Act for that section as amended by sub-
paragraphs (2) and (3) above.
61
Chapter 18 of Part 2 does not apply in relation to a post-cessation receipt if—
(a)
the person who would be liable to tax on the receipt was born before
6th April 1917, and
10
(b)
the cessation of the trade occurred before 6th April 2000.
Part 4
Property income
Apportionment of profits or losses to tax years before tax year 2005-06
62    (1)
This paragraph applies if—
15
(a)
a period of account of a property business begins before 6th April
2005 and ends on or after that date, and
(b)
in order to arrive at the profits or losses of a tax year before the tax
year 2005-06 it is necessary to apportion the profits or losses of the
period of account to any part of that period falling in a tax year before
20
the tax year 2005-06.
      (2)
The profits or losses of the period of account—
(a)
are calculated in accordance with Part 3 of this Act (and therefore, to
that extent, that Part has effect for tax years before the tax year 2005-
06), and
25
(b)
may be apportioned in accordance with section 275 to any part of the
period of account falling in a tax year before the tax year 2005-06.
Lease premiums
63
Section 277 does not apply in relation to a lease granted pursuant to a
contract entered into before 4th April 1963.
30
Lease premiums: sums payable instead of rent
64
Section 279 does not apply in relation to a lease granted—
(a)
before 6th April 1963, or
(b)
pursuant to a contract entered into before 4th April 1963.
Lease premiums: sums payable for surrender of lease
35
65
Section 280 does not apply in relation to a lease granted—
(a)
before 6th April 1963, or
(b)
pursuant to a contract entered into before 4th April 1963.

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 4 — Property income
539

Lease premiums: assignments for profit of lease granted at undervalue
66
Section 282 does not apply in relation to a lease granted —
(a)
before 6th April 1963, or
(b)
pursuant to a contract entered into before 4th April 1963.
Lease premiums: pre-commencement receipts treated as taxed receipts
5
67    (1)
This paragraph relates to the operation of sections 287 to 298 where, in
respect of a lease—
(a)
there is a receipt of a Schedule A business or an overseas property
business (within the meaning of section 65A(4) or 70A(4) of ICTA) as
a result of section 34 or 35 of ICTA (treatment of premiums etc. as
10
rent and assignments for profit of lease granted at an undervalue) for
a tax year before the tax year 2005-06 or an accounting period ending
before 6th April 2005, or
(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
15
of ICTA).

In this paragraph and paragraphs 68 and 69 such a receipt is referred to as a
“pre-commencement receipt”.
      (2)
For the purposes of Chapter 4 of Part 3—
(a)
the lease is treated as a taxed lease, and
20
(b)
the pre-commencement receipt is treated as a taxed receipt.
      (3)
For the purposes of that Chapter, the “receipt period” of a taxed receipt
which is a pre-commencement receipt is—
(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
25
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
being the duration of the lease remaining at the date of the
assignment.
30
      (4)
For the purposes of that Chapter 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
operation of section 37(2) or (3) of ICTA.
      (5)
Sub-paragraph (6) applies to a taxed receipt which is a pre-commencement
35
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
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
40
unreduced amount of the taxed receipt is calculated as if the obligation had
not included the carrying out of that work.
Lease premiums: taking account of reductions in pre-commencement receipts
68    (1)
This paragraph applies if—

Income Tax (Trading and Other Income) Bill
Schedule 2 — Transitionals and savings etc.
Part 4 — Property income
540

(a)
in calculating the amount of a pre-commencement receipt, there is a
reduction under section 37(2) or (3) of ICTA by reference to the
amount chargeable on the superior interest for the purposes of that
section, and
(b)
as a result of paragraph 67 the amount chargeable on the superior
5
interest is the taxed receipt for the purposes of Chapter 4 of Part 3.
      (2)
References to a reduction under section 37(2) or (3) of ICTA in a pre-
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
10
section 37(2) or (3) of ICTA, and
(b)
the amount of the receipt after the operation of that subsection,

so far as attributable to the amount chargeable on the superior interest for
the purposes of section 37 of ICTA.
      (3)
In sections 290(5)(a) (meaning of “unused amount”) and 295(1)(a) (limit on
15
reductions and deductions) references to reductions under section 288 by
reference to the taxed receipt include references to reductions under section
37(2) or (3) of ICTA in pre-commencement receipts by reference to the
amount chargeable on the superior interest.
      (4)
Sections 292 to 294 apply as follows—
20
(a)
the pre-commencement receipt is treated as if it were a lease
premium receipt for the purposes of sections 293 and 294,
(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
25
ICTA by reference to the amount chargeable on the superior interest,
and
(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
30
section 34 of ICTA, the period treated in calculating the
amount of the receipt as being the duration of the lease, and
(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
35
remaining at the date of the assignment.
Lease premiums: taking account of deductions for rent as a result of section 37(4) or 87(2) of
ICTA
69    (1)
Sub-paragraph (2) applies if—
(a)
in calculating the profits of a trade, profession or vocation for a tax
40
year before the tax year 2005-06 or an accounting period ending
before 6th April 2005, a person is treated as paying rent under section
87(2) of ICTA by reference to the amount chargeable for the purposes
of that section, and
(b)
as a result of paragraph 67 the amount chargeable is the taxed receipt
45
for the purposes of Chapter 4 of Part 3.
      (2)
References in sections 290(5)(b) and 295(2)(b) to the deductions allowed for
expenses under section 61 by reference to the taxed receipt include
references to the deductions allowed in calculating the profits of the trade,