|
| |
|
Spreading of adjustment income |
| |
2 (1) | The adjustment income shall be spread in accordance with the following |
| |
| |
(2) | In each of the first three tax years beginning with that in which the whole |
| |
amount of the adjustment income would otherwise be chargeable to tax, an |
| 5 |
amount equal to whichever is the less of— |
| |
(a) | one-third of the original amount of the adjustment income, and |
| |
(b) | one-sixth of the profits of the business for that tax year, |
| |
| is treated as arising and charged to tax. |
| |
(3) | In the fourth and fifth tax years, if the whole of the adjustment income has |
| 10 |
not been charged to tax in previous tax years, an amount equal to whichever |
| |
| |
(a) | the amount remaining untaxed, |
| |
(b) | one-third of the original amount of the adjustment income, and |
| |
(c) | one-sixth of the profits of the business for that tax year, |
| 15 |
| is treated as arising and charged to tax. |
| |
(4) | In the sixth tax year so much (if any) of the adjustment income as has not |
| |
previously been charged to tax is treated as arising and is charged to tax. |
| |
(5) | For the purposes of this paragraph “the profits of the business” means the |
| |
profits of the business as calculated for income tax purposes leaving out of |
| 20 |
| |
(a) | any adjustment expenses under Chapter 17 of Part 2 of ITTIOIA |
| |
| |
(b) | any allowances or charges under CAA 2001. |
| |
(6) | This paragraph has effect subject to— |
| 25 |
(a) | paragraph 3 (effect of cessation of business), and |
| |
(b) | paragraph 4 (election to accelerate charge). |
| |
Effect of cessation of business |
| |
3 | If before the whole of the adjustment income has been charged to tax the |
| |
person permanently ceases to carry on the business in question, paragraph |
| 30 |
2 continues to apply but with the omission of the alternative limit in sub- |
| |
paragraph (2)(b) and (3)(c) referring to the profits of the business. |
| |
Election to accelerate charge |
| |
4 (1) | A person who under paragraph 2 is liable to tax for a tax year on an amount |
| |
of adjustment income may elect for an additional amount to be treated as |
| 35 |
arising in that tax year. |
| |
(2) | The election must be made on or before the first anniversary of the normal |
| |
self-assessment filing date for the tax year. |
| |
(3) | The election must specify the amount to be treated as income arising in the |
| |
tax year (which may be any amount up to the whole of the adjustment |
| 40 |
income not previously charged to tax). |
| |
(4) | If an election is made, paragraph 2 applies in relation to any subsequent tax |
| |
year as if the original amount of adjustment income (as reduced by the |
| |
|
| |
|
| |
|
previous application of this sub-paragraph) were reduced by the additional |
| |
amount treated as arising in the tax year for which the election is made. |
| |
Liability of personal representatives |
| |
5 (1) | This paragraph applies in the case of the death of a person who would |
| |
otherwise have been liable to tax under this Part of this Schedule on |
| 5 |
| |
(2) | The tax under this Part of this Schedule for which the person would |
| |
otherwise have been liable— |
| |
(a) | shall be assessed and charged on the personal representatives, and |
| |
(b) | is a debt due from and payable out of the deceased’s estate. |
| 10 |
(3) | The personal representatives may make any election under this Part of this |
| |
Schedule that the deceased might have made. |
| |
| |
6 | In this Part of this Schedule “business” means— |
| |
(a) | a trade, profession or vocation, or |
| 15 |
(b) | a UK property business or overseas property business. |
| |
Application of provisions to partnerships |
| |
7 (1) | This paragraph applies where the business is carried on by the person in |
| |
| |
(2) | The amounts chargeable to tax under this Part of this Schedule for any tax |
| 20 |
year are calculated as if the partnership were an individual resident in the |
| |
| |
(3) | The person’s share of the amount charged to tax is determined— |
| |
(a) | for the first tax year, according to the profit-sharing arrangements for |
| |
the twelve months ending immediately before the date on which the |
| 25 |
change of accounting practice was adopted; |
| |
(b) | for any subsequent tax year, according to the profit-sharing |
| |
arrangements for the twelve months immediately following the |
| |
twelve months used to determine the person’s share for the previous |
| |
| 30 |
| An election under paragraph 4 (election to accelerate charge) in relation to a |
| |
tax year must be made jointly by all the persons who have been members of |
| |
the partnership in the relevant twelve month period and are chargeable to |
| |
| |
(4) | If paragraph 3 applies (effect of cessation of business), each partner’s share |
| 35 |
of any amount charged to tax on or after the cessation is determined as |
| |
| |
(a) | if the cessation occurs on the date on which the change of accounting |
| |
approach was adopted, according to the profit-sharing |
| |
arrangements for the twelve months ending immediately before that |
| 40 |
| |
(b) | if the cessation occurs after that date, but on or before the first |
| |
anniversary of that date, according to the profit-sharing |
| |
|
| |
|
| |
|
arrangements for the period between that date and the date of |
| |
| |
(c) | if the cessation occurs after the first anniversary of the date on which |
| |
the change of accounting approach was adopted, according to the |
| |
profit-sharing arrangements for the period between the immediately |
| 5 |
preceding anniversary of that date and the date of cessation. |
| |
| An election under paragraph 4 after the cessation must be made by each |
| |
former partner separately. |
| |
(5) | For the purposes of this paragraph “profit-sharing arrangements” means the |
| |
rights of the partners to share in the profits of the business for the period in |
| 10 |
| |
(6) | In the case of a business carried on by a limited liability partnership the |
| |
operation of this Part of this Schedule is not affected by the partnership’s |
| |
ceasing to be one carrying on a trade, profession or other business with a |
| |
| 15 |
Cases where spreading already available |
| |
8 | This Part of this Schedule does not apply to adjustment income to which |
| |
section 238 of that Act applies (spreading on ending of special provision for |
| |
barristers and advocates in early years of practice). |
| |
| 20 |
| |
Application of this Part of this Schedule |
| |
9 (1) | This Part of this Schedule applies where— |
| |
(a) | there is a change of accounting approach from one period of account |
| |
to the next in calculating the profits of a business for corporation tax |
| 25 |
| |
(b) | the later period of account ends on or after 22nd June 2005 and the |
| |
basis on which the profits for that period are calculated is in |
| |
accordance with UK GAAP (including SSAP 9 and Application Note |
| |
G as interpreted by UITF 40), and |
| 30 |
(c) | the earlier period of account ended before that date and the basis on |
| |
which profits for that period were calculated was in accordance with |
| |
UK GAAP (including SSAP 9 and Application Note G, but not as |
| |
| |
| and has effect in relation to any positive adjustment under section 64 of and |
| 35 |
Schedule 22 to FA 2002 attributable to the change of basis from that |
| |
mentioned in paragraph (c) to that mentioned in paragraph (b). |
| |
(2) | In relation to a period for which accounts are drawn up in accordance with |
| |
international accounting standards, the references in sub-paragraph (1) to |
| |
requirements of UK GAAP shall be read as references to the corresponding |
| 40 |
requirements of international accounting standards. |
| |
| |
“SSAP 9” means Statement of Standard Accounting Practice No.9 on |
| |
Long-term contracts, issued by the Accounting Standards Board; |
| |
|
| |
|
| |
|
“Application Note G” means Application Note G to Financial |
| |
Reporting Standard 5 issued by the Accounting Standards Board in |
| |
| |
“UITF 40” means Abstract No.40 on Revenue recognition and service |
| |
contracts, issued by the Urgent Issues Task Force of the Accounting |
| 5 |
Standards Board on 10th March 2005. |
| |
(4) | Any reference in this Part of this Schedule to the date on which the change |
| |
of accounting approach was adopted is to the first day of the first period of |
| |
account for which it was adopted. |
| |
(5) | To determine the amount of positive adjustment attributable to the change |
| 10 |
of basis mentioned in the closing words of sub-paragraph (1), assume that |
| |
there was no other change of accounting approach. |
| |
| |
10 (1) | The adjustment shall be spread in accordance with the following rules. |
| |
(2) | In each of the first three accounting periods beginning with that in which the |
| 15 |
whole of the adjustment would otherwise be charged to tax, an amount |
| |
equal to whichever is the less of— |
| |
(a) | one-third of the amount of the original adjustment, and |
| |
(b) | one-sixth of the profits of the business for that period, |
| |
| is treated as arising and charged to tax. |
| 20 |
(3) | In the fourth and fifth accounting periods, if the whole of the adjustment has |
| |
not been charged to tax in the previous periods, an amount equal to |
| |
whichever is the least of— |
| |
(a) | the amount remaining untaxed, |
| |
(b) | one-third of the amount of the original adjustment, and |
| 25 |
(c) | one-sixth of the profits of the business for that period, |
| |
| is treated as arising and charged to tax. |
| |
(4) | In the sixth accounting period so much (if any) of the adjustment as has not |
| |
previously been charged to tax is treated as arising and is charged to tax. |
| |
(5) | For the purposes of this paragraph “the profits of the business” means the |
| 30 |
profits of the business as calculated for corporation tax purposes leaving out |
| |
| |
(a) | any adjustment under Schedule 22 to FA 2002, and |
| |
(b) | any allowances or charges under CAA 2001. |
| |
(6) | This paragraph has effect subject to— |
| 35 |
(a) | paragraph 11 (accounting periods of less than twelve months), |
| |
(b) | paragraph 12 (effect of other events bringing accounting period to an |
| |
| |
(c) | paragraph 13 (election to accelerate charge). |
| |
Accounting periods of less than twelve months |
| 40 |
11 (1) | This paragraph applies where by reason of— |
| |
(a) | a change of accounting date, |
| |
(b) | the company entering administration (see section 12(7ZA) of ICTA), |
| |
| |
|
| |
|
| |
|
(c) | an insurance business transfer scheme (see section 12(7A) and (7B) of |
| |
| |
| an accounting period to which paragraph 10 applies is a period of less than |
| |
twelve months (a “short period”). |
| |
(2) | In relation to a short period the references in that paragraph to one-third of |
| 5 |
the amount of the original adjustment shall be read as references to the |
| |
proportion of that amount that the period bears to twelve months. |
| |
(3) | Where any of the accounting periods of the company falling within the |
| |
period of six years following the change of accounting approach is a short |
| |
| 10 |
(a) | the rule in paragraph 10(3) applies in relation to every accounting |
| |
period after the third and before that in which the sixth anniversary |
| |
of the change of accounting approach falls, and |
| |
(b) | the rule in paragraph 10(4) applies in relation to the accounting |
| |
period in which that anniversary falls. |
| 15 |
Effect of other events bringing accounting period to an end |
| |
12 (1) | If before the whole of the adjustment has been charged to tax an accounting |
| |
period of the company ends by reason of— |
| |
(a) | the company ceasing to be within the charge to corporation tax, |
| |
(b) | the commencement of winding-up proceedings in respect of the |
| 20 |
company (see section 12(7) of ICTA), |
| |
| the rule in paragraph 10(4) applies in relation to that accounting period. |
| |
(2) | If the company permanently ceases to carry on the business in question |
| |
(without there being any event within sub-paragraph (1) above), paragraph |
| |
10 continues to apply but with the omission of the alternative limit in sub- |
| 25 |
paragraph (2)(b) and (3)(c) referring to the profits of the business. |
| |
Election to accelerate charge |
| |
13 (1) | A company that under paragraph 10 is liable to tax for an accounting period |
| |
on any amount may elect for an additional amount to be treated as arising in |
| |
| 30 |
(2) | The election must be made on or before the first anniversary of the filing date |
| |
for the company’s company tax return for the accounting period for which |
| |
| |
(3) | The election must specify the amount to be treated as arising in the |
| |
accounting period (which may be any amount up to the whole of the |
| 35 |
adjustment not previously charged to tax). |
| |
(4) | If an election is made, paragraph 10 applies in relation to any subsequent |
| |
accounting period as if the amount of the original adjustment (as reduced by |
| |
any previous application of this sub-paragraph) were reduced by the |
| |
additional amount treated as arising in the accounting period for which the |
| 40 |
| |
Meaning of “business” etc |
| |
14 (1) | In this Part of this Schedule “business” means— |
| |
(a) | a trade or vocation, or |
| |
|
| |
|
| |
|
(b) | a Schedule A business or overseas property business. |
| |
Application of provisions to partnerships |
| |
15 (1) | This paragraph applies where the business is carried on by the company in |
| |
| |
(2) | The amounts chargeable to tax under this Part of this Schedule are calculated |
| 5 |
as if the partnership were a company resident in the United Kingdom. |
| |
(3) | The company’s share of any such amount is determined by reference to the |
| |
profit-sharing arrangements for the previous accounting period. |
| |
| An election under paragraph 13 (election to accelerate charge) must be made |
| |
jointly by all the persons who have been members of the partnership in the |
| 10 |
previous accounting period and are chargeable to corporation tax. |
| |
(4) | If paragraph 12(2) applies (effect of cessation of business), each partner’s |
| |
share of any amount charged to tax on or after the cessation is determined as |
| |
| |
(a) | if the cessation occurs on the date on which the change of accounting |
| 15 |
approach was adopted, according to the profit-sharing |
| |
arrangements for the twelve months ending immediately before that |
| |
| |
(b) | if the cessation occurs after that date, but on or before the first |
| |
anniversary of that date, according to the profit-sharing |
| 20 |
arrangements for the period between that date and the date of |
| |
| |
(c) | if the cessation occurs after the first anniversary of the date on which |
| |
the change of accounting approach was adopted, according to the |
| |
profit-sharing arrangements for the period between the immediately |
| 25 |
preceding anniversary of that date and the date of cessation. |
| |
| An election under paragraph 13 after the cessation must be made by each |
| |
former partner separately. |
| |
(5) | For the purposes of this paragraph “profit-sharing arrangements” means the |
| |
rights of the partners to share in the profits of the business for the period in |
| 30 |
| |
(6) | A change in the persons carrying on a business does not constitute the |
| |
permanent cessation of the business for the purposes of this Part of this |
| |
Schedule so long as a person carrying on the business immediately before |
| |
the change continues to carry on the business immediately after the change. |
| 35 |
(7) | In the case of a business carried on by a limited liability partnership the |
| |
operation of this Part of this Schedule is not affected by the partnership’s |
| |
ceasing to be one carrying on a trade, profession or other business with a |
| |
| |
(8) | Nothing in this paragraph shall be read as affecting the operation of— |
| 40 |
(a) | paragraph 19 of Schedule 9 to FA 1996 (loan relationships), or |
| |
(b) | paragraph 49 of Schedule 26 to FA 2002 (derivative contracts), |
| |
| (under which certain debits and credits are not to be brought into account as |
| |
if the partnership were a company). |
| |
|
| |
|