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Income Tax Bill


Income Tax Bill
Part 12 — Tax avoidance
Chapter 5 — Avoidance involving trading losses

371

 

(a)   

the total amount of film-related losses made by the individual in the

trade so far as they are losses for which the individual has made a

relevant claim, less

(b)   

the amount of any relevant recovered relief.

(4)   

“The amount of any relevant recovered relief” means—

5

(a)   

amount A, or

(b)   

if less, amount B.

(5)   

Amount A is the total amount of income treated as received by the individual

under section 725 (recovery of excess relief) as a result of the application of that

section in relation to claims for relief for losses made by the individual in the

10

trade.

(6)   

Amount B is the total amount of film-related losses within subsection (7) for

which the individual has made a relevant claim.

(7)   

A loss is within this subsection if it is made by the individual in the trade—

(a)   

in a tax year at a time during which the individual carries on the trade

15

as a member of an LLP or as a limited partner, or

(b)   

in an early tax year during which the individual carries on the trade as

a non-active partner.

(8)   

Expressions used in subsection (7) are to be read as if contained in Chapter 3 of

Part 4.

20

(9)   

Subsection (10) applies if

(a)   

the individual has made a relevant claim for a film-related loss made in the

trade as a partner in a firm, and

(b)   

the firm is carrying on, or has carried on, more than one trade.

(10)   

For the purpose of determining the individual’s claimed film-related losses

25

(a)   

apply subsection (3)(a) in relation to each of the trades and then add the results

together,

(b)   

apply subsection (5) as if the reference to the trade were a reference to any of

the trades, and

(c)   

apply subsections (6) and (7) in relation to each of the trades and then add the

30

results together.

734     

Meaning of “capital contribution”

(1)   

This section applies for the purposes of section 730.

(2)   

The individual’s capital contribution is the amount which the individual has

contributed to the trade as capital less so much of that amount (if any) as is

35

within subsection (6).

   

This is subject to subsection (3).

(3)   

If the individual has made a relevant claim for a film-related loss made in the

trade as a partner in a firm, the individual’s capital contribution is the amount

which the individual has contributed to the firm as capital less so much of that

40

amount (if any) as is within subsection (6).

(4)   

In particular, the individual’s share of any profits of the firm is to be included

for the purposes of subsection (3) in the amount which the individual has

 
 

Income Tax Bill
Part 12 — Tax avoidance
Chapter 5 — Avoidance involving trading losses

372

 

contributed to the firm as capital so far as that share has been added to the

firm’s capital.

(5)   

In subsection (4) the reference to profits are to profits calculated in accordance

with generally accepted accounting practice (before any adjustment required

or authorised by law in calculating profits for income tax purposes).

5

(6)   

An amount of capital is within this subsection if it is an amount which—

(a)   

the individual has previously drawn out or received back,

(b)   

the individual is entitled to draw out or receive back,

(c)   

another person has reimbursed to the individual, or

(d)   

the individual is entitled to require another person to reimburse to the

10

individual.

(7)   

But if a chargeable event occurs, anything treated for the purposes of section

730(5)(a) as consideration received by the individual for a relevant disposal is

not to be treated as capital within subsection (6) in calculating the individual’s

capital contribution for the purposes of section 730(5)(b).

15

(8)   

In this section—

(a)   

any reference to drawing out, receiving back or reimbursing an amount

is to doing so directly or indirectly,

(b)   

any reference to drawing out or receiving back an amount does not

include drawing out or receiving back an amount which, because of its

20

being drawn out or received back, is chargeable to income tax as profits

of a trade, and

(c)   

any reference to reimbursing an amount includes discharging or

assuming all or part of a liability of the individual,

   

but the express provision made by paragraph (c) does not affect what counts

25

as the receipt back or reimbursement of an amount.

(9)   

This section needs to be read with any regulations made under section 735

(specified amounts to be excluded in calculating a partner’s capital

contribution for the purposes of section 730).

735     

Exclusion of amounts in calculating capital contribution by a partner

30

(1)   

This section applies if an individual makes a relevant claim for a film-related

loss made by the individual in a trade as a partner in a firm.

(2)   

The Commissioners for Her Majesty’s Revenue and Customs may by

regulations provide that any amount of a specified description is to be

excluded in calculating the individual’s capital contribution for the purposes

35

of section 730.

(3)   

“Specified” means specified in the regulations.

(4)   

The regulations may—

(a)   

make provision having retrospective effect,

(b)   

contain incidental, supplemental, consequential and transitional

40

provision and savings, and

(c)   

make different provision for different cases or purposes.

(5)   

The provision which may be made as a result of subsection (4)(b) includes

provision amending or repealing any provision of an Act passed before FA

2005.

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Income Tax Bill
Part 12 — Tax avoidance
Chapter 5 — Avoidance involving trading losses

373

 

(6)   

No regulations may be made under this section unless a draft of them has been

laid before and approved by a resolution of the House of Commons.

736     

Prohibition against double counting

(1)   

Subsections (2) and (3) apply for the purpose of calculating the amount of

income received under section 730 on a chargeable event in respect of the

5

individual and the trade.

(2)   

If chargeable events have previously occurred in respect of the individual and

the trade, any consideration taken into account in calculating the amount of

income received on an earlier chargeable event is left out of account.

(3)   

If chargeable events have previously occurred in respect of the individual and

10

the trade, the amount of income received as a result of section 730(5)(b) is

reduced (but not below nil) by the total amount of income received on earlier

chargeable events as a result of that provision.

(4)   

In a case to which section 733(10) (cases in which firm is carrying on, or has

carried on, more than one trade) applies—

15

(a)   

subsections (2) and (3) of this section have effect as if references to the

trade were references to any of the firm’s trades, and

(b)   

if chargeable events in respect of the individual and any of the firm’s

trades occur at the same time, to find the total amount of income

received under section 730 at that time on those chargeable events—

20

(i)   

calculate separately the income received on each chargeable

event ignoring the other chargeable events,

(ii)   

add the results from sub-paragraph (i) together, and

(iii)   

reduce the total amount of income resulting from sub-

paragraph (ii) so far as necessary to ensure that no amount is

25

included more than once in that total.

Individuals in partnership claiming relief for licence-related trading losses

737     

Charge to tax on income treated as received under section 738

(1)   

Income tax is charged on income treated as received by an individual under

section 738.

30

(2)   

Tax is charged under this section on the amount of the income treated as

received in the tax year.

(3)   

The person liable for any tax charged under this section is the individual

treated as receiving the income.

738     

Partners claiming relief for licence-related trading losses

35

(1)   

This section applies if—

(a)   

an individual carries on a trade as a non-active partner during an early

tax year,

(b)   

the individual makes a loss in the trade in that tax year for which the

individual claims sideways relief or capital gains relief (a “relevant

40

claim”),

 
 

Income Tax Bill
Part 12 — Tax avoidance
Chapter 5 — Avoidance involving trading losses

374

 

(c)   

the loss derives to any extent from expenditure incurred in the trade in

exploiting a licence acquired in carrying on the trade, and

(d)   

there is a relevant disposal of the licence.

(2)   

For the purposes of this section and section 739 there is a relevant disposal of

the licence whenever the individual receives non-taxable consideration for—

5

(a)   

a disposal of the licence, or

(b)   

a disposal of a right to income under an agreement related to or

containing the licence.

(3)   

If one or more chargeable events occur in any tax year, the individual is treated

as receiving an amount of income in the tax year.

10

   

The income is treated as arising otherwise than as profits of the trade.

(4)   

For the purposes of this section and section 739 a chargeable event occurs

whenever—

(a)   

there is a relevant disposal of the licence (if by that time the individual

has made a relevant claim), or

15

(b)   

the individual makes a relevant claim (if by that time there has been a

relevant disposal of the licence).

(5)   

For the purposes of this section and section 739 consideration is non-taxable

if—

(a)   

(apart from section 737) it is not chargeable to income tax, and

20

(b)   

its receipt is not an exit event for the purposes of section 730.

(6)   

For the purposes of this section and section 739 it does not matter—

(a)   

if the individual (or anyone else) is still carrying on the trade when a

chargeable event occurs,

(b)   

if the individual receives both non-taxable and taxable consideration

25

for a relevant disposal of the licence, or

(c)   

if a relevant disposal of the licence is part of a larger disposal.

739     

Calculation of amount of income treated as received by the individual

   

The amount of income treated under section 738 as received by the individual

in the tax year is calculated by taking the following steps.

30

   

   

Step 1

   

Calculate, at the end of the tax year, the total amount of the claimed losses (so

far as relating to the licence) made by the individual in the trade in any early

tax year during which the individual carried on the trade as a non-active

35

partner.

   

   

Step 2

   

Calculate, at the end of the tax year, the total amount of the profits (so far as

relating to the licence) made by the individual in the trade in any tax year.

40

   

   

Step 3

   

Deduct the total calculated at Step 2 from the total calculated at Step 1.

   

The result is “the net licence-related loss”.

   

If the net licence-related loss is nil or a negative figure—

45

(a)   

the income treated as received in the tax year is nil, and

 
 

Income Tax Bill
Part 12 — Tax avoidance
Chapter 5 — Avoidance involving trading losses

375

 

(b)   

ignore Steps 4 and 5.

   

   

Step 4

   

Calculate, at the end of the tax year, the total amount or value of all non-taxable

consideration received by the individual for relevant disposals (including

5

consideration received in previous tax years).

   

   

Step 5

   

Deduct from—

(a)   

the net licence-related loss, or

10

(b)   

if less, the total calculated at Step 4,

   

the total amount of all income treated under section 738 as received by the

individual in previous tax years as a result of chargeable events.

   

The result is the amount of the income treated as received in the tax year.

   

(If the result is a negative figure, the income is nil.)

15

740     

Supplementary provision relating to calculation in section 739

(1)   

This section applies for the purposes of section 739.

(2)   

For the purposes of Step 1, the amount of a loss made in a tax year that relates

to the licence is so much of the loss in the tax year as derives from expenditure

incurred in the trade in exploiting the licence.

20

(3)   

The amount of the loss that derives from such expenditure is determined on a

just and reasonable basis.

(4)   

For the purposes of Step 1, a loss is a claimed loss if the individual has claimed

sideways relief or capital gains relief for the loss.

(5)   

For the purposes of Step 2, the amount of profits made in a tax year that relates

25

to the licence is so much of the individual’s profits from the trade in the tax

year as derives from income arising from an agreement related to or containing

the licence.

(6)   

The amount of the profits that derives from such income is determined on a just

and reasonable basis.

30

741     

Meaning of “disposal of the licence” etc

(1)   

For the purposes of section 738 any reference to—

(a)   

a disposal of a licence acquired in carrying on a trade, or

(b)   

a disposal of a right to income under an agreement related to or

containing a licence acquired in carrying on a trade (“a licence-related

35

agreement”),

   

includes, in particular, any of events A to E.

(2)   

Event A is the revocation of the licence.

(3)   

Event B is the disposal, giving up or loss of—

(a)   

a right under the licence, or

40

(b)   

a right to income (or any part of any income) under a licence-related

agreement,

   

by the individual or by a firm in which the individual is a partner.

 
 

Income Tax Bill
Part 12 — Tax avoidance
Chapter 5 — Avoidance involving trading losses

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It does not matter if the right is disposed of, given up or lost as part of a larger

disposal, giving up or loss.

(4)   

Event C is the disposal, giving up or loss of the individual’s interest in a firm

that has the licence or a right to income under a licence-related agreement

(including the dissolution of the firm).

5

(5)   

Event D is a default in the payment of income to which—

(a)   

the individual, or

(b)   

a firm in which the individual is a partner,

   

has a right under a licence-related agreement.

(6)   

Event E is a change in the individual’s entitlement to any profits or losses

10

relating to the licence the effect of which is that—

(a)   

the individual’s share of any profits is reduced (including to nil), or

(b)   

the individual becomes entitled to a share, or a greater share, of any

losses without becoming entitled to a corresponding share of profits.

(7)   

The changes covered by event E include cases where there is an agreement

15

under which the individual is entitled—

(a)   

to a particular share of any profits or losses relating to the licence in a

period (including a nil share), and

(b)   

to a different share of any such profits or losses in a succeeding period

(including a nil share).

20

(8)   

In such cases the change in the individual’s entitlement is treated for the

purposes of section 738 as occurring at the beginning of the succeeding period.

(9)   

For the purposes of this section—

(a)   

references to any profits relating to the licence are to any profits

deriving to any extent from income to which the individual has a right

25

under a licence-related agreement, and

(b)   

references to any losses relating to the licence are to losses deriving to

any extent from expenditure incurred in exploiting the licence.

742     

Other definitions

(1)   

References in sections 738 and 739 to an individual carrying on a trade as a non-

30

active partner in an early tax year are to be read as if those sections were

contained in Chapter 3 of Part 4 (see, in particular, section 112).

(2)   

But for that purpose, section 112(1)(b) (which contains a requirement that the

individual does not carry on the trade as a limited partner at any time during

the tax year) is treated as if it were omitted.

35

(3)   

For the purposes of sections 738 to 741 an agreement is related to a licence if the

agreement and licence are entered into under the same arrangement

(regardless of when the agreement or licence is entered into).

(4)   

For the purposes of sections 738 to 741 an agreement, or part of an agreement,

is not prevented from being a licence merely because it imposes an obligation

40

to do a thing (rather than merely gives authority to do it).

   

References to exploiting a licence are to be read in that light.

 
 

Income Tax Bill
Part 13 — Income tax liability: miscellaneous rules
Chapter 1 — Limits on liability to income tax of non-UK residents

377

 

Part 13

Income tax liability: miscellaneous rules

Chapter 1

Limits on liability to income tax of non-UK residents

Introduction

5

743     

Overview of Chapter

(1)   

This Chapter provides for limits on the liability to income tax of non-UK

residents.

(2)   

See sections 744 to 747 in the cases of—

(a)   

a non-UK resident, other than a company, and

10

(b)   

a non-UK resident company liable as a trustee.

(3)   

See sections 748 and 749 in the case of a non-UK resident company which is

liable otherwise than as a trustee.

Limit for non-UK resident individuals, trustees etc

744     

Limit on liability to income tax of non-UK residents

15

(1)   

This section applies to income tax to which—

(a)   

a non-UK resident, other than a company, is liable, or

(b)   

a non-UK resident company is liable as a trustee.

(2)   

Subsection (1) is subject to section 745 (case where limit not to apply).

(3)   

The non-UK resident’s liability to income tax for a tax year is limited to the sum

20

of amounts A and B.

(4)   

Amount A is the sum of—

(a)   

any sums representing income tax deducted from the non-UK

resident’s disregarded income for the tax year (see section 746),

(b)   

any sums representing income tax that are treated as deducted from or

25

paid in respect of that income, and

(c)   

any tax credits in respect of that income.

(5)   

Amount B is the amount that, apart from this section, would be the non-UK

resident’s liability to income tax for the tax year, if the following were left out

of account—

30

(a)   

the non-UK resident’s disregarded income for the tax year, and

(b)   

any relief mentioned in subsection (6) to which the non-UK resident is

entitled for the tax year as a result of—

(i)   

section 56(3) or 460(3) of this Act or section 278(2) of ICTA

(residence etc of claimants), or

35

(ii)   

double taxation arrangements.

(6)   

The reliefs referred to in subsection (5) are—

 
 

 
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