Income Tax Bill

House of Commons

Session 2006 - 07
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Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 4 — Loss relief
Chapter 2 — Trade losses
47

(8)
The person making the claim may specify—
(a)
the tax year in which the debt proves to be bad, or
(b)
a subsequent tax year throughout which the debt remains bad (so long
as the tax year begins within 7 years of the cessation),

but, if the person has previously made a claim specifying a tax year in respect
5
of the debt, the person may not specify another tax year in respect of it.
99
Reduction of relief for unpaid trade expenses
(1)
This section applies for the purposes of post-cessation trade relief in respect of
a person’s trade if a deduction was made in calculating the profits of the trade
for an expense not actually paid (an “unpaid expense”).
10
(2)
The amount of the person’s relief for a tax year is reduced (but not below nil)
by—
(a)
the total amount of unpaid expenses at the end of the tax year, or
(b)
if the person carried on the trade as a partner in a firm, the person’s
share of the total amount of unpaid expenses at the end of the tax year.
15
(3)
But any unpaid expense which is taken into account in reducing the amount of
the person’s relief for a tax year is left out of account in making reductions for
subsequent tax years.
(4)
If the person actually pays an amount in respect of an unpaid expense taken
into account in reducing the amount of the person’s relief, the person is treated
20
as making a qualifying payment for the purposes of section 96.
(5)
The amount of the qualifying payment is—
(a)
the amount actually paid, or
(b)
if less, the amount of the reduction.
(6)
This section applies to professions and vocations as it applies to trades.
25
100
Prohibition against double counting
(1)
Post-cessation trade relief is not available for an amount for which relief is
given, or is available, under any other provision of the Income Tax Acts.
(2)
For this purpose—
(a)
relief available under section 254 of ITTOIA 2005 (allowable deductions
30
against post-cessation receipts) is treated as given for other amounts
before any amount for which post-cessation trade relief is available,
and
(b)
relief under that section is treated as available if it would have been
available but for the fact that the post-cessation receipts (against which
35
the deductions would have been allowed) are exempt under section 524
of this Act.
101
Treating excess post-cessation trade relief as CGT loss
A person who cannot deduct all of an amount under a claim for post-cessation
trade relief may be able to treat the unused part as an allowable loss for capital
40
gains tax purposes: see sections 261D and 261E of TCGA 1992.

Income Tax Bill
Part 4 — Loss relief
Chapter 3 — Restrictions on trade loss relief for certain partners
48

Chapter 3
Restrictions on trade loss relief for certain partners
Introduction
102
Overview of Chapter
(1)
This Chapter restricts the amount of relief that may be given for any loss made
5
by an individual in a trade carried on by the individual as—
(a)
a limited partner in any tax year (see sections 104 to 106 and section
114),
(b)
a member of a limited liability partnership (an “LLP”) in any tax year
(see sections 107 to 109 and section 114), or
10
(c)
a non-active partner in an early tax year (see sections 110 to 114).
(2)
This Chapter also restricts the amount of relief that may be given for any loss
made by an individual in a trade carried on by the individual as a partner in a
firm if the trade consists of or includes the exploitation of films (see sections 115
and 116).
15
(3)
This Chapter needs to be read with sections 724 to 728 (income tax charge
recovering excess relief for losses made by individuals carrying on a trade in
partnership).
(4)
See also—
(a)
sections 729 to 736 (income tax charge in relation to individuals
20
claiming relief for film-related trading losses), and
(b)
sections 737 to 742 (income tax charge in relation to individuals
carrying on a trade in partnership claiming relief for licence-related
trading losses).
103
Meaning of “sideways relief”, “capital gains relief” and “firm”
25
(1)
For the purposes of this Chapter sideways relief is—
(a)
trade loss relief against general income (see sections 64 to 70), or
(b)
early trade losses relief (see sections 72 to 74).
(2)
For the purposes of this Chapter—
(a)
capital gains relief is, in relation to a loss, the treatment of the loss as an
30
allowable loss by virtue of section 261B of TCGA 1992 (use of trading
loss as a CGT loss), and
(b)
capital gains relief is given for a loss when it is so treated.
(3)
References in this Chapter to a firm are to be read in the same way as references
to a firm in Part 9 of ITTOIA 2005 (which contains special provision about
35
partnerships).
Limited partners
104
Restriction on reliefs for limited partners
(1)
This section applies if—

Income Tax Bill
Part 4 — Loss relief
Chapter 3 — Restrictions on trade loss relief for certain partners
49

(a)
at a time in a tax year (“the relevant tax year”) an individual carries on
a trade (“the relevant trade”) as a limited partner in a firm, and
(b)
the individual makes a loss in the relevant trade in the relevant tax year.
(2)
There is a restriction on the amount of relief within subsection (3) which may
be given to the individual for the loss.
5
(3)
The relief within this subsection is—
(a)
sideways relief against the individual’s income apart from profits of the
relevant trade, and
(b)
capital gains relief.
(4)
The restriction is that—
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(a)
the sum of the amount of the relief given and the total amount of all
other relevant relief given, less
(b)
the total amount of recovered relief,

must not exceed the individual’s contribution to the firm as at the end of the basis
period for the relevant tax year (see section 105).
15
(5)
“Relevant relief” means sideways relief or capital gains relief given to the
individual for—
(a)
a loss made in the relevant trade in a tax year at a time during which
the individual carries on that trade as a limited partner, or
(b)
a loss made in the relevant trade in an early tax year during which the
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individual carries on that trade as a non-active partner (see section 112).
(6)
“The total amount of recovered relief” means 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 relevant trade.
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(7)
If the firm is carrying on, or has carried on, other trades apart from the relevant
trade, for the purpose of determining the total amount of all other relevant
relief and the total amount of recovered relief—
(a)
apply subsection (5) in relation to each other trade as well as the
relevant trade and then add the results together, and
30
(b)
apply subsection (6) as if the reference to the relevant trade were a
reference to the relevant trade or any of the other trades.
105
Meaning of “contribution to the firm”
(1)
For the purposes of section 104 the individual’s contribution to the firm is the
sum of amounts A and B.
35
(2)
Amount A is the amount which the individual has contributed to the firm as
capital less so much of that amount (if any) as is within subsection (4).
(3)
In particular, the individual’s share of any profits of the firm is to be included
in the amount which the individual has contributed to the firm as capital so far
as that share has been added to the firm’s capital.
40
(4)
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 or may be entitled to draw out or receive back at any
time when the individual is carrying on a trade as a limited partner in
the firm, or
45

Income Tax Bill
Part 4 — Loss relief
Chapter 3 — Restrictions on trade loss relief for certain partners
50

(c)
the individual is or may be entitled to require another person to
reimburse to the individual.
(5)
In subsection (4) any reference to drawing out or receiving back an amount is
to doing so directly or indirectly but does not include drawing out or receiving
back an amount which, because of its being drawn out or received back, is
5
chargeable to income tax as profits of a trade.
(6)
Amount B is the amount of the individual’s total share of profits within
subsection (7) except so far as—
(a)
that share has been added to the firm’s capital, or
(b)
the individual has received that share in money or money’s worth.
10
(7)
Profits are within this subsection if they are from the relevant trade.
(8)
In determining the amount of the individual’s total share of profits within
subsection (7) ignore the individual’s share of any losses from the relevant
trade which would (apart from this subsection) reduce that amount.
(9)
In subsections (3), (7) and (8) any reference to profits or losses are to profits or
15
losses calculated in accordance with generally accepted accounting practice
(before any adjustment required or authorised by law in calculating profits or
losses for income tax purposes).
(10)
If the firm is carrying on, or has carried on, other trades apart from the relevant
trade, subsections (7) and (8) have effect as if references to the relevant trade
20
were references to the relevant trade or any of the other trades.
(11)
This section needs to be read with any regulations made under section 114
(specified amounts to be excluded in calculating the individual’s contribution
to the firm for the purposes of section 104).
106
Meaning of “limited partner”
25
(1)
In this Chapter “limited partner” means an individual who carries on a trade—
(a)
as a limited partner in a limited partnership registered under the
Limited Partnerships Act 1907 (c. 24),
(b)
as a partner in a firm who in substance acts as a limited partner in
relation to the trade (see subsection (2)), or
30
(c)
while the condition mentioned in subsection (3) is met in relation to the
individual.
(2)
An individual in substance acts as a limited partner in relation to a trade if the
individual—
(a)
is not entitled to take part in the management of the trade, and
35
(b)
is entitled to have any liabilities (or those beyond a certain limit) for
debts or obligations incurred for the purposes of the trade met or
reimbursed by some other person.
(3)
The condition referred to in subsection (1)(c) is that—
(a)
the individual carries on the trade jointly with other persons,
40
(b)
under the law of a territory outside the United Kingdom, the individual
is not entitled to take part in the management of the trade, and
(c)
under that law, the individual is not liable beyond a certain limit for
debts or obligations incurred for the purposes of the trade.

Income Tax Bill
Part 4 — Loss relief
Chapter 3 — Restrictions on trade loss relief for certain partners
51

(4)
In the case of an individual who is a limited partner as a result of subsection
(1)(c), references in this Chapter to the individual’s firm are to be read as
references to the relationship between the individual and the other persons
mentioned in subsection (3)(a).
Members of LLPs
5
107
Restriction on reliefs for members of LLPs
(1)
This section applies if—
(a)
an individual carries on a trade (“the relevant trade”) as a member of an
LLP at a time in a tax year, and
(b)
the individual makes a loss in the relevant trade in the tax year (“the
10
relevant tax year”).
(2)
But if the relevant tax year is an early tax year during which the individual
carries on the relevant trade as a non-active partner (see section 112)—
(a)
this section does not apply, and
(b)
section 110 applies instead.
15
(3)
There is a restriction on the amount of relief within subsection (4) which may
be given to the individual for the loss.
(4)
The relief within this subsection is—
(a)
sideways relief against the individual’s income apart from profits of the
relevant trade, and
20
(b)
capital gains relief.
(5)
The restriction is that—
(a)
the sum of the amount of the relief given and the total amount of all
other relevant relief given, less
(b)
the total amount of recovered relief,
25

must not exceed the individual’s contribution to the LLP as at the end of the basis
period for the relevant tax year (see section 108).
(6)
“Relevant relief” means sideways relief or capital gains relief given to the
individual for—
(a)
a loss made in the relevant trade in a tax year at a time during which
30
the individual carries on that trade as a member of an LLP, or
(b)
a loss made in the relevant trade in an early tax year during which the
individual carries on that trade as a non-active partner.
(7)
“The total amount of recovered relief” means the total amount of income
treated as received by the individual under section 725 (recovery of excess
35
relief) as a result of the application of that section in relation to claims for relief
for losses made by the individual in the relevant trade.
(8)
If the LLP is carrying on, or has carried on, other trades apart from the relevant trade,
for the purpose of determining the total amount of all other relevant relief and the total
amount of recovered relief—
40
(a)
apply subsection (6) in relation to each other trade as well as the relevant trade
and then add the results together, and
(b)
apply subsection (7) as if the reference to the relevant trade were a reference to
the relevant trade or any of the other trades.