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Income Tax Bill


Income Tax Bill
Part 13 — Tax avoidance
Chapter 4 — Sales of occupation income

393

 

785     

Restriction on exemption: sales of future earnings

(1)   

This section applies if the value as a going concern mentioned in section 784(4)

or (5) is derived to a material extent from prospective income or receipts

derived directly or indirectly from the individual’s activities in the occupation.

(2)   

The exemption under section 784 applies to the value so derived only if the

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future earnings condition is met.

(3)   

The future earnings condition is met if, ignoring all capital amounts, the

individual will receive full consideration for the prospective income or

receipts, whether as a partner in a partnership or as an employee or otherwise.

(4)   

The references in subsections (1) and (3) to income or receipts include

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references to payments for any description of copyright, licence, franchise or

other right deriving its value from the individual’s activities (including past

activities).

Recovery of tax

786     

Recovery of tax where consideration receivable by person not assessed

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(1)   

This section applies if a person (“A”) is assessed to tax under this Chapter in

respect of consideration receivable by another person (“B”).

(2)   

Consideration is not regarded as having become receivable by B for this

purpose until B can effectively enjoy or dispose of it.

(3)   

A is entitled to recover from B any part of the tax which A has paid.

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(4)   

If any part of the tax remains unpaid at the end of the period of 6 months

beginning with the date when it became due and payable, it is recoverable

from B as if B were the person assessed.

(5)   

Subsection (4) does not affect the right to recover the tax from A.

(6)   

For the purposes of this section, any income which an individual is treated as

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having as a result of this Chapter (the “occupation income”) is treated as the

highest part of the individual’s total income.

(7)   

But if in the tax year—

(a)   

more than one capital amount is treated as the individual’s occupation

income, or

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(b)   

the individual is also treated as having income as a result of Chapter 3

(transactions in land),

   

only a just and reasonable proportion of each capital amount treated as

occupation income is to be treated as the highest part of the individual’s total

income.

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(8)   

See section 1012 for the relationship between—

(a)   

the rules in subsections (6) and (7), and

(b)   

other rules requiring particular income to be treated as the highest part

of a person’s total income.

 
 

Income Tax Bill
Part 13 — Tax avoidance
Chapter 4 — Sales of occupation income

394

 

787     

Recovery of tax: certificates of tax paid etc

(1)   

For the purposes of section 786(3), an officer of Revenue and Customs must, if

requested to do so, produce a certificate specifying—

(a)   

the amount of income in respect of which tax has been paid, and

(b)   

the amount of tax paid.

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(2)   

The certificate is conclusive evidence of any facts stated in it.

(3)   

See also section 944 (under which directions may be given for payments within

this Chapter to non-UK residents to be subject to a duty to deduct income tax).

Power to obtain information

788     

Power to obtain information

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(1)   

An officer of Revenue and Customs may by notice require any person to

provide the officer within such period as the officer may direct with such

particulars as the officer may reasonably require for the purposes of this

Chapter.

(2)   

That period must be at least 30 days.

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(3)   

The particulars which a person must provide under this section, if required to

do so by such a notice, include particulars about—

(a)   

transactions or arrangements with respect to which the person is or was

acting on behalf of others,

(b)   

transactions or arrangements which in the opinion of the officer should

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properly be investigated for the purposes of this Chapter, although in

the person’s opinion no liability to tax arises under this Chapter, and

(c)   

whether the person has taken or is taking any part and, if so, what part

in transactions or arrangements of a description specified in the notice.

(4)   

Subsection (3) is subject to subsection (5).

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(5)   

In relation to anything done by a solicitor on behalf of a client who does not

consent to the provision of information required to be provided by a notice

under subsection (1), the solicitor may not be compelled under this section to

do more than—

(a)   

state that the solicitor was acting on behalf of a client, and

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(b)   

give the name and address of the client.

(6)   

A solicitor is not treated as having taken part in a transaction or arrangement

for the purposes of subsection (3)(c) merely because of giving professional

advice to a client about it.

Interpretation

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789     

Minor definitions

In this Chapter—

“company” includes any body corporate, and

“share” includes stock.

 
 

Income Tax Bill
Part 13 — Tax avoidance
Chapter 5 — Avoidance involving trading losses

395

 

Chapter 5

Avoidance involving trading losses

Introduction

790     

Overview of Chapter

(1)   

This Chapter imposes charges to income tax on—

5

(a)   

individuals who are treated as receiving income under section 792

(individuals in partnership claiming excess relief),

(b)   

individuals who are treated as receiving income under section 797

(individuals claiming relief for film-related trading losses), and

(c)   

individuals who are treated as receiving income under section 805

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(individuals in partnership claiming relief for licence-related trading

losses).

(2)   

The charges apply if (among other things) the individual makes a loss in a

trade for which the individual claims sideways relief or capital gains relief.

(3)   

For the purposes of this Chapter sideways relief is—

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(a)   

trade loss relief against general income (see sections 64 to 70), or

(b)   

early trade losses relief (see sections 72 to 74).

(4)   

For the purposes of this Chapter—

(a)   

capital gains relief is, in relation to a loss, the treatment of the loss as an

allowable loss by virtue of section 261B of TCGA 1992 (use of trading

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loss as a CGT loss), and

(b)   

capital gains relief is claimed for a loss when a claim under that section

is made in relation to the loss.

(5)   

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

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partnerships).

Individuals in partnership: recovery of excess relief

791     

Charge to tax on income treated as received under section 792

(1)   

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

section 792.

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(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.

792     

Partners claiming excess sideways or capital gains relief

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(1)   

This section applies if—

(a)   

an individual carrying on a trade (“the relevant trade”) as a partner in

a firm makes post-1 December 2004 losses in the relevant trade for

which the individual claims relief within subsection (2),

 
 

Income Tax Bill
Part 13 — Tax avoidance
Chapter 5 — Avoidance involving trading losses

396

 

(b)   

any of sections 104, 107 and 110 applies in relation to the relief (whether

or not any of those sections restricts the amount of the relief), and

(c)   

after the individual makes the claim or claims, a chargeable event

occurs.

(2)   

The relief within this subsection is—

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(a)   

sideways relief but only if the whole or part of the relief is claimed

against income of the individual apart from profits of the relevant

trade, and

(b)   

capital gains relief.

(3)   

A chargeable event occurs whenever—

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(a)   

the amount of the individual’s contribution to the firm is reduced as a

result of the application of regulations made under section 114, and

(b)   

that reduction in the individual’s contribution to the firm immediately

results in—

(i)   

the total amount of trade losses claimed (less any reclaimed

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relief) becoming greater than the contribution, or

(ii)   

an increase in the amount by which the total amount of trade

losses claimed (less any reclaimed relief) exceeds the

contribution.

(4)   

The individual is treated as receiving an amount of income every time a

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chargeable event occurs.

   

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

(5)   

The amount of the income is calculated in accordance with section 793.

(6)   

If—

(a)   

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

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(b)   

subsection (1)(a) and (b) applies in relation to losses made by the

individual in one or more of those trades as a partner in the firm,

   

the firm’s trades are taken together for the purpose of determining whether a

chargeable event occurs at any time after a claim in relation to any of those

losses has been made and, if one does occur, the amount of income treated as

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received by the individual at that time.

   

See section 794(6) for modifications giving effect to this.

(7)   

References in this section to an individual being a partner in a firm include a

reference to an individual being a limited partner within the meaning of

section 106 as a result of subsection (1)(c) of that section.

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(8)   

And, accordingly, in the case of an individual who is such a limited partner, in

this section and in sections 793 to 795 references to the individual’s firm are

references to the relationship between the individual and the other persons

mentioned in section 106(3)(a).

793     

Calculating the amount of income treated as received

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(1)   

The amount of income treated as received by the individual under section 792

when the chargeable event occurs is the lowest of amounts A to C.

(2)   

Amount A is the amount by which the individual’s contribution to the firm is

reduced as a result of the application of regulations made under section 114.

(3)   

Amount B is the amount given by—

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Income Tax Bill
Part 13 — Tax avoidance
Chapter 5 — Avoidance involving trading losses

397

 

(a)   

taking, at the time immediately after the chargeable event occurs, the

total amount of trade losses claimed that are post-1 December 2004

losses, and

(b)   

reducing that amount (but not below nil) by any reclaimed relief.

(4)   

Amount C is the amount given by—

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(a)   

taking the amount by which, at the time immediately after the

chargeable event occurs, the total amount of trade losses claimed

exceeds the individual’s contribution to the firm, and

(b)   

reducing that amount (but not below nil) by any reclaimed relief.

794     

Meaning of “the total amount of trade losses claimed” etc

10

(1)   

In sections 792 and 793 “the total amount of trade losses claimed” means the

total amount of losses within subsection (2) for which the individual has

claimed sideways relief or capital gains relief.

(2)   

The losses within this subsection are losses made by the individual in the

relevant trade—

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(a)   

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

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

(b)   

in an early tax year during which the individual carries on the relevant

trade as a non-active partner.

   

Expressions used in this subsection are to be read as if contained in Chapter 3

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of Part 4.

(3)   

In sections 792 and 793 “reclaimed relief” means the total amount of income

treated as received by the individual under section 792 as a result of that

section being previously applied in relation to claims for relief for losses made

by the individual in the relevant trade.

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(4)   

In sections 792 and 793 “the individual’s contribution to the firm” at any time

means the individual’s contribution to the firm or the LLP (as the case may be)

at that time as calculated for the purposes of the relevant restriction provision.

(5)   

The “relevant restriction provision” means—

(a)   

whichever of sections 104, 107 and 110 applied as mentioned in section

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792(1)(b), or

(b)   

if more than one of those sections applied as mentioned in section

792(1)(b), the section which so applied to the amount of relief which

could be given for the loss most recently made by the individual in the

relevant trade.

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(6)   

In a case to which section 792(6) applies, for the purpose of determining the

total amount of trade losses claimed, the amount of the reclaimed relief and the

relevant restriction provision—

(a)   

apply subsections (1) and (2) in relation to each of the trades that the

firm is carrying on, or has carried on, and then add the results together,

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and

(b)   

apply subsections (3) and (5)(b) as if references to the relevant trade

were references to any of the trades that the firm is carrying on, or has

carried on.

   

But if a trade is of the kind mentioned in section 110(8), do not apply subsection

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(2)(b) in relation to it.

 
 

 
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