Corporation Tax Bill

House of Commons

Session 2008 - 09
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 3 — Trading income
Chapter 2 — Income taxed as trade profits
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(b)
as ceasing to carry on the trade when it ceases to be within the charge.
Trading income and property income
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Tied premises
(1)
This section applies if —
(a)
in the course of carrying on a trade a company (“the trader”) supplies,
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or is concerned in the supply of, goods sold or used on premises
occupied by another person,
(b)
the trader has an estate or interest in the premises,
(c)
the estate or interest is dealt with as property employed for the
purposes of the trade, and
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(d)
receipts and expenses in connection with the premises would
otherwise be brought into account in calculating the profits of a
property business of the trader.
(2)
Both the receipts and the expenses are instead brought into account in
calculating the profits of the trade.
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(3)
Any apportionment of receipts or expenses that is necessary because—
(a)
the receipts or expenses do not relate only to the premises, or
(b)
the above conditions are met only in relation to part of the premises,

is to be made on a just and reasonable basis.
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Caravan sites where trade carried on
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(1)
This section applies if—
(a)
a company (“the trader”) carries on material activities connected with
the operation of a caravan site,
(b)
the activities are, or are part of, a trade, and
(c)
receipts from, and expenses of, lettings of caravans or pitches for
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caravans on the site would otherwise be brought into account in
calculating the profits of a property business of the trader.
(2)
The trader may instead bring both the receipts and the expenses into account
in calculating the profits of the trade.
(3)
But if the conditions in subsection (1)(a) and (b) are met for only part of an
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accounting period of the trader, subsection (2) applies only to the receipts and
expenses that would otherwise be brought into account in calculating the
profits of the property business for that part of the accounting period.
(4)
In this section—
“caravan site” means—
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(a)
land on which a caravan is stationed for the purposes of human
habitation, and
(b)
land which is used in conjunction with land on which a caravan
is so stationed, and
“letting” includes a licence to occupy.
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Corporation Tax Bill
Part 3 — Trading income
Chapter 2 — Income taxed as trade profits
16

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Surplus business accommodation
(1)
This section applies if—
(a)
a company (“the trader”) carrying on a trade obtains receipts from a
letting of business accommodation that is temporarily surplus to
requirements (see subsections (3) and (4)),
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(b)
the accommodation is not held as trading stock,
(c)
the receipts are in respect of part of a building of which another part is
used to carry on the trade,
(d)
the receipts are relatively small, and
(e)
the receipts, and the expenses of the letting, would otherwise be
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brought into account in calculating the profits of a property business of
the trader.
(2)
The trader may instead bring both the receipts and the expenses into account
in calculating the profits of the trade.
(3)
Accommodation is temporarily surplus to requirements only if—
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(a)
it has been used within the last 3 years to carry on the trade or acquired
within the last 3 years,
(b)
the trader intends to use it to carry on the trade at a later date, and
(c)
the letting is for a term of not more than 3 years.
(4)
If accommodation is temporarily surplus to requirements at the beginning of
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an accounting period, it continues to be temporarily surplus to requirements
until the end of that period.
(5)
If under this section any of the receipts from and expenses of a letting are
brought into account in calculating the profits of the trade, all subsequent
receipts from and expenses of the letting must be dealt with in the same way
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(but only so long as this section continues to apply).
(6)
In this section “letting” includes a licence to occupy.
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Payments for wayleaves
(1)
This section applies if—
(a)
a company (“the trader”) carries on a trade on some or all of the land to
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which a wayleave relates,
(b)
rent is receivable, or expenses are incurred, by the trader in respect of
the wayleave, and
(c)
apart from any rent or expenses in respect of a wayleave, no other
receipts or expenses in respect of any of the land are brought into
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account in calculating the profits of any property business of the trader.
(2)
If—
(a)
the trader would otherwise be liable to tax under Chapter 8 of Part 4 in
respect of the rent for the wayleave (rent receivable for UK electric-line
wayleaves), or
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(b)
expenses incurred by the trader in respect of the wayleave would
otherwise be brought into account in calculating profits charged under
that Chapter,

the trader may instead bring both the rent and the expenses into account in
calculating the profits of the trade.
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Corporation Tax Bill
Part 3 — Trading income
Chapter 3 — Trade profits: basic rules
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(3)
If—
(a)
rent for the wayleave would otherwise be brought into account in
calculating the profits of a property business of the trader, or
(b)
expenses incurred by the trader in respect of the wayleave would
otherwise be so brought into account,
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the trader may instead bring both the rent and the expenses into account in
calculating the profits of the trade.
(4)
In this section “rent” includes—
(a)
a receipt mentioned in section 207(3), and
(b)
any other receipt in the nature of rent.
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(5)
In this section “wayleave” means an easement, servitude or right in or over
land which is enjoyed in connection with—
(a)
an electric, telegraph or telephone wire or cable,
(b)
a pipe for the conveyance of any thing, or
(c)
any apparatus used in connection with such a pipe.
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(6)
The reference to the enjoyment of an easement, servitude or right in connection
with an electric, telegraph or telephone wire or cable includes (in particular) its
enjoyment in connection with—
(a)
a pole or pylon supporting such a wire or cable, or
(b)
apparatus used in connection with such a wire or cable.
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Chapter 3
Trade profits: basic rules
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Generally accepted accounting practice
(1)
The profits of a trade must be calculated in accordance with generally accepted
accounting practice, subject to any adjustment required or authorised by law
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in calculating profits for corporation tax purposes.
(2)
This does not—
(a)
require a company to comply with the requirements of the Companies
Act 2006 (c. 46) or subordinate legislation made under that Act except
as to the basis of calculation, or
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(b)
impose any requirements as to audit or disclosure.
(3)
This section does not affect any provisions of the Corporation Tax Acts—
(a)
relating to the calculation of the profits of—
(i)
Lloyd’s underwriters, or
(ii)
the life assurance business of insurance companies, or
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(b)
otherwise laying down special rules for the calculation of the profits of
a particular description of business.
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Losses calculated on same basis as profits
(1)
The same rules apply for corporation tax purposes in calculating losses of a
trade as apply in calculating profits.
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(2)
This is subject to any express provision to the contrary.

Corporation Tax Bill
Part 3 — Trading income
Chapter 3 — Trade profits: basic rules
18

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Receipts and expenses
(1)
In the Corporation Tax Acts, in the context of the calculation of the profits of a
trade, references to receipts and expenses are to any items brought into account
as credits or debits in calculating the profits.
(2)
It follows that references in that context to receipts or expenses do not imply
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that an amount has actually been received or paid.
(3)
This section is subject to any express provision to the contrary.
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Items treated as receipts and expenses
The rules for calculating the profits of a trade need to be read with—
(a)
the provisions of CAA 2001 which treat allowances as expenses of a
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trade,
(b)
the provisions of CAA 2001 which treat charges as receipts of a trade,
(c)
section 297 (credits and debits in respect of a loan relationship to which
a company is a party for the purposes of a trade it carries on treated as
receipts and expenses of the trade),
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(d)
section 573 (credits and debits in respect of a derivative contract to
which a company is a party for the purposes of a trade it carries on
treated as receipts and expenses of the trade),
(e)
section 747 (credits and debits in respect of an intangible fixed asset
held by a company for the purposes of a trade it carries on treated as
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receipts and expenses of the trade), and
(f)
section 749 (credits and debits in respect of an intangible fixed asset
held by a company for the purposes of a section 39(4) concern which it
carries on treated as receipts and expenses of the concern).
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Animals kept for trade purposes
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(1)
Animals or other living creatures kept for the purposes of a trade are treated as
trading stock if they are not kept wholly or mainly—
(a)
for the work they do in connection with the carrying on of the trade,
(b)
for public exhibition, or
(c)
for racing or other competitive purposes.
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(2)
But they are not treated as trading stock if they are part of a herd in relation to
which a herd basis election has effect (see Chapter 8).
(3)
This section applies to shares in animals or other living creatures as it applies
to the creatures themselves.
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Relationship between rules prohibiting and allowing deductions
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(1)
Any relevant permissive rule in this Part—
(a)
has priority over any relevant prohibitive rule, but
(b)
is subject to—
(i)
section 56 (car or motor cycle hire),
(ii)
section 1288 (unpaid remuneration),
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(iii)
section 1290 (employee benefit contributions),
(iv)
section 1304 (crime-related payments).

Corporation Tax Bill
Part 3 — Trading income
Chapter 4 — Trade profits: rules restricting deductions
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(2)
In this section “any relevant permissive rule in this Part” means any provision
of—
(a)
Chapter 5 (trade profits: rules allowing deductions), apart from
sections 62 to 67,
(b)
Chapter 7 (trade profits: gifts to charities etc),
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(c)
Chapter 9 (trade profits: other specific trades), or
(d)
Chapter 12 (deductions from profits: unremittable amounts),

which allows a deduction in calculating the profits of a trade.
(3)
In this section “any relevant prohibitive rule”, in relation to any deduction,
means any provision of this Part or Chapter 1 of Part 20 (apart from those
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mentioned in subsection (1)(b)) which might otherwise be read as—
(a)
prohibiting or deferring the deduction, or
(b)
restricting the amount of the deduction.
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Apportionment etc of profits and losses to accounting period
(1)
This section applies if a period of account of a trade does not coincide with an
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accounting period.
(2)
Any of the following steps may be taken if they are necessary in order to arrive
at the profits or losses of the accounting period—
(a)
apportioning the profits or losses of a period of account to the parts of
that period falling in different accounting periods, and
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(b)
adding the profits or losses of a period of account (or part of a period)
to profits or losses of other periods of account (or parts).
(3)
The steps must be taken by reference to the number of days in the periods
concerned.
Chapter 4
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Trade profits: rules restricting deductions
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Capital expenditure
(1)
In calculating the profits of a trade, no deduction is allowed for items of a
capital nature.
(2)
Subsection (1) is subject to provision to the contrary in the Corporation Tax
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Acts.
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Expenses not wholly and exclusively for trade and unconnected losses
(1)
In calculating the profits of a trade, no deduction is allowed for—
(a)
expenses not incurred wholly and exclusively for the purposes of the
trade, or
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(b)
losses not connected with or arising out of the trade.
(2)
If an expense is incurred for more than one purpose, this section does not
prohibit a deduction for any identifiable part or identifiable proportion of the
expense which is incurred wholly and exclusively for the purposes of the trade.