Income Tax (Trading and Other Income) Act 2005 (c. 5)

(The document as of February, 2008)

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(ii) section 216(3) (change of accounting date in later tax year),

(b) a deduction is to be made for overlap profit under section 220 in calculating the profits of the notional business of the tax year, and

(c) the amount to be deducted exceeds the amount which would otherwise be the amount of the profits of the notional business of the tax year.

(2) This section also applies if--

(a) the basis period for a partner's notional business for a tax year is given by section 202 (final tax year),

(b) a deduction is to be made for overlap profit under section 205 in calculating the profits of the notional business of the tax year, and

(c) the amount to be deducted exceeds the amount which would otherwise be the amount of the profits of the notional business of the tax year.

(3) The amount of the excess is to be deducted in calculating the partner's income for the tax year.

Firms with a foreign element

857 Partners to whom the remittance basis may apply

(1) This section applies if--

(a) a firm carries on a trade wholly or partly outside the United Kingdom,

(b) the control and management of the trade is outside the United Kingdom, and

(i) meets condition A or B in section 831 (conditions to be met for income to be charged on the remittance basis), and

(ii) makes a claim to that effect for a tax year.

(2) The partner's share of the profits of the trade arising in the United Kingdom is determined in accordance with sections 849 to 856.

(3) The partner's share of the profits of the trade arising outside the United Kingdom is treated as relevant foreign income for the purposes of this Act (see Part 8).

858 Resident partners and double taxation agreements

(1) This section applies if--

(a) a UK resident ("the partner") is a member of a firm which--

(i) resides outside the United Kingdom, or

(ii) carries on a trade the control and management of which is outside the United Kingdom, and

(b) by virtue of any arrangements having effect under section 788 of ICTA ("the arrangements") any of the income of the firm is relieved from income tax in the United Kingdom.

(2) The partner is liable to income tax on the partner's share of the income of the firm despite the arrangements.

(3) If the partner's share of the income of the firm consists of or includes a share in a qualifying distribution--

(a) made by a UK resident company, and

(b) chargeable to tax under Chapter 3 of Part 4,

the partner (and not the firm) is, despite the arrangements, entitled to the share of the tax credit which corresponds to the partner's share of the distribution.

Miscellaneous

859 Special provisions about farming and property income

(1) The rule in section 9(2) (farming trades) operates in relation to firms so that--

(a) all farming in the United Kingdom which a firm carries on, other than farming carried on as part of another trade, is treated as one trade, but

(b) the farming carried on by a firm which is treated as one trade is not included in any farming trade of any partner in the firm.

(2) Section 264 (UK property business) operates in relation to firms so that--

(a) every business and transaction mentioned in that section carried on, or entered into, by a firm constitutes the firm's UK property business, but

(b) each business or transaction included in the firm's UK property business is not included in any UK property business of any partner in the firm.

(3) Section 265 (overseas property business) operates in relation to firms so that--

(a) every business and transaction mentioned in that section carried on, or entered into, by a firm constitutes the firm's overseas property business, but

(b) each business or transaction included in the firm's overseas property business is not included in any overseas property business of any partner in the firm.

860 Adjustment income

(1) A change in the persons carrying on a trade from one period of account to the next does not prevent Chapter 17 of Part 2 (adjustment income) applying in relation to the trade so long as a person carrying on the trade immediately before the change continues to carry on the trade immediately after the change.

(2) A change in the persons carrying on a trade does not constitute the permanent cessation of the trade for the purposes of Chapter 17 of Part 2 so long as a person carrying on the trade immediately before the change continues to carry on the trade immediately after the change.

(3) In the case of a trade carried on by a firm the amount of any adjustment under Chapter 17 of Part 2 is calculated as if the firm were a UK resident individual.

(4) Each partner's share of any amount of adjustment income is determined according to the firm's profit-sharing arrangements for the 12 months ending immediately before the date on which the new basis was adopted.

(5) Any election under Chapter 17 of Part 2 must be made jointly by all the persons who have been members of the firm in that 12 month period.

(6) For the purposes of this section--

(a) "adjustment income" and "change of basis" have the same meaning as in Chapter 17 of Part 2,

(b) "profit-sharing arrangements" means the rights of the partners to share in the profits of the trade, and

(c) references to the date on which a new basis was adopted are to the first day of the first period of account for which the new basis was adopted.

(7) Sections 849 to 856 do not apply so far as this section applies.

861 Sale of patent rights: effect of partnership changes

(1) This section applies if--

(a) a person ("the trader") sells the whole or part of any patent rights in carrying on a trade, and

(b) the tax condition, the partnership condition and the non-cessation condition are met.

(2) The tax condition is that--

(a) tax is charged under section 587 on the proceeds of the sale or on any instalment of those proceeds, and

(b) by virtue of any of sections 590(2) or (4), 591(2) or 592(2), one sixth of the amount chargeable is charged in the tax year in which the trader receives the proceeds or the instalment and in each of the 5 subsequent tax years.

(3) The partnership condition is that--

(a) the trader is a firm at the time of the sale, or

(b) the trade is carried on in partnership at any time during the period beginning with the tax year in which the trader receives the proceeds or the instalment and ending with the last of the 5 subsequent tax years ("the tax spreading period").

(4) The non-cessation condition is that--

(a) there is a change in the persons carrying on the trade during the tax spreading period, and

(b) a person who carried on the trade immediately before the change continues to carry on the trade immediately after the change.

(5) Any amounts chargeable under section 587 during the remainder of the tax spreading period are charged on the person or persons for the time being carrying on the trade.

(6) Such amounts are charged as if--

(a) that person or those persons had at all times been carrying on the trade, and

(b) everything done to or by the predecessors of that person or those persons in carrying on the trade had been done to or by that person or those persons.

862 Sale of patent rights: effect of later cessation of trade

(1) This section applies if--

(a) a person ("the trader") sells the whole or part of any patent rights in carrying on a trade,

(b) by virtue of section 861 a charge under section 587 falls to be made on any person for the time being carrying on the trade in partnership,

(d) no person who carried on the trade immediately before the cessation continues to carry on the trade immediately after the cessation.

(2) Any amounts which would have been chargeable in later tax years are charged in the tax year in which the cessation occurs.

(3) Each partner's share (or, if the partner is dead, the share of the partner's personal representatives) of any additional amount chargeable under subsection (2) is determined in accordance with the firm's profit-sharing arrangements immediately before the cessation.

(4) If an additional amount is chargeable under subsection (2), the person liable may elect that the amount of income tax payable should be reduced to the amount that would have been payable on the assumptions mentioned in subsection (5).

(5) The assumptions are--

(a) that subsection (2) does not apply, and

(b) that the total of the amounts that would have been charged in later tax years is charged in equal instalments in each of the tax years--

(i) beginning with the year in which the trader received the proceeds of the sale or instalment of those proceeds, and

(ii) ending with the year in which the cessation occurs.

(6) The election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year in which the cessation occurred.

(7) For the purposes of this section "profit-sharing arrangements" means the rights of the partners to share in the profits of the trade.

863 Limited liability partnerships

(1) For income tax purposes, if a limited liability partnership carries on a trade, profession or business with a view to profit--

(a) all the activities of the limited liability partnership are treated as carried on in partnership by its members (and not by the limited liability partnership as such),

(b) anything done by, to or in relation to the limited liability partnership for the purposes of, or in connection with, any of its activities is treated as done by, to or in relation to the members as partners, and

References in this subsection to the activities of the limited liability partnership are to anything that it does, whether or not in the course of carrying on a trade, profession or business with a view to profit.

(2) For all purposes, except as otherwise provided, in the Income Tax Acts--

(a) references to a firm include a limited liability partnership in relation to which subsection (1) applies,

(b) references to members of a firm include members of such a limited liability partnership,

(d) references to members of a company do not include members of such a limited liability partnership.

(3) Subsection (1) continues to apply in relation to a limited liability partnership which no longer carries on any trade, profession or business with a view to profit--

(a) if the cessation is only temporary, or

(b) during a period of winding up following a permanent cessation, provided--

(i) the winding up is not for reasons connected in whole or in part with the avoidance of tax, and

(ii) the period of winding up is not unreasonably prolonged.

This is subject to subsection (4).

(4) Subsection (1) ceases to apply in relation to a limited liability partnership--

(a) on the appointment of a liquidator or (if earlier) the making of a winding-up order by the court, or

(b) on the occurrence of any event under the law of a territory outside the United Kingdom corresponding to an event specified in paragraph (a).

Part 10 General provisions

Chapter 1 Introduction

864 Overview of Part 10

This Part --

(a) contains general rules which are of wider application than to a particular Part of this Act including certain calculation rules (see Chapter 2), and

(b) deals with supplementary matters including general definitions (see Chapter 3).

Chapter 2 General calculation rules etc.

Unpaid remuneration

865 Unpaid remuneration: non-trades and non-property businesses

(1) This section applies if, in calculating profits or other income of a period of account for income tax purposes--

(a) an amount is charged in the accounts for the period in respect of employees' remuneration, and

(b) a deduction for the remuneration would otherwise be allowable for the period.

(2) For this purpose "profits or other income" does not include the profits of--

(a) a trade, profession or vocation, or

(b) a property business,

but see subsection (6).

(3) No deduction is allowed for the remuneration for the period of account unless it is paid before the end of the period of 9 months immediately following the end of the period of account.

(4) If the remuneration is paid after the end of that 9 month period, a deduction for it is allowed for the period of account in which it is paid.

(5) Section 37 (supplementary provision) applies for the purposes of this section as it applies for the purposes of section 36 (unpaid remuneration: trades, professions and vocations).

(6) Provision corresponding to that made by this section is made by--

(a) sections 36 and 37 (in relation to trades, professions and vocations), and

(b) section 272 (in relation to property businesses).

Employee benefit contributions

866 Employee benefit contributions: non-trades and non-property businesses

(1) This section applies if, in calculating a person's profits or other income of a period for income tax purposes--

(a) the profits or other income of the period are required to be calculated for those purposes, and

(b) a deduction would otherwise be allowable for the period for any employee benefit contributions made or to be made by the person ("the employer") (but see subsection (5)).

(2) For this purpose "profits or other income" does not include the profits of--

(a) a trade, profession or vocation, or

(b) a property business,

but see subsection (7).

(3) No deduction is allowed for the contributions for the period except so far as--

(a) qualifying benefits are provided, or qualifying expenses are paid, out of the contributions during the period or within 9 months from the end of it, or

(b) if the making of the contributions is itself the provision of qualifying benefits, the contributions are made during the period or within 9 months from the end of it.

(4) An amount disallowed under subsection (3) is allowed as a deduction for a subsequent period so far as--

(a) qualifying benefits are provided out of the contributions before the end of the subsequent period, or

(b) if the making of the contributions is itself the provision of qualifying benefits, the contributions are made before the end of the subsequent period.

(5) This section does not apply to any deduction that is allowable for--

(a) anything given as consideration for goods or services provided in the course of a trade or profession,

(b) contributions under a registered pension scheme or under a superannuation fund to which section 615(3) of ICTA applies,

(c) contributions under a qualifying overseas pension scheme in respect of an individual who is a relevant migrant member of the pension scheme in relation to the contributions, or

(d) contributions under an accident benefit scheme.

For the purposes of paragraph (c) "qualifying overseas pension scheme" and "relevant migrant member" have the same meaning as in Schedule 33 to FA 2004 (see paragraphs 4 to 6 of that Schedule).

(6) Sections 39 to 44 (supplementary provisions) apply for the purposes of this section as they apply for the purposes of section 38 (employee benefit contributions: trades, professions and vocations).

(7) Provision corresponding to that made by this section is made by--

(a) sections 38 to 44 (in relation to trades, professions and vocations), and

(b) section 272 (in relation to property businesses).

Business entertainment and gifts

867 Business entertainment and gifts: non-trades and non-property businesses

(1) This section applies for the purpose of calculating profits or other income charged to income tax which arise from the carrying on of a business.

(2) For this purpose "business" does not include--

(a) a trade, profession or vocation, or

(b) a property business,

but see subsection (7).

(3) The general rule is that no deduction is allowed in calculating the profits or other income for expenses incurred in providing entertainment or gifts in connection with the business.

(4) A deduction for expenses which are incurred--

(a) in paying sums to or on behalf of an employee of the person carrying on the business, or

(b) in putting sums at the disposal of an employee of that person,

is prohibited by the general rule if (and only if) the sums are paid, or put at the employee's disposal, exclusively for meeting expenses incurred or to be incurred by the employee in providing the entertainment or gift.

(5) The general rule is subject to--

section 46 (business entertainment: exceptions), and
section 47 (business gifts: exceptions),

which apply in relation to a business as they apply in relation to a trade (but as if the reference to a basis period were to a tax year).

(6) For the purposes of this section and those two sections as so applied--

(a) "employee", in relation to a company, includes a director of the company and a person engaged in the management of the company,

(b) "entertainment" includes hospitality of any kind, and

(c) the expenses incurred in providing entertainment or a gift include expenses incurred in providing anything incidental to the provision of entertainment or a gift.

(7) Provision corresponding to that made by this section is made by--

(a) sections 45 to 47 (in relation to trades, professions and vocations), and

(b) section 272 (in relation to property businesses).

Social security contributions

868 Social security contributions: non-trades etc.

(1) This section applies for the purpose of calculating profits or other income charged to income tax.

(2) For this purpose "profits or other income" does not include--

(a) the profits of a trade, profession, or vocation,

(b) the profits of a property business, or

but see subsection (6).

(3) No deduction is allowed for any contribution paid by any person under--

(a) Part 1 of the Social Security Contributions and Benefits Act 1992 (c. 4), or

(b) Part 1 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7).

(4) But this prohibition does not apply to an employer's contribution.

(5) For this purpose "an employer's contribution" means--

(a) a secondary Class 1 contribution,

(b) a Class 1A contribution, or

within the meaning of Part 1 of the Social Security Contributions and Benefits Act 1992 (c. 4) or of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7).

(6) Provision corresponding to that made by this section is made by--

(a) section 53 (in relation to trades, professions and vocations),

(b) section 272 (in relation to property businesses), and

Penalties, interest and VAT surcharges

869 Penalties, interest and VAT surcharges: non-trades etc.

(1) This section applies for the purpose of calculating profits or other income charged to income tax.

(2) For this purpose "profits or other income" does not include the profits of--

(a) a trade, profession, or vocation, or

(b) a property business,

but see subsection (6).

(3) No deduction is allowed for any penalty or interest mentioned in the first column of the following table.

(4) This is the table--

Penalty or interest	Description of tax, levy or duty
Interest under any provision of Part 9 of TMA 1970	Income tax, capital gains tax and corporation tax
Interest required to be paid by regulations made under section 71 of FA 2004 (construction industry)
Penalty under any of sections 60 to 70 of VATA 1994	Value added tax
Interest under section 74 of VATA 1994
Penalty under any of sections 8 to 11 of FA 1994	Excise duties
Penalty under any of paragraphs 12 to 19 of Schedule 7 to FA 1994	Insurance premium tax
Interest under paragraph 21 of that Schedule
Penalty under any provision of Part 5 of Schedule 5 to FA 1996	Landfill tax
Interest under paragraph 26 or 27 of that Schedule
Penalty under any provision of Schedule 6 to FA 2000	Climate change levy
Interest under any of paragraphs 70, 81 to 85 and 109 of that Schedule
Penalty under any provision of Part 2 of FA 2001	Aggregates levy
Interest under any of paragraphs 5 to 9 of Schedule 5 to, paragraph 6 of Schedule 8 to and paragraph 5 of Schedule 10 to FA 2001
Penalty under section 25 or 26 of FA 2003	Customs, export and import duties
Penalty under any provision of Part 4 of FA 2003	Stamp duty land tax
Interest under any provision of that Part

(5) No deduction is allowed for any surcharge under section 59 of VATA 1994.

(6) Provision corresponding to that made by this section is made by--

(a) section 54 (in relation to trades, professions and vocations), and

(b) section 272 (in relation to property businesses).

Crime-related payments

870 Crime-related payments: non-trades and non-property businesses

(1) This section--

(a) applies for the purpose of calculating profits or other income charged to income tax, but

(b) does not apply for the purpose of calculating the profits of a trade, profession or vocation or of a property business (but see subsection (4)).

(2) No deduction is allowed for expenses incurred--

(a) in making a payment if the making of the payment constitutes a criminal offence, or

(b) in making a payment outside the United Kingdom if the making of a corresponding payment in any part of the United Kingdom would constitute a criminal offence in that part.

(3) No deduction is allowed for expenses incurred in making a payment induced by a demand which constitutes--

(a) the offence of blackmail under section 21 of the Theft Act 1968 (c. 60) (England and Wales),

(b) the offence of extortion (Scotland), or

(c) the offence of blackmail under section 20 of the Theft Act (Northern Ireland) 1969 (c. 16 (N.I.)) (Northern Ireland).

(4) Provision corresponding to that made by this section is made by--

(a) section 55 (in relation to trades, professions and vocations), and

(b) section 272 (in relation to property businesses).

Apportionment of profits

871 Apportionment etc. of miscellaneous profits to tax year

(1) This section applies if--

(a) income is chargeable to income tax under or by virtue of any provision to which section 836B of ICTA applies, and

(b) any period for which the accounts are drawn up (a "period of account") does not coincide with a tax year.

(2) For this purpose the reference to any provision to which section 836B of ICTA applies is to be read as if subsection (4)(a) of that section were omitted (exclusion for relevant foreign income charged under this Act).

(3) Any of the following steps may be taken if they are necessary in order to arrive at the profits or losses of the tax year--

(a) apportioning the profits or losses of a period of account to the parts of that period falling in different tax years, and

(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).

(4) The steps must be taken by reference to the number of days in the periods concerned.

(5) But the person to whom the profits or losses arise may use a different way of measuring the length of the periods concerned if--

(a) it is reasonable to do so, and

(b) the way of measuring the length of periods is used consistently for the purpose of charging to income tax the income in question.

Calculation of losses

872 Losses calculated on same basis as miscellaneous income

(1) The same rules apply for income tax purposes in calculating miscellaneous losses as apply in calculating corresponding miscellaneous income.

(2) This is subject to any express provision to the contrary.

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