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

(The document as of February, 2008)

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(a) which the person is entitled to receive under a mineral lease or agreement, and

(b) which are not chargeable to tax under Chapter 8 of Part 3 (rent receivable in connection with a UK section 12(4) concern) because of the priority rule in section 261.

(2) The person is treated as entitled to receive only half of the total of the mineral royalties arising under the lease or agreement in the tax year.

(3) Sections 341 to 343 (meaning of "mineral lease or agreement" and "mineral royalties") apply for the purposes of this section as they apply for the purposes of Chapter 8 of Part 3.

158 Lease premiums etc: reduction of receipts

(1) This section applies for the purpose of calculating the profits of a trade of dealing in land if a receipt of the trade falls within one of the following categories--

(a) lease premiums within section 277,

(b) sums within section 279 (sums payable instead of rent),

(d) sums within section 281 (sums payable for variation or waiver of term of lease),

(e) consideration for the assignment of a lease within section 282 (lease granted at an undervalue), and

(f) amounts received on the sale of an estate or interest in land within section 284 (sales with right to re-conveyance) or section 285 (sale and leaseback transactions).

(2) The receipt is reduced by the relevant amount.

(3) The relevant amount is the amount which is treated as a receipt of a property business as a result of any of sections 277 to 285.

(4) But if--

(a) the person carrying on the trade makes a claim under section 301 or 302, and

(b) as a result of the claim a repayment of tax is made to that person,

the relevant amount is the amount which, for the purpose of determining the amount of the repayment of tax, is treated as brought into account as a receipt in calculating the profits of the property business.

(5) If subsection (4) applies, any adjustment of liability to tax may be made--

(a) by assessment or otherwise, and

(b) at any time at which it could be made if it related only to tax for the tax year in which the claim under section 301 or 302 is made.

Ministers of religion

159 Ministers of religion

(1) This section applies for the purpose of calculating the profits of the profession or vocation of a minister of a religious denomination.

(2) If the minister pays rent in respect of a dwelling-house and any part of the dwelling-house is used mainly and substantially for the purposes of the minister's duty, a deduction is allowed for--

(a) one-quarter of the rent, or

(b) if less, the part of the rent that, on a just and reasonable apportionment, is attributable to that part of the dwelling-house.

(3) If--

(a) an interest in premises belongs to a charity or an ecclesiastical corporation,

(b) because of that interest, the minister has a residence in the premises from which to perform the minister's duty, and

a deduction is allowed under this subsection for part of those expenses.

(4) The amount of the deduction under subsection (3) is--

---

where--

A is the amount of the expenses, and
B is the amount of the expenses for which a deduction is otherwise allowable.

Barristers and advocates

160 Alternative basis of calculation in early years of practice

(1) The profits of a barrister or advocate in independent practice for a period of account ending not more than 7 years after the start of such practice may be calculated in accordance with this section.

(2) For this purpose barristers and advocates start in independent practice when they first hold themselves out as available for fee-earning work.

(3) The profits of a barrister or advocate for a period of account to which this section applies may be calculated--

(a) on a cash basis, or

(b) by reference to fees earned whose amount has been agreed or in respect of which a fee note has been delivered.

(4) Once a particular basis has been adopted it must be applied consistently.

(5) If for any period of account an accounting basis is adopted that complies with section 25 (generally accepted accounting practice), the exemption from that section given by this section ceases.

(6) In that case, section 25 applies to all subsequent periods of account.

Mineral exploration and access

161 Mineral exploration and access

(1) This section applies for the purpose of calculating the profits of a trade if--

(a) the person carrying on the trade incurs expenditure on mineral exploration and access in an area or group of sands, and

(b) the presence of mineral deposits in commercial quantities has already been established in that area or group of sands.

(2) A deduction is allowed for the expenditure only if a deduction would have been allowed for it if the presence of mineral deposits in commercial quantities had not already been established in that area or group of sands.

(3) In this section "mineral exploration and access" has the same meaning as in Part 5 of CAA 2001 (see section 396(1) of that Act).

Persons liable to pool betting duty

162 Payments by persons liable to pool betting duty

(1) This section applies for the purpose of calculating the profits of a trade if--

(a) the person carrying on the trade is liable to pool betting duty,

(b) there is a reduction in that duty, and

(2) A qualifying payment is one--

(a) made in order to meet (directly or indirectly) capital expenditure incurred by any person in improving the safety or comfort of spectators at a ground to be used for the playing of association football, or

(b) made to trustees established mainly for the support of athletic sports or athletic games but with power to support the arts.

(3) A deduction is allowed for the qualifying payment.

Intermediaries treated as making employment payments

163 Deduction for deemed employment payment

(1) This section applies for the purpose of calculating the profits of a trade, profession or vocation carried on by an intermediary who is treated as making a deemed employment payment in connection with the trade, profession or vocation.

(2) A deduction is allowed for--

(a) the amount of the deemed employment payment, and

(b) the amount of any employer's national insurance contributions paid by the intermediary in respect of it.

(3) The deduction is allowed for the period of account in which the deemed employment payment is treated as made.

(4) No deduction in respect of--

(a) the deemed employment payment, or

(b) any employer's national insurance contributions paid by the intermediary in respect of it,

may be made except in accordance with this section.

(5) In this section "deemed employment payment" and "intermediary" have the same meaning as in Chapter 8 of Part 2 of ITEPA 2003.

164 Special rules for partnerships

(1) This section applies for the purpose of calculating the profits of a trade, profession or vocation carried on by a firm that is treated as making a deemed employment payment in connection with the trade, profession or vocation.

(2) The amount of the deduction allowed under section 163 is limited to the amount that reduces the profits of the firm for the tax year to nil.

(3) The expenses of the firm in connection with the relevant engagements for any period of account are limited to the total of--

(a) 5% of the amount taken into account in step 1 of the calculation in section 54(1) of ITEPA 2003 (calculation of deemed employment payment), and

(b) the amount deductible in step 3 of that calculation.

(4) In this section "deemed employment payment" and "the relevant engagements" have the same meaning as in Chapter 8 of Part 2 of ITEPA 2003.

Waste disposal

165 Deduction for site preparation expenditure

(1) This section applies for the purpose of calculating the profits of a trade of a period of account in which waste materials are deposited on a waste disposal site if--

(a) the person carrying on the trade ("the trader"), or a predecessor, has incurred site preparation expenditure in relation to the site in the course of carrying on the trade, and

(b) at the time the trader first deposits waste materials on the site, the trader holds a waste disposal licence which is then in force.

(2) A deduction is allowed for the amount of the site preparation expenditure allocated to the period of account under section 166.

(3) For the purposes of this section "predecessor", in relation to the trader, means a person who--

(a) has ceased to carry on the trade carried on by the trader or ceased to carry on a trade so far as relating to the site, and

(b) has transferred the whole of the site to the trader,

and it does not matter for this purpose whether or not the estate or interest in the site transferred to the trader is the same as that held by that person.

(4) For the purposes of this section and section 166, if site preparation expenditure has been incurred by a predecessor--

(a) the trade carried on by the trader is treated as the same as the trade carried on by the predecessor, and

(b) deductions are to be allowed to the trader (and not to the predecessor) as if everything done to or by the predecessor were done to or by the trader.

(5) For--

(a) the meaning of "site preparation expenditure", "waste disposal licence" and "waste disposal site", and

(b) a rule about pre-trading expenditure,

see section 167.

166 Allocation of site preparation expenditure

(1) The amount of site preparation expenditure allocated to a period of account for the purposes of section 165(2) is the amount given by the formula--

---

where--

RE means residual expenditure (see subsection (2)),
WD means the volume of waste materials deposited on the waste disposal site during the period, and
SV means the volume of the waste disposal site not used up for the deposit of waste materials at the end of the period.

(2) "Residual expenditure" means the total of all site preparation expenditure incurred by the trader in relation to the waste disposal site at any time before the end of the period, less--

(a) any of that expenditure for which an allowance has been, or may be, made for income or corporation tax purposes under the enactments relating to capital allowances,

(b) any of that expenditure for which a deduction has been allowed in calculating for income or corporation tax purposes the profits of an earlier period of account, and

(c) if the trader started to carry on the trade before 6th April 1989, the excluded amount of any unrelieved old expenditure (see subsections (3) and (4)).

(3) The excluded amount of unrelieved old expenditure is calculated by multiplying the unrelieved old expenditure (see subsection (4)) by the fraction--

---

where--

WD means the volume of waste materials deposited on the site before 6th April 1989, and
SV means the volume of the site not used up for the deposit of waste materials immediately before that date.

(4) "Unrelieved old expenditure" means site preparation expenditure which--

(a) was incurred by the trader in relation to the waste disposal site before 6th April 1989, and

(b) does not fall within subsection (2)(a) or (b).

167 Site preparation expenditure: supplementary

(1) For the purposes of this section and sections 165 and 166--

"site preparation expenditure", in relation to a waste disposal site, means expenditure incurred on preparing the site for the deposit of waste materials,
"waste disposal licence" means--
(a)
a disposal licence under Part 1 of the Control of Pollution Act 1974 (c. 40) or Part 2 of the Pollution Control and Local Government (Northern Ireland) Order 1978 (S.I. 1978/1049 (N.I. 19)),
(b)
a waste management licence under Part 2 of the Environmental Protection Act 1990 (c. 43) or any corresponding provision for the time being in force in Northern Ireland,
(c)
a permit under regulations under section 2 of the Pollution Prevention and Control Act 1999 (c. 24) or any corresponding provision for the time being in force in Northern Ireland,
(d)
an authorisation under the Radioactive Substances Act 1960 (c. 34) or the Radioactive Substances Act 1993 (c. 12) for the disposal of radioactive waste, or
(e)
a nuclear site licence under the Nuclear Installations Act 1965 (c. 57), and
"waste disposal site" means a site used, or to be used, for the disposal of waste materials by their deposit on the site.

(2) For the purposes of sections 165 and 166, expenditure incurred for the purposes of a trade by a person about to carry on the trade is treated as if it were incurred--

(a) on the date on which the person starts to carry on the trade, and

(b) in the course of carrying it on.

168 Site restoration payments

(1) This section applies for the purpose of calculating the profits of a trade if the person carrying on the trade makes a site restoration payment in the course of carrying it on.

(2) A deduction is allowed for the unrelieved amount of the payment.

(3) The deduction is allowed for the period of account in which the payment is made.

(4) The unrelieved amount of a site restoration payment is the amount of the payment, less--

(a) any amount of the payment that represents expenditure for which an allowance has been, or may be, made under the enactments relating to capital allowances, and

(b) any amount of the payment that represents expenditure for which a deduction has been allowed in calculating the profits of the trade of an earlier period of account.

(5) A "site restoration payment" means a payment made in connection with the restoration of a site (or part of a site) in order to comply with--

(a) a condition of a waste disposal licence (as defined in section 167(1)),

(b) a condition imposed on the grant of planning permission to use the site for the collection, treatment, conversion and final depositing of waste materials or for the carrying out of any of those activities, or

(6) For this purpose "a relevant planning obligation" means--

(a) an obligation arising under an agreement made under section 106 of the Town and Country Planning Act 1990 (c. 8) (as originally enacted) or any corresponding provision for the time being in force in Northern Ireland,

(b) an obligation arising under an agreement made under section 75 of the Town and Country Planning (Scotland) Act 1997 (c. 8),

(c) a planning obligation entered into under section 106 of the Town and Country Planning Act 1990 (as substituted by section 12 of the Planning and Compensation Act 1991 (c. 34)) or any corresponding provision for the time being in force in Northern Ireland, or

(d) a planning obligation entered into under section 299A of the Town and Country Planning Act 1990 or any corresponding provision for the time being in force in Northern Ireland.

Cemeteries and crematoria

169 Cemeteries and crematoria: introduction

(1) This section and sections 170 to 172 apply for the purpose of calculating the profits of a period of account ("the relevant period") of a trade which consists of or includes--

(a) the carrying on of a cemetery, or

(b) the carrying on of a crematorium and, in connection with doing so, the maintenance of memorial garden plots,

and the following provisions of this section apply for the interpretation of this section and those sections.

(2) References to the sale of land in a cemetery include the sale of a right of interment in land in a cemetery.

(3) References to the sale of land in a memorial garden include the appropriation of part of a memorial garden in return for a dedication fee or similar payment.

(4) "Ancillary capital expenditure" means capital expenditure incurred for the purposes of the trade by the person carrying on the trade ("the trader"), or a predecessor, on--

(a) any building or structure (other than a dwelling-house) which is in the cemetery or memorial garden and is likely to have little or no value when the cemetery or memorial garden is full,

(b) the purchase of an interest in, or the preparation of, any land taken up by such a building or structure, or

(c) the purchase of an interest in, or the preparation of, any other land in the cemetery or memorial garden which is not suitable or adaptable for use for interments or memorial garden plots and which is likely to have little or no value when the cemetery or memorial garden is full.

(5) "Predecessor", in relation to the trader, means a person who carried on the trade at any time before the trader started to do so.

(6) "Preparation", in relation to land, means levelling or draining the land or making it suitable in some other way for use as a cemetery or memorial garden.

170 Deduction for capital expenditure

(1) This section applies if, in the relevant period, an interest in land in the cemetery or memorial garden is sold with a view to the land being used--

(a) for the purpose of interments, or

(b) for memorial garden plots.

(2) A deduction is allowed for--

(a) capital expenditure incurred by the trader, or a predecessor, on the purchase of an interest in the land or on the preparation of the land, and

(b) ancillary capital expenditure allocated to the relevant period under section 171 (allocation of ancillary capital expenditure).

(3) But no expenditure is to be brought into account--

(a) under both paragraphs (a) and (b) of subsection (2), or

(b) under both subsection (2)(a) above and section 91(1)(b) of ICTA (relief for corporation tax purposes) or under both subsection (2)(b) above and section 91(1)(a) of ICTA,

whether for the same or different periods of account.

(4) Any purchase price paid on a sale in connection with a change in the persons carrying on the trade is ignored in calculating the amount of the deduction.

(5) No deduction is allowed for any expenditure which is excluded by section 172 (exclusion of expenditure met by subsidies).

171 Allocation of ancillary capital expenditure

(1) The amount of ancillary capital expenditure allocated to the relevant period for the purposes of section 170(2)(b) is the amount given by the formula--

---

where--

RE means residual expenditure (see subsection (2)),
PSR means the number of grave-spaces or memorial garden plots in the cemetery or memorial garden sold in the relevant period, and
PAR means the number of grave-spaces or memorial garden plots in the cemetery or memorial garden which are or could be made available for sale at the end of the relevant period.

(2) "Residual expenditure" means the total of all ancillary capital expenditure incurred at any time before the end of the relevant period, less--

(a) ancillary capital expenditure incurred on buildings or structures which were destroyed before the beginning of the first sale period,

(b) the excluded amount of any remaining old expenditure (see subsection (3)),

(c) if, after the beginning of the first sale period and before the end of the relevant period, an asset representing ancillary capital expenditure was sold or destroyed, the net sale proceeds or the compensation, and

(d) any amount deducted under section 170(2)(b) above, or under section 91(1)(b) of ICTA, for a period of account ending before the relevant period.

(3) The excluded amount of remaining old expenditure is calculated by multiplying the remaining old expenditure by the fraction--

---

where--

PSB means the number of grave-spaces or memorial garden plots in the cemetery or memorial garden sold before the beginning of the basis period for the tax year 1954-55, and
PAB means the number of grave-spaces or memorial garden plots in the cemetery or memorial garden which were or could have been made available for sale immediately before the beginning of the basis period for that tax year.

(4) In this section--

"compensation", in relation to the destruction of an asset, means--
(a)
insurance money or other compensation received by the trader, or a predecessor, in respect of the destruction, and
(b)
money received for the remains of the asset by the trader or predecessor,
"the first sale period" means--
(a)
the period of account in which an interest in land in the cemetery or memorial garden was first sold for the purposes of the trade with a view to the land being used for the purpose of interments or for memorial garden plots, or
(b)
if later, the basis period for the tax year 1954-55, and
"remaining old expenditure" means ancillary capital expenditure which--
(a)
was incurred before the beginning of the basis period for the tax year 1954-55, and
(b)
does not fall within subsection (2)(a).

172 Exclusion of expenditure met by subsidies

(1) Expenditure is excluded for the purposes of section 170 so far as it has been, or is to be, met (directly or indirectly) by--

(a) the Crown,

(b) a government or local or other public authority (whether in the United Kingdom or elsewhere), or

(2) This is subject to the following exceptions.

(3) Expenditure is not excluded for the purposes of section 170 if it is met (directly or indirectly) by a grant--

(a) made under Northern Ireland legislation, and

(b) declared by the Treasury by an order under section 534 of CAA 2001 to correspond to a grant under Part 2 of the Industrial Development Act 1982 (c. 52).

(4) Expenditure is not excluded for the purposes of section 170 if it is met (directly or indirectly) by--

(a) insurance money, or

(b) other compensation money,

payable in respect of an asset which has been destroyed, demolished or put out of use.

(5) Expenditure is not excluded for the purposes of section 170 if--

(a) it has been, or is to be, met (directly or indirectly) by a person other than the Crown or a government or local or other public authority, and

(b) no deduction is allowed for the expenditure in calculating for income or corporation tax purposes the profits of a trade carried on by that person.

Chapter 12 Trade profits: valuation of stock and work in progress

Valuation of trading stock

173 Valuation of trading stock on cessation

(1) If a person permanently ceases to carry on a trade, in calculating the profits of the trade--

(a) trading stock belonging to the trade at the time of the cessation must be valued, and

(b) the value must be determined in accordance with sections 175 to 178 (bases of valuation).

(2) But no valuation of the stock is required under this Chapter if paragraph 1(2) of Schedule 28AA to ICTA (provision not at arm's length) has effect in relation to any provision which--

(a) is made or imposed in relation to the stock, and

(b) has effect in connection with the cessation.

(3) If there is a change in the persons carrying on a trade, no valuation of the stock is required under this Chapter so long as a person carrying on the trade immediately before the change continues to carry it on after the change.

(4) If an individual carries on a trade alone, no valuation of the stock is required under this Chapter if the cessation is because of the individual's death.

174 Meaning of "trading stock"

(1) In this Chapter "trading stock" means--

(a) any property (whether land or other property) which is sold in the ordinary course of the trade or would be so sold if it were mature or its manufacture, preparation or construction were complete, or

(b) materials used in the manufacture, preparation or construction of any property mentioned in paragraph (a).

(2) In this Chapter "trading stock" includes also any services performed in the ordinary course of the trade--

(a) the performance of which is wholly or partly completed at the time of the cessation, and

(b) for which it would be reasonable to expect that a charge would be made if there were no cessation and, in the case of partly completed services, their performance were fully completed,

and any article produced, and any material used, in the performance of any such services.

(3) In this Chapter references to the sale or transfer of trading stock include the sale or transfer of any benefits and rights which accrue, or might reasonably be expected to accrue, from the performance of any such services.

175 Basis of valuation of trading stock

(1) The value of trading stock belonging to the trade at the time of the cessation is determined as follows.

(2) If the stock is sold to a person who--

(a) carries on, or intends to carry on, a trade in the United Kingdom, and

(b) is entitled to deduct the cost of the stock as an expense in calculating the profits of that trade for income or corporation tax purposes,

the value is determined in accordance with section 176 (sale to unconnected person), 177 (sale to connected person) or 178 (election by connected persons).

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