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Income Tax (Trading and Other Income) Act 2005

2005 CHAPTER 5

CONTENTS

Go to Preamble

  1. Part 1

    Overview

    1. 1. Overview of Act

    2. 2. Overview of priority rules

  2. Part 2

    Trading income

    1. Chapter 1

      Introduction

      1. 3. Overview of Part 2

      2. 4. Provisions which must be given priority over Part 2

    2. Chapter 2

      Income taxed as trade profits

      1. Charge to tax on trade profits

        1. 5. Charge to tax on trade profits

        2. 6. Territorial scope of charge to tax

        3. 7. Income charged

        4. 8. Person liable

      2. Trades and trade profits

        1. 9. Farming and market gardening

        2. 10. Commercial occupation of land other than woodlands

        3. 11. Commercial occupation of woodlands

        4. 12. Profits of mines, quarries and other concerns

        5. 13. Visiting performers

        6. 14. Visiting performers: supplementary

        7. 15. Divers and diving supervisors

        8. 16. Oil extraction and related activities

      3. Starting and ceasing to trade

        1. 17. Effect of becoming or ceasing to be a UK resident

        2. 18. Effect of company starting or ceasing to be within charge to income tax

      4. Trading income and property income

        1. 19. Tied premises

        2. 20. Caravan sites where trade carried on

        3. 21. Surplus business accommodation

        4. 22. Payments for wayleaves

      5. Rent-a-room and foster-care relief

        1. 23. Rent-a-room and foster-care relief

    3. Chapter 3

      Trade profits: basic rules

      1. 24. Professions and vocations

      2. 25. Generally accepted accounting practice

      3. 26. Losses calculated on same basis as profits

      4. 27. Receipts and expenses

      5. 28. Items treated under CAA 2001 as receipts and expenses

      6. 29. Interest

      7. 30. Animals kept for trade purposes

      8. 31. Relationship between rules prohibiting and allowing deductions

    4. Chapter 4

      Trade profits: rules restricting deductions

      1. Introduction

        1. 32. Professions and vocations

      2. Capital expenditure

        1. 33. Capital expenditure

      3. Wholly and exclusively and losses rules

        1. 34. Expenses not wholly and exclusively for trade and unconnected losses

      4. Bad and doubtful debts

        1. 35. Bad and doubtful debts

      5. Unpaid remuneration

        1. 36. Unpaid remuneration

        2. 37. Unpaid remuneration: supplementary

      6. Employee benefit contributions

        1. 38. Restriction of deductions

        2. 39. Making of “employee benefit contributions”

        3. 40. Provision of qualifying benefits

        4. 41. Timing and amount of certain qualifying benefits

        5. 42. Provision or payment out of employee benefit contributions

        6. 43. Profits calculated before end of 9 month period

        7. 44. Interpretation of sections 38 to 44

      7. Business entertainment and gifts

        1. 45. Business entertainment and gifts: general rule

        2. 46. Business entertainment: exceptions

        3. 47. Business gifts: exceptions

      8. Car or motor cycle hire

        1. 48. Car or motor cycle hire

        2. 49. Car or motor cycle hire: supplementary

        3. 50. Hiring cars (but not motor cycles) with low carbon dioxide emissions

      9. Patent royalties

        1. 51. Patent royalties

      10. Interest payments

        1. 52. Exclusion of double relief for interest

      11. Social security contributions

        1. 53. Social security contributions

      12. Penalties, interest and VAT surcharges

        1. 54. Penalties, interest and VAT surcharges

      13. Crime-related payments

        1. 55. Crime-related payments

    5. Chapter 5

      Trade profits: rules allowing deductions

      1. Introduction

        1. 56. Professions and vocations

      2. Pre-trading expenses

        1. 57. Pre-trading expenses

      3. Incidental costs of obtaining finance

        1. 58. Incidental costs of obtaining finance

        2. 59. Convertible loans and loan stock etc.

      4. Tenants under taxed leases

        1. 60. Tenants under taxed leases: introduction

        2. 61. Tenants occupying land for purposes of trade treated as incurring expenses

        3. 62. Limit on deductions if tenant entitled to mineral extraction allowance

        4. 63. Tenants dealing with land as property employed for purposes of trade

        5. 64. Restrictions on section 61 expenses: lease premium receipts

        6. 65. Restrictions on section 61 expenses: lease of part of premises

        7. 66. Corporation tax receipts treated as taxed receipts

        8. 67. Restrictions on section 61 expenses: corporation tax receipts

      5. Renewals

        1. 68. Replacement and alteration of trade tools

      6. Payments for restrictive undertakings

        1. 69. Payments for restrictive undertakings

      7. Seconded employees

        1. 70. Employees seconded to charities and educational establishments

        2. 71. Educational establishments

      8. Contributions to agents' expenses

        1. 72. Payroll deduction schemes: contributions to agents' expenses

      9. Counselling and retraining expenses

        1. 73. Counselling and other outplacement services

        2. 74. Retraining courses

        3. 75. Retraining courses: recovery of tax

      10. Redundancy payments etc.

        1. 76. Redundancy payments and approved contractual payments

        2. 77. Payments in respect of employment wholly in employer’s trade

        3. 78. Payments in respect of employment in more than one capacity

        4. 79. Additional payments

        5. 80. Payments made by the Government

      11. Personal security expenses

        1. 81. Personal security expenses

      12. Contributions to local enterprise organisations or urban regeneration companies

        1. 82. Contributions to local enterprise organisations or urban regeneration companies

        2. 83. Meaning of “local enterprise organisation”

        3. 84. Approval of local enterprise agencies

        4. 85. Supplementary provisions with respect to approvals

        5. 86. Meaning of “urban regeneration company”

      13. Scientific research

        1. 87. Expenses of research and development

        2. 88. Payments to research associations, universities etc.

      14. Expenses connected with patents, designs and trade marks

        1. 89. Expenses connected with patents

        2. 90. Expenses connected with designs or trade marks

      15. Export Credits Guarantee Department

        1. 91. Payments to Export Credits Guarantee Department

      16. Expenses connected with foreign trades

        1. 92. Expenses connected with foreign trades

        2. 93. Allocation of expenses

        3. 94. Family expenses

    6. Chapter 6

      Trade profits: receipts

      1. Introduction

        1. 95. Professions and vocations

      2. Capital receipts

        1. 96. Capital receipts

      3. Debts released

        1. 97. Debts incurred and later released

      4. Amounts received following earlier cessation

        1. 98. Acquisition of trade: receipts from transferor’s trade

      5. Reverse premiums

        1. 99. Reverse premiums

        2. 100. Excluded cases

        3. 101. Tax treatment of reverse premiums

        4. 102. Arrangements not at arm’s length

        5. 103. Connected persons and property arrangements

      6. Assets of mutual concerns

        1. 104. Distribution of assets of mutual concerns

      7. Industrial development grants

        1. 105. Industrial development grants

      8. Proceeds of insurance etc.

        1. 106. Sums recovered under insurance policies etc.

    7. Chapter 7

      Trade profits: gifts to charities etc.

      1. 107. Professions and vocations

      2. 108. Gifts of trading stock to charities etc.

      3. 109. Receipt by donor or connected person of benefit attributable to certain gifts

      4. 110. Meaning of “designated educational establishment”

    8. Chapter 8

      Trade profits: herd basis rules

      1. Introduction

        1. 111. Election for application of herd basis rules

        2. 112. Meaning of “animal”, “herd”, “production herd” etc.

        3. 113. Other interpretative provisions

      2. The herd basis rules

        1. 114. Initial cost of herd and value of herd

        2. 115. Addition of animals to herd

        3. 116. Replacement of animals in herd

        4. 117. Amount of receipt if old animal slaughtered under disease control order

        5. 118. Sale of animals from herd

        6. 119. Sale of whole or substantial part of herd

        7. 120. Acquisition of new herd begun within 5 years of sale

        8. 121. Section 120: sale for reasons outside farmer’s control

        9. 122. Replacement of part sold begun within 5 years of sale

        10. 123. Section 122: sale for reasons outside farmer’s control

      3. Elections

        1. 124. Herd basis elections

        2. 125. Five year gap in which no production herd kept

        3. 126. Slaughter under disease control order

      4. Preventing abuse of the herd basis rules

        1. 127. Preventing abuse of the herd basis rules

      5. Supplementary

        1. 128. Information if election made

        2. 129. Further assessment etc. if herd basis rules apply

    9. Chapter 9

      Trade profits: films and sound recordings

      1. Introduction

        1. 130. Expenditure to which this Chapter applies

        2. 131. Meaning of “film” and related expressions

        3. 132. Meaning of “original master version” and “certified master version”

        4. 133. Meaning of “relevant period”

      2. Expenditure treated as revenue in nature

        1. 134. Expenditure treated as revenue in nature

      3. Films and sound recordings: normal rules for allocating expenditure

        1. 135. Films and sound recordings: production or acquisition expenditure

      4. Certified master versions: special rules for allocating expenditure

        1. 136. Application of provisions about certified master versions

        2. 137. Certified master versions: preliminary expenditure

        3. 138. Certified master versions: production or acquisition expenditure

      5. Certified master versions: limited-budget films

        1. 139. Certified master versions: production expenditure on limited-budget films

        2. 140. Certified master versions: acquisition expenditure on limited-budget films

        3. 141. “Total production expenditure in respect of the original master version”

        4. 142. When expenditure is incurred

      6. Election for sections 134 to 140 not to apply

        1. 143. Election for sections 134 to 140 not to apply

      7. Supplementary

        1. 144. Meaning of “genuinely intended for theatrical release”

    10. Chapter 10

      Trade profits: certain telecommunication rights

      1. 145. Professions and vocations

      2. 146. Meaning of “relevant telecommunication right”

      3. 147. Expenditure and receipts treated as revenue in nature

      4. 148. Credits or debits arising from revaluation

    11. Chapter 11

      Trade profits: other specific trades

      1. Dealers in securities etc.

        1. 149. Taxation of amounts taken to reserves

        2. 150. Conversion etc. of securities held as circulating capital

        3. 151. Exchanges of gilts for gilt strips

        4. 152. Consolidation of gilt strips

        5. 153. Meaning of “gilt-edged security” and “strip”

        6. 154. Regulations for determining market value of securities or strips

      2. Persons authorised for purposes of FISMA 2000

        1. 155. Levies and repayments under FISMA 2000

      3. Dealers in land etc.

        1. 156. Purchase or sale of woodlands

        2. 157. Relief in respect of mineral royalties

        3. 158. Lease premiums etc: reduction of receipts

      4. Ministers of religion

        1. 159. Ministers of religion

      5. Barristers and advocates

        1. 160. Alternative basis of calculation in early years of practice

      6. Mineral exploration and access

        1. 161. Mineral exploration and access

      7. Persons liable to pool betting duty

        1. 162. Payments by persons liable to pool betting duty

      8. Intermediaries treated as making employment payments

        1. 163. Deduction for deemed employment payment

        2. 164. Special rules for partnerships

      9. Waste disposal

        1. 165. Deduction for site preparation expenditure

        2. 166. Allocation of site preparation expenditure

        3. 167. Site preparation expenditure: supplementary

        4. 168. Site restoration payments

      10. Cemeteries and crematoria

        1. 169. Cemeteries and crematoria: introduction

        2. 170. Deduction for capital expenditure

        3. 171. Allocation of ancillary capital expenditure

        4. 172. Exclusion of expenditure met by subsidies

    12. Chapter 12

      Trade profits: valuation of stock and work in progress

      1. Valuation of trading stock

        1. 173. Valuation of trading stock on cessation

        2. 174. Meaning of “trading stock”

        3. 175. Basis of valuation of trading stock

        4. 176. Sale basis of valuation: sale to unconnected person

        5. 177. Sale basis of valuation: sale to connected person

        6. 178. Sale basis of valuation: election by connected persons

        7. 179. Connected persons

        8. 180. Cost to buyer of stock valued on sale basis of valuation

        9. 181. Meaning of “sale” and related expressions

      2. Valuation of work in progress

        1. 182. Valuation of work in progress on cessation

        2. 183. Meaning of “work in progress”

        3. 184. Basis of valuation of work in progress

        4. 185. Election for valuation at cost

      3. Supplementary

        1. 186. Determination of questions by Commissioners

    13. Chapter 13

      Deductions from profits: unremittable amounts

      1. 187. Professions and vocations

      2. 188. Application of Chapter

      3. 189. Relief for unremittable amounts

      4. 190. Restrictions on relief

      5. 191. Withdrawal of relief

    14. Chapter 14

      Disposal and acquisition of know-how

      1. 192. Meaning of “know-how” etc.

      2. 193. Disposal of know-how if trade continues to be carried on

      3. 194. Disposal of know-how as part of disposal of all or part of a trade

      4. 195. Seller controlled by buyer etc.

    15. Chapter 15

      Basis periods

      1. Introduction

        1. 196. Professions and vocations

      2. Accounting date

        1. 197. Meaning of “accounting date”

      3. The normal rules

        1. 198. General rule

        2. 199. First tax year

        3. 200. Second tax year

        4. 201. Tax year in which there is no accounting date

        5. 202. Final tax year

      4. Apportionment of profits

        1. 203. Apportionment etc. of profits to basis periods

      5. Overlap profits and losses

        1. 204. Meaning of “overlap period” and “overlap profit”

        2. 205. Deduction for overlap profit in final tax year

        3. 206. Restriction on bringing losses into account twice

        4. 207. Treatment of business start-up payments received in an overlap period

      6. Rules where first accounting date shortly before end of tax year

        1. 208. When the late accounting date rules apply

        2. 209. Rule if there is an accounting date

        3. 210. Rules if there is no accounting date

      7. Slight variations in accounting date

        1. 211. Treating middle date as accounting date

        2. 212. Consequence of treating middle date as accounting date

        3. 213. Circumstances in which middle date not treated as accounting date

      8. Special rules if accounting date changes

        1. 214. When a change of accounting date occurs

        2. 215. Change of accounting date in third tax year

        3. 216. Change of accounting date in later tax year

        4. 217. Conditions for basis period to end with new accounting date

        5. 218. Commercial reasons for change of accounting date

        6. 219. The year after an ineffective change of accounting date

        7. 220. Deduction for overlap profit on change of accounting date

    16. Chapter 16

      Averaging profits of farmers and creative artists

      1. 221. Claim for averaging of fluctuating profits

      2. 222. Circumstances in which claim may be made

      3. 223. Adjustment of profits

      4. 224. Effect of adjustment

      5. 225. Effect of later adjustment of profits

    17. Chapter 17

      Adjustment income

      1. Introduction

        1. 226. Professions and vocations

      2. Adjustment on change of basis

        1. 227. Application of Chapter

        2. 228. Adjustment income and adjustment expense

        3. 229. Income charged

        4. 230. Person liable

        5. 231. Calculation of the adjustment

      3. Treatment of adjustment income and adjustment expense

        1. 232. Treatment of adjustment income

        2. 233. Treatment of adjustment expense

      4. Expenses previously brought into account

        1. 234. No adjustment for certain expenses previously brought into account

      5. Realising or writing off assets

        1. 235. Cases where adjustment not required until assets realised or written off

      6. Mark to market

        1. 236. Change from realisation basis to mark to market

        2. 237. Election for spreading if section 236 applies

      7. Spreading of adjustment income: barristers and advocates

        1. 238. Spreading on ending of exemption for barristers and advocates

        2. 239. Election to accelerate charge under section 238

      8. Supplementary

        1. 240. Liability of personal representatives if person liable dies

    18. Chapter 18

      Post-cessation receipts

      1. Introduction

        1. 241. Professions and vocations

      2. Charge to tax on post-cessation receipts

        1. 242. Charge to tax on post-cessation receipts

        2. 243. Extent of charge to tax

        3. 244. Income charged

        4. 245. Person liable

      3. Meaning of “post-cessation receipts”

        1. 246. Basic meaning of “post-cessation receipt”

        2. 247. Other rules about what counts as post-cessation receipts

      4. Sums treated as post-cessation receipts

        1. 248. Debts paid after cessation

        2. 249. Debts released after cessation

        3. 250. Receipts relating to post-cessation expenditure

        4. 251. Transfer of rights if transferee does not carry on trade

      5. Sums that are not post-cessation receipts

        1. 252. Transfer of trading stock or work in progress

        2. 253. Lump sums paid to personal representatives for copyright etc.

      6. Deductions

        1. 254. Allowable deductions

        2. 255. Further rules about allowable deductions

      7. Reliefs

        1. 256. Treatment of post-cessation receipts

        2. 257. Election to carry back

    19. Chapter 19

      Supplementary

      1. 258. Changes in trustees and personal representatives

      2. 259. Meaning of “statutory insolvency arrangement”

  3. Part 3

    Property income

    1. Chapter 1

      Introduction

      1. 260. Overview of Part 3

      2. 261. Provisions which must be given priority over Part 3

      3. 262. Priority between Chapters within Part 3

    2. Chapter 2

      Property businesses

      1. Introduction

        1. 263. Introduction

      2. Basic meaning of UK and overseas property business

        1. 264. UK property business

        2. 265. Overseas property business

      3. Generating income from land

        1. 266. Meaning of “generating income from land”

        2. 267. Activities not for generating income from land

    3. Chapter 3

      Profits of property businesses: basic rules

      1. Charge to tax on profits of a property business

        1. 268. Charge to tax on profits of a property business

        2. 269. Territorial scope of charge to tax

        3. 270. Income charged

        4. 271. Person liable

      2. Calculation of profits

        1. 272. Profits of a property business: application of trading income rules

        2. 273. Amounts not brought into account as part of a property business

        3. 274. Relationship between rules prohibiting and allowing deductions

      3. Apportionment of profits

        1. 275. Apportionment etc. of profits to tax year

    4. Chapter 4

      Profits of property businesses: lease premiums etc.

      1. Introduction

        1. 276. Introduction

      2. Amounts treated as receipts: leases

        1. 277. Lease premiums

        2. 278. Amount treated as lease premium where work required

        3. 279. Sums payable instead of rent

        4. 280. Sums payable for surrender of lease

        5. 281. Sums payable for variation or waiver of term of lease

        6. 282. Assignments for profit of lease granted at undervalue

        7. 283. Provisions supplementary to section 282

      3. Other amounts treated as receipts

        1. 284. Sales with right to reconveyance

        2. 285. Sale and leaseback transactions

        3. 286. Provisions supplementary to sections 284 and 285

      4. Additional calculation rule for reducing certain receipts

        1. 287. Circumstances in which additional calculation rule applies

        2. 288. The additional calculation rule

        3. 289. The additional calculation rule: special cases

        4. 290. Meaning of “unused amount” and “unreduced amount”

      5. Deductions in relation to certain receipts

        1. 291. Deductions for expenses under section 292

        2. 292. Tenants under taxed leases treated as incurring expenses

        3. 293. Restrictions on section 292 expenses: the additional calculation rule

        4. 294. Restrictions on section 292 expenses: lease of part of premises

      6. Limit on effect of additional calculation rule and deductions

        1. 295. Limit on reductions and deductions

      7. Relationship with ICTA

        1. 296. Corporation tax receipts treated as taxed receipts

        2. 297. Taking account of reductions in corporation tax receipts

        3. 298. Taking account of deductions for rent as a result of section 37(4) or 87(2) of ICTA

      8. Certain administrative provisions

        1. 299. Payment of tax by instalments

        2. 300. Statement of accuracy for purposes of section 282

        3. 301. Claim for repayment of tax payable by virtue of section 284

        4. 302. Claim for repayment of tax payable by virtue of section 285

      9. Effective duration of lease

        1. 303. Rules for determining effective duration of lease

        2. 304. Applying the rules in section 303

        3. 305. Information about effective duration of lease

      10. Other interpretative provisions

        1. 306. Provisions about premiums

        2. 307. Interpretation

    5. Chapter 5