Office of Public Sector Information
PART 2 continued CHAPTER 12 continued
(1) Any question arising under—
(a) section 175(3) or sections 176 to 178 (sale basis of valuation of trading stock), or
(b) section 184(1) (valuation of work in progress transferred for valuable consideration),
must be determined by the General or Special Commissioners in the same way as an appeal.
(2) If the same General Commissioners have jurisdiction in relation to each of the persons whose trade, profession or vocation is concerned (including any company within the charge to corporation tax), the question must be determined by those Commissioners.
(3) But this does not apply if all parties concerned agree that the question should be determined by the Special Commissioners.
(4) In any other case, the question must be determined by the Special Commissioners.
The provisions of this Chapter apply to professions and vocations as they apply to trades.
(1) This Chapter applies if—
(a) an amount received by, or owed to, a person carrying on a trade (“the trader”) is brought into account as a receipt in calculating the profits of the trade,
(b) the amount is paid or owed in a territory outside the United Kingdom, and
(c) some or all of the amount is unremittable.
(2) An amount received is unremittable if it cannot be transferred to the United Kingdom merely because of foreign exchange restrictions.
(3) An amount owed is unremittable if it cannot be paid in the United Kingdom and—
(a) it temporarily cannot be paid in the territory in which it is owed merely because of foreign exchange restrictions, or
(b) it can be paid in that territory but, if it were paid there, the amount paid would not be transferable to the United Kingdom merely because of foreign exchange restrictions.
(4) “Foreign exchange restrictions” are restrictions imposed by any of the following—
(a) the laws of the territory where the amount is paid or owed,
(b) executive action of its government, and
(c) the impossibility of obtaining there currency that could be transferred to the United Kingdom.
(1) If—
(a) the trader has profits from the trade in a period of account, and
(b) an unremittable amount has been brought into account as a receipt for that period,
a deduction of the amount is allowed from those profits (but see subsection (5)).
(2) If the trader has profits from the trade in a period of account and the total of—
(a) any unremittable amounts brought into account as receipts for that period, and
(b) any amount carried forward under this subsection or subsection (3) from the previous period of account,
exceeds the amount of those profits, the excess may be carried forward to the next period of account.
(3) If the trader does not have profits from the trade in a period of account and an unremittable amount has been brought into account as a receipt for that period, the total of—
(a) any unremittable amounts brought into account as receipts for that period, and
(b) any amount carried forward under this subsection or subsection (2) from the previous period of account,
may be carried forward to the next period of account.
(4) If an amount is carried forward under this section to a period of account in which the trader has profits from the trade, a deduction of the amount is allowed from those profits (but see subsection (5)).
(5) The total amount deducted under this section from the profits from a trade in a period of account must not exceed the amount of the profits.
(1) No deduction is allowed under section 189 in relation to an amount so far as—
(a) it is used to finance expenditure or investment outside the United Kingdom, or
(b) it is applied outside the United Kingdom in another way.
(2) No deduction is allowed under section 189 in relation to an amount owed so far as a deduction is allowed in respect of it under section 35 (bad and doubtful debts).
(3) No deduction is allowed under section 189 in relation to an amount owed so far as a payment under a contract of insurance has been received in relation to it.
(4) No deduction is allowed under section 189 in relation to an amount brought into account in calculating profits if relief under section 842 (unremittable income) may be claimed in relation to that amount.
(1) This section applies if—
(a) some or all of an unremittable amount has been deducted from profits under section 189, and
(b) any of the following events occurs.
(2) The events are that—
(a) the amount or part of it ceases to be unremittable,
(b) the amount or part of it is used to finance expenditure or investment outside the United Kingdom,
(c) the amount or part of it is applied outside the United Kingdom in another way,
(d) the amount or part of it is exchanged for, or discharged by, an amount that is not unremittable,
(e) a deduction is allowed in respect of the amount or part of it under section 35 (bad and doubtful debts), and
(f) if the amount is an amount owed, a payment under a contract of insurance is received in relation to the amount or part of it.
(3) The amount or the part of it in question is brought into account as a receipt in calculating the profits of the trade for the period of account in which the event occurs, but only so far as—
(a) it has been deducted from profits under section 189, and
(b) it has not already been brought into account as a receipt in calculating the profits of the trade as a result of this section.
(4) If the event is the receipt of a payment under a contract of insurance, the amount brought into account as a receipt must not exceed the amount of the payment.
(1) In this Chapter “know-how” means any industrial information or techniques likely to assist in—
(a) manufacturing or processing goods or materials,
(b) working a source of mineral deposits (including searching for, discovering or testing mineral deposits or obtaining access to them), or
(c) carrying out any agricultural, forestry or fishing operations.
(2) For this purpose—
“mineral deposits” includes any natural deposits capable of being lifted or extracted from the earth and for this purpose geothermal energy is treated as a natural deposit, and
“source of mineral deposits” includes a mine, an oil well and a source of geothermal energy.
(3) For the purposes of this Chapter any consideration received for giving, or wholly or partly fulfilling, an undertaking which—
(a) is given in connection with a disposal of know-how, and
(b) restricts, or is designed to restrict, any person’s activities in any way,
is treated as consideration received for the disposal of the know-how.
(4) It does not matter whether or not the undertaking is legally enforceable.
(5) For the purposes of this Chapter references to a sale of know-how include an exchange of know-how and any provision of this Chapter referring to a sale has effect with the necessary modifications.
(6) Those modifications include, in particular, reading references to the proceeds of sale and to the price as including the consideration for the exchange.
(1) This section applies if—
(a) a person carrying on a trade receives consideration for the disposal of know-how which has been used in the trade,
(b) the person continues to carry on the trade after the disposal, and
(c) neither section 194 (disposal of know-how as part of disposal of all or part of a trade) nor section 195 (seller controlled by buyer etc.) applies.
(2) The amount or value of the consideration is treated for all purposes as a trading receipt, except so far as it is brought into account under section 462 of CAA 2001 (disposal values).
(3) If the know-how is sold together with other property, the net proceeds of the sale of the know-how are treated as being so much of the net proceeds of the sale of all the property as, on a just and reasonable apportionment, is attributable to the know-how.
(4) For this purpose all property sold as a result of one bargain is treated as sold together even though—
(a) separate prices are, or purport to be, agreed for separate items of that property, or
(b) there are, or purport to be, separate sales of separate items of that property.
(5) Any question about the way in which a sum is to be apportioned under this section must be determined in accordance with section 563(2) to (6) of CAA 2001 (procedure for determining certain questions affecting two or more persons) if it materially affects two or more taxpayers.
(6) For this purpose a question materially affects two or more taxpayers if at the time when the question falls to be determined it appears that the determination is material to the liability to tax (for whatever period) of two or more persons.
(1) This section applies if —
(a) a person carrying on a trade receives consideration for the disposal of know-how which has been used in the trade, and
(b) the know-how is disposed of as part of the disposal of all or part of the trade.
(2) If the person disposing of the know-how is within the charge to income tax, the consideration is treated for income tax purposes as a capital receipt for goodwill.
(3) If the person acquiring the know-how—
(a) is within the charge to income tax, and
(b) provided the consideration,
the consideration is treated for income tax purposes as a capital payment for goodwill.
(4) But the consideration is not treated for income tax purposes as a capital payment for goodwill if, before the acquisition, the trade was carried on wholly outside the United Kingdom.
(5) If the person disposing of the know-how is within the charge to income tax—
(a) that person, and
(b) the person acquiring the know-how (whether or not within the charge to income tax),
may jointly elect for this section not to apply (but see section 195).
(6) The election must be made within two years of the disposal.
(7) If—
(a) an election is made under subsection (3) of section 531 of ICTA (corresponding corporation tax provision), and
(b) the person making the acquisition mentioned in that subsection is within the charge to income tax,
the persons making the election under that subsection are treated as also making an election under this section (even though the person disposing of the know-how is not within the charge to income tax).
(1) This section applies if a disposal of know-how is by way of sale and—
(a) the seller is a body of persons over which the buyer has control,
(b) the buyer is a body of persons over which the seller has control, or
(c) both the seller and the buyer are bodies of persons and another person has control over both of them.
(2) In such a case—
(a) section 193 does not apply, and
(b) no election may be made under section 194.
(3) For the purposes of this section “body of persons” includes a firm.
The provisions of this Chapter apply to professions and vocations as they apply to trades.
(1) In this Chapter “accounting date”, in relation to a tax year, means—
(a) the date in the tax year to which accounts are drawn up, or
(b) if there are two or more such dates, the latest of them.
(2) This is subject to—
(a) section 211(2) (middle date treated as accounting date), and
(b) section 214(3) (date treated as accounting date if date changed in tax year in which there is no accounting date).
(1) The general rule is that the basis period for a tax year is the period of 12 months ending with the accounting date in that tax year.
(2) This applies unless a different basis period is given by one of the following sections—
section 199 (first tax year),
section 200 (second tax year),
section 201 (tax year in which there is no accounting date),
section 202 (final tax year),
section 209 or 210 (first accounting date shortly before end of tax year),
section 212 (tax year in which middle date treated as accounting date),
section 215 (change of accounting date in third tax year), and
section 216 (change of accounting date in later tax year).
(1) The basis period for the tax year in which a person starts to carry on a trade—
(a) begins with the date on which the person starts to carry on the trade, and
(b) ends with 5th April in the tax year.
(2) But if a person starts and permanently ceases to carry on a trade in the same tax year, the basis period for the tax year is that given by section 202(2).
(1) The basis period for the second tax year in which a person carries on a trade is determined as follows.
(2) If in that tax year—
(a) the accounting date falls less than 12 months after the date on which the person starts to carry on the trade, and
(b) the person does not permanently cease to carry on the trade,
the basis period is the period of 12 months beginning with the date on which the person starts to carry on the trade.
(3) If in that tax year—
(a) the accounting date falls 12 months or more after the date on which the person starts to carry on the trade, and
(b) the person does not permanently cease to carry on the trade,
the basis period is that given by the general rule in section 198.
(4) If in that tax year—
(a) there is no accounting date, and
(b) the person does not permanently cease to carry on the trade,
the basis period is the same as the tax year.
(5) If in that tax year the person permanently ceases to carry on the trade, the basis period is that given by section 202(1).
(1) If a person carries on a trade in a tax year and—
(a) there is no accounting date in the tax year, and
(b) the person does not start or permanently cease to carry on the trade in the tax year,
the basis period for the tax year is the period of 12 months beginning immediately after the end of the basis period for the previous tax year.
(2) But this is subject to—
(a) section 200 (second tax year), and
(b) sections 215 and 216 (change of accounting date in third tax year or later tax year).
(1) The basis period for the tax year in which a person permanently ceases to carry on a trade—
(a) begins immediately after the end of the basis period for the previous tax year, and
(b) ends with the date on which the person permanently ceases to carry on the trade.
(2) But if a person starts and permanently ceases to carry on a trade in the same tax year, the basis period—
(a) begins with the date on which the person starts to carry on the trade, and
(b) ends with the date on which the person permanently ceases to carry on the trade.
(1) This section applies if the basis period for a tax year does not coincide with a period of account.
(2) Any of the following steps may be taken if they are necessary in order to arrive at the profits or losses of the basis period—
(a) apportioning the profits or losses of a period of account to the parts of that period falling in different basis periods, 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).
(3) The steps must be taken by reference to the number of days in the periods concerned.
(4) But the person carrying on the trade 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 purposes of the trade.
In this Chapter—
“overlap period” means a period which falls within two basis periods, and
“overlap profit” means profit which arises in an overlap period.
(1) If a person permanently ceases to carry on a trade in a tax year, a deduction is allowed for overlap profit in calculating the profits of the trade of the tax year.
(2) The amount of the deduction is calculated as follows.
Step 1
Add together the overlap profits arising in all overlap periods.
Step 2
Subtract from that any deductions for overlap profit made under section 220 (deduction for overlap profit on change of accounting date).
The balance is the amount of the deduction allowed under this section.
If a loss arises in, or is apportioned under section 203 to, two overlapping basis periods, the amount of the loss—
(a) is brought into account in calculating the profits of the first basis period, and
(b) is not brought into account in calculating the profits of the second basis period.
(1) This section applies if—
(a) a person carrying on a trade receives a business start-up payment (see subsection (3)) in a period which falls within two basis periods, and
(b) the payment is not a lump sum payment.
(2) The payment—
(a) is brought into account in calculating the profits of the trade of the first basis period, and
(b) is not brought into account in calculating the profits of the trade of the second basis period.
(3) A “business start-up payment” means a payment under a Business Start-Up scheme which is of the kind originally known as enterprise allowance and is made—
(a) in England and Wales, by a training and enterprise council pursuant to arrangements under section 2(2)(d) of the Employment and Training Act 1973 (c. 50),
(b) in Scotland, by a local enterprise company under section 2(4)(c) of the Enterprise and New Towns (Scotland) Act 1990 (c. 35) in relation to arrangements under section 2(3) of that Act, or
(c) in Northern Ireland, by or on behalf of the Department for Employment and Learning under section 1(1A)(d) of the Employment and Training Act (Northern Ireland) 1950 (c. 29 (N.I.)).
(1) Sections 209 and 210 contain rules for the purpose of—
(a) avoiding the need to apportion profits, and
(b) preventing overlap profit from arising,
in relation to the tax year in which a person (“the trader”) starts to carry on a trade and the following tax year.
(2) Sections 209 and 210 apply in relation to a tax year if—
(a) the first accounting date is 31st March or 1st, 2nd, 3rd or 4th April, and
(b) that date falls in the tax year in which the trader starts to carry on the trade or in either of the following two tax years,
but the trader may elect for those sections not to apply in relation to a tax year.
(3) In this section and section 210 “the first accounting date” means—
(a) the first accounting date after the trader starts to carry on the trade, or
(b) the date that is intended to be that accounting date if, at the time the trader delivers a return for a tax year, there has been no accounting date.
(4) An election under this section must be made on or before the first anniversary of the normal self-assessment filing date for the tax year to which it relates.
(1) This section applies if there is an accounting date in a tax year and that date is 31st March or 1st, 2nd, 3rd or 4th April.
(2) If—
(a) the basis period for the tax year would otherwise end after the accounting date, and
(b) the part of the basis period that would otherwise fall after the accounting date is included in the basis period for the following tax year,
the basis period for the tax year ends on the accounting date.
(1) This section applies if there is no accounting date in a tax year (“the relevant tax year”).
(2) If the trader—
(a) starts to carry on the trade in the relevant tax year, and
(b) does so before 1st April,
the basis period ends on the date in the relevant tax year that corresponds to the first accounting date.
(3) If the trader started to carry on the trade in the previous tax year and there was no accounting date in the previous tax year, the basis period for the relevant tax year—
(a) begins immediately after the end of the basis period for the previous tax year, and
(b) ends on the date in the relevant tax year that corresponds to the first accounting date.
(4) If the trader—
(a) starts to carry on the trade in the relevant tax year, and
(b) does so after 31st March,
the profits or losses of the trade of the relevant tax year are treated as nil.
(5) In that case, the actual profits or losses of the trade of the relevant tax year are treated as arising in the basis period for the following tax year, so far as they do not already do so.
(1) This section applies for the purpose of preventing the rules in sections 215 to 220 from applying if—
(a) accounts of a trade are drawn up to a particular day (rather than to a particular date), and
(b) that day is capable of falling on one of only 7 consecutive dates (or, if that day is in February, on one of only 8 consecutive dates).
(2) The person carrying on the trade may elect in relation to a tax year for the fourth of those dates (“the middle date”) to be treated as the accounting date in the tax year.
(3) The election has effect for the purposes of this Chapter, but not for any other purposes.
(4) An election under this section—
(a) must specify the day to which the accounts are drawn up and the middle date, and
(b) must be made on or before the first anniversary of the normal self-assessment filing date for the tax year to which it relates.
(1) If—
(a) a date (“the middle date”) is treated under section 211 as the accounting date in a tax year (“the current tax year”),
(b) the basis period for the current tax year would otherwise be that given by the general rule in section 198, and
(c) subsection (2) or (3) applies,
the basis period for the current tax year begins immediately after the end of the basis period for the previous tax year and ends with the middle date.
(2) This subsection applies if—
(a) the accounting date in the previous tax year was not determined under section 211, and
(b) that accounting date was one of the 7 (or 8) dates on which the day in the current tax year to which accounts are drawn up is capable of falling.
(3) This subsection applies if—
(a) the accounting date in the previous tax year was determined under section 211, and
(b) the accounting date in the current tax year is the same as the accounting date in the previous tax year.
(1) If—
(a) a date (“the middle date”) is treated under section 211 as the accounting date in a tax year (“the earlier tax year”),
(b) the basis period for the earlier tax year ends on the middle date, and
(c) the basis period for the following tax year (“the later tax year”) is that given by one of the provisions listed in subsection (2),
the basis period for the later tax year is determined as if the basis period for the earlier tax year had ended on the date to which accounts were actually drawn up in the earlier tax year.
(2) The provisions are—
(a) section 201(1) (tax year in which there is no accounting date),
(b) section 202(1) (tax year in which person permanently ceases to carry on a trade),
(c) section 215(2) (change of accounting date in third tax year), and
(d) section 216(3) (change of accounting date in later tax year).
Income Tax (Trading and Other Income) Act 2005