Office of Public Sector Information
PART 2 continued CHAPTER 4 continued
(1) In calculating the profits of a trade, 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.
(2) In calculating the profits of a trade, 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).
Apart from sections 87 to 90 (scientific research and expenses connected with patents, designs and trade marks), the provisions of this Chapter apply to professions and vocations as they apply to trades.
(1) This section applies if a person incurs expenses for the purposes of a trade before (but not more than 7 years before) the date on which the person starts to carry on the trade (“the start date”).
(2) If, in calculating the profits of the trade—
(a) no deduction would otherwise be allowed for the expenses, but
(b) a deduction would be allowed for them if they were incurred on the start date,
the expenses are treated as if they were incurred on the start date (and therefore a deduction is allowed for them).
(1) In calculating the profits of a trade, a deduction is allowed for incidental costs of obtaining finance by means of—
(a) a loan, or
(b) the issue of loan stock,
if the interest on the loan or stock is deductible in calculating the profits of the trade.
(2) “Incidental costs of obtaining finance” means expenses—
(a) which are incurred on fees, commissions, advertising, printing and other incidental matters, and
(b) which are incurred wholly and exclusively for the purpose of obtaining the finance, providing security for it or repaying it.
(3) Expenses incurred wholly and exclusively for the purpose of—
(a) obtaining finance, or
(b) providing security for it,
are incidental costs of obtaining the finance even if it is not in fact obtained.
(4) But the following are not incidental costs of obtaining finance—
(a) sums paid because of losses resulting from movements in the rate of exchange between different currencies,
(b) sums paid for the purpose of protecting against such losses,
(c) the cost of repaying a loan or loan stock so far as attributable to its being repayable at a premium or having been obtained or issued at a discount, and
(d) stamp duty.
(5) This section needs to be read with section 59 (which provides for restrictions in relation to convertible loans and loan stock etc.).
(1) No deduction is allowed under section 58 in respect of a loan or loan stock if—
(a) it carries the right of conversion into, or to the acquisition of, shares or other securities, and
(b) the right is exercisable before the end of the period of 3 years from the date when the loan was obtained or the stock issued (“the 3 year period”).
(2) “Other securities” does not include a loan or loan stock—
(a) the interest on which is deductible in calculating the profits of the person’s trade, and
(b) which does not carry such a right as is mentioned in subsection (1).
(3) But the restriction imposed by subsection (1) does not apply if the right is not, or is not wholly, exercised before the end of the 3 year period.
(4) In such a case any incidental costs of obtaining finance incurred before the end of the 3 year period are treated as incurred immediately after the end of it.
(5) If the right is exercised within the 3 year period as to part of the loan or loan stock, only the following incidental costs of obtaining finance are treated as incurred.
(6) The costs are those corresponding to the proportion of the loan or loan stock in respect of which the right is not exercised within that period.
(1) Sections 61 to 67 apply if land used in connection with a trade is subject to a taxed lease.
(2) Section 61 (tenants occupying land for purposes of trade treated as incurring expenses) applies in calculating the profits of a trade carried on by the tenant under the taxed lease for the purpose of making deductions for the expenses of the trade.
(3) But any deduction for an expense under section 61 is subject to the application of any provision of Chapter 4 of this Part.
(4) In this section and sections 61 to 67 the following expressions have the same meaning as in Chapter 4 of Part 3 (profits of property businesses: lease premiums etc.)—
“receipt period” (see section 288(6)),
“taxed lease” (see section 287(4)),
“taxed receipt” (see section 287(4)), and
“unreduced amount” (see section 290(2)).
(5) Section 290(3) and (4) (unreduced amount of taxed receipt under section 277 as a result of section 278) applies for the purposes of sections 61 to 65.
(6) In sections 64 to 67 references to a reduction under section 288 by reference to a taxed receipt have the same meaning as in Chapter 4 of Part 3 (see section 290(6)).
(7) In the application of sections 64 to 67 to Scotland—
(a) references to a lease being granted out of a taxed lease are to the grant of a sublease of land subject to the taxed lease, and
(b) references to the lease so granted are to be read as references to the sublease.
(1) The tenant under the taxed lease is treated as incurring an expense of a revenue nature in respect of the land subject to the taxed lease for each qualifying day.
(2) If there is more than one taxed receipt, this section applies separately in relation to each of them.
(3) A day is a “qualifying day”, in relation to a taxed receipt, if it is a day—
(a) that falls within the receipt period of the taxed receipt, and
(b) on which the tenant occupies the whole or part of the land subject to the taxed lease for the purposes of carrying on a trade.
(4) If on the qualifying day the tenant occupies the whole of the land subject to the taxed lease for the purposes of the trade, the amount of the expense for the qualifying day by reference to the taxed receipt is given by the formula—
A is the unreduced amount of the taxed receipt, and
TRP is the number of days in the receipt period of the taxed receipt.
(5) If on the qualifying day the tenant occupies part of the land subject to the taxed lease for the purposes of the trade, the amount of the expense for the qualifying day by reference to the taxed receipt is given by the formula—
where—
F is the fraction of the land that is so occupied calculated on a just and reasonable basis, and
A and TRP have the same meaning as in subsection (4).
(6) This section is subject to section 62 (limit on deductions if tenant entitled to mineral extraction allowance).
(1) This section applies if the tenant under the taxed lease has become entitled, in respect of expenditure on the acquisition of an interest in the land subject to the taxed lease, to an allowance for a tax year under Part 5 of CAA 2001 (mineral extraction allowances) in respect of expenditure falling within section 403 of that Act (qualifying expenditure on acquiring a mineral asset).
(2) If the allowance is in respect of the whole of the expenditure, no deduction is allowed for expenses under section 61 for a qualifying day falling within that or a later tax year.
(3) If the allowance is in respect of only part of the expenditure (“the allowable part”) the amount of the deduction for expenses under section 61 for a qualifying day falling within that or a later tax year is calculated by multiplying the amount that, apart from this section, would be the amount of the deduction for the qualifying day by—
where—
WE is the whole of the expenditure, and
AP is the allowable part of the expenditure.
(1) This section applies if the tenant under the taxed lease—
(a) does not occupy the land subject to the taxed lease, or a part of it, but
(b) deals with the tenant’s interest in the land, or the part of it, as property employed for the purposes of carrying on a trade.
(2) Section 61 applies as if the land or the part of it were occupied by the tenant for the purposes of the trade.
(3) But the tenant is not treated as incurring an expense in respect of the land for a qualifying day as a result of this section so far as the tenant is treated as incurring an expense under section 292 (tenants under taxed leases treated as incurring expenses) in respect of the land for the day in calculating the profits of the tenant’s property business.
(4) This section is subject to sections 64 and 65 (restrictions on section 61 expenses where the additional calculation rule is relevant).
(1) This section applies if—
(a) a lease has been granted out of the taxed lease, and
(b) in calculating the amount of a receipt of a property business under Chapter 4 of Part 3 (profits of property businesses: lease premiums etc.) in respect of the lease, there is a reduction under section 288 (the additional calculation rule) by reference to the taxed receipt.
In this section and sections 65 and 67 such a receipt is referred to as a “lease premium receipt”.
(2) Subsections (3) to (5) provide for the application of section 61 as a result of section 63 for a qualifying day that falls within the receipt period of the lease premium receipt.
(3) The tenant under the taxed lease is treated as incurring an expense under section 61 as a result of section 63 for the qualifying day by reference to the taxed receipt only if the daily amount of the taxed receipt exceeds the daily reduction of the lease premium receipt.
(4) If the condition in subsection (3) is met, the amount of that expense for the qualifying day by reference to the taxed receipt is equal to that excess.
(5) If the qualifying day falls within the receipt period of more than one lease premium receipt, the reference in subsection (3) to the daily reduction of the lease premium receipt is to be read as a reference to the total of the daily reductions of each of the lease premium receipts whose receipt period includes the qualifying day.
(6) In this section—
the “daily amount” of the taxed receipt is given by the formula—
where—
A is the unreduced amount of the taxed receipt, and
TRP is the number of days in the receipt period of the taxed receipt, and
the “daily reduction” of a lease premium receipt is given by the formula—
where—
AR is the reduction under section 288 by reference to the taxed receipt, and
RRP is the number of days in the receipt period of the lease premium receipt.
(7) Section 65 explains how this section operates if the lease does not extend to the whole of the premises subject to the taxed lease.
(1) This section applies if—
(a) the conditions in section 64(1)(a) and (b) are met, and
(b) the lease granted out of the taxed lease does not extend to the whole of the premises subject to the taxed lease.
(2) Subsections (3) to (5) apply for a qualifying day that falls within the receipt period of the lease premium receipt.
(3) Sections 61, 63 and 64 apply separately in relation to the part of the premises subject to the lease and to the remainder of the premises.
(4) If—
(a) more than one lease that does not extend to the whole of the premises subject to the taxed lease has been granted out of the taxed lease, and
(b) the qualifying day falls within the receipt period of two or more lease premium receipts that relate to different leases,
sections 61, 63 and 64 apply separately in relation to each part of the premises subject to a lease to which such a lease premium receipt relates and to the remainder of the premises.
(5) Where sections 61, 63 and 64 apply in relation to a part of the premises, A becomes the amount calculated by multiplying the unreduced amount of the taxed receipt by the fraction of the premises constituted by the part.
(6) This fraction is calculated on a just and reasonable basis.
Section 296 (corporation tax receipts treated as taxed receipts) applies for the purposes of sections 60 to 67.
(1) This section provides for the application of section 61 as a result of section 63 if—
(a) a lease has been granted out of the taxed lease,
(b) in calculating the amount of a corporation tax receipt in respect of the lease, there is a reduction under section 37(2) or (3) of ICTA by reference to the amount chargeable on the superior interest for the purposes of that section, and
(c) the amount chargeable on the superior interest is the taxed receipt for the purposes of section 61.
(2) Sections 61 and 63 to 65 apply as follows—
(a) the corporation tax receipt is treated as if it were a lease premium receipt for the purposes of sections 64 and 65,
(b) references in those sections to the reduction under section 288 by reference to the taxed receipt are, in relation to the corporation tax receipt, to the reduction under section 37(2) or (3) of ICTA by reference to the amount chargeable on the superior interest, and
(c) for the purposes of those sections the receipt period of the corporation tax receipt is—
(i) in the case of a corporation tax receipt as a result of section 34 of ICTA, the period treated in calculating the amount of the receipt as being the duration of the lease, and
(ii) in the case of a corporation tax receipt as a result of section 35 of ICTA, the period treated in calculating the amount of the receipt as being the duration of the lease remaining at the date of the assignment.
(3) There is a corporation tax receipt in respect of a lease if—
(a) there is a receipt of a Schedule A business or an overseas property business (within the meaning of section 70A(4) of ICTA) as a result of section 34 or 35 of ICTA (treatment of premiums etc. as rent and assignments for profit of lease granted at an undervalue) in respect of the lease for an accounting period ending after 5th April 2005, or
(b) there would be such a receipt, but for the operation of section 37(2) or (3) of ICTA (reductions in certain receipts under section 34 or 35 of ICTA).
(4) References to a reduction under section 37(2) or (3) of ICTA in a corporation tax receipt by reference to the amount chargeable on the superior interest are to the difference between—
(a) the amount of the corporation tax receipt before the operation of section 37(2) or (3) of ICTA, and
(b) the amount of the corporation tax receipt after the operation of that subsection,
so far as attributable to the amount chargeable on the superior interest for the purposes of section 37 of ICTA.
(1) This section applies if—
(a) expenses are incurred on replacing or altering any tool used for the purposes of a trade, and
(b) a deduction for the expenses would not otherwise be allowable in calculating the profits of the trade because (and only because) they are items of a capital nature.
(2) In calculating the profits of the trade, a deduction is allowed for the expenses.
(3) In this section “tool” means any implement, utensil or article.
(1) In calculating the profits of a trade, a deduction is allowed for a payment—
(a) which is treated as earnings of an employee by virtue of section 225 of ITEPA 2003 (payments for restrictive undertakings), and
(b) which is made, or treated as made for the purposes of section 226 of that Act (valuable consideration given for restrictive undertakings), by the person carrying on the trade.
(2) The deduction is allowed for the period of account in which the payment—
(a) is made, or
(b) is treated as made for the purposes of section 226 of ITEPA 2003.
(1) This section applies if a person carrying on a trade (“the employer”) makes the services of a person employed for the purposes of the trade available to—
(a) a charity, or
(b) an educational establishment,
on a basis that is stated and intended to be temporary.
(2) In calculating the profits of the trade, a deduction is allowed for expenses of the employer that are attributable to the employee’s employment during the period of the secondment.
(3) In this section—
“educational establishment” means—
in England and Wales, any of the bodies mentioned in section 71(1),
in Scotland, any of the bodies mentioned in section 71(2),
in Northern Ireland, any of the bodies mentioned in section 71(3), and
any other educational body which is for the time being approved for the purposes of this section by the Secretary of State or, in Northern Ireland, the Department of Education, and
“the period of the secondment” means the period for which the employee’s services are made available to the charity or educational establishment.
(1) A body in England and Wales is an educational establishment for the purposes of section 70 if it is—
(a) a local education authority,
(b) an educational institution maintained or otherwise supported by a local education authority,
(c) an independent school within the meaning of the Education Act 1996 (c. 56) registered under section 161 of the Education Act 2002 (c. 32), or
(d) an institution within the further education sector, or the higher education sector, within the meaning of the Further and Higher Education Act 1992 (c. 13).
(2) A body in Scotland is an educational establishment for the purposes of section 70 if it is—
(a) an education authority within the meaning of the Education (Scotland) Act 1980 (c. 44),
(b) an educational establishment within the meaning of the Education (Scotland) Act 1980 managed by an education authority within the meaning of that Act,
(c) a public or grant-aided school within the meaning of the Education (Scotland) Act 1980,
(d) an independent school within the meaning of the Education (Scotland) Act 1980,
(e) a central institution within the meaning of the Education (Scotland) Act 1980,
(f) an institution within the higher education sector within the meaning of section 56(2) of the Further and Higher Education (Scotland) Act 1992 (c. 37), or
(g) a college of further education within the meaning of section 36(1) of the Further and Higher Education (Scotland) Act 1992.
(3) A body in Northern Ireland is an educational establishment for the purposes of section 70 if it is—
(a) an education or library board within the meaning of the Education and Libraries (Northern Ireland) Order 1986 (S.I. 1986/594 (N.I. 3)),
(b) a college of education or a controlled, maintained, grant-maintained integrated, controlled integrated, voluntary or independent school within the meaning of the Education and Libraries (Northern Ireland) Order 1986, or
(c) an institution of further education within the meaning of the Further Education (Northern Ireland) Order 1997 (S.I. 1997/1772 (N.I. 15)).
(1) This section applies if—
(a) a person carrying on a trade (“the employer”) is liable to make payments to an individual,
(b) income tax falls to be deducted from those payments as a result of PAYE regulations, and
(c) the employer withholds sums from those payments in accordance with an approved scheme and pays the sums to an approved agent.
(2) In calculating the profits of the employer’s trade, a deduction is allowed for expenses incurred by the employer in making a payment to the agent for expenses which—
(a) have been incurred, or
(b) are to be incurred,
by the agent in connection with the agent’s functions under the scheme.
(3) In this section “approved agent” and “approved scheme” have the same meaning as in section 714 of ITEPA 2003.
(1) In calculating the profits of a trade, a deduction is allowed for counselling expenses if—
(a) the person carrying on the trade (“the employer”) incurs the expenses,
(b) the expenses are incurred in relation to a person (“the employee”) who holds or has held an office or employment under the employer for the purposes of the trade, and
(c) the relevant conditions are met.
(2) In this section “counselling expenses” means expenses incurred—
(a) in the provision of services to the employee in connection with the cessation of the office or employment,
(b) in the payment or reimbursement of fees for such provision, or
(c) in the payment or reimbursement of travelling expenses in connection with such provision.
(3) In this section “the relevant conditions” means—
(a) conditions A to D for the purposes of section 310 of ITEPA 2003 (employment income exemptions: counselling and other outplacement services), and
(b) in the case of travel expenses, condition E for those purposes.
(1) In calculating the profits of a trade, a deduction is allowed for retraining course expenses if—
(a) the person carrying on the trade (“the employer”) incurs the expenses,
(b) they are incurred in relation to a person (“the employee”) who holds or has held an office or employment under the employer for the purposes of the trade, and
(c) the relevant conditions are met.
(2) In this section—
“retraining course expenses” means expenses incurred in the payment or reimbursement of retraining course expenses within the meaning given by section 311(2) of ITEPA 2003, and
“the relevant conditions” means—
the conditions in subsections (3) and (4) of section 311 of ITEPA 2003 (employment income exemptions: retraining courses), and
in the case of travel expenses, the conditions in subsection (5) of that section.
(1) This section applies if—
(a) an employer’s liability to tax for a tax year is determined on the assumption that a deduction for expenditure is allowed under section 74, and
(b) the deduction would not otherwise have been allowed.
(2) If, subsequently—
(a) the condition in section 311(4)(a) of ITEPA 2003 is not met because of the employee’s failure to begin the course within the period of one year after ceasing to be employed, or
(b) the condition in section 311(4)(b) of ITEPA 2003 is not met because of the employee’s continued employment or re-employment,
an assessment of an amount or further amount of tax due as a result of the condition not being met may be made under section 29(1) of TMA 1970.
(3) Such an assessment must be made before the end of the period of 6 years immediately following the end of the tax year in which the failure to meet the condition occurred.
(4) If subsection (2) applies, the employer must give the Inland Revenue a notice containing particulars of—
(a) the employee’s failure to begin the course,
(b) the employee’s continued employment, or
(c) the employee’s re-employment,
within 60 days of coming to know of it.
(5) If the Inland Revenue have reason to believe that the employer has failed to give such a notice, they may by notice require the employer to provide such information as they may reasonably require for the purposes of this section about—
(a) the failure to begin the course,
(b) the continued employment, or
(c) the re-employment.
(6) A notice under subsection (5) may specify a time (not less than 60 days) within which the required information must be provided.
(1) Sections 77 to 79 apply if—
(a) a person (“the employer”) makes a redundancy payment or an approved contractual payment to another person (“the employee”), and
(b) the payment is in respect of the employee’s employment wholly in the employer’s trade or partly in the employer’s trade and partly in one or more other capacities.
(2) For the purposes of this section and sections 77 to 80 “redundancy payment” means a redundancy payment payable under—
(a) Part 11 of the Employment Rights Act 1996 (c. 18), or
(b) Part 12 of the Employment Rights (Northern Ireland) Order 1996 (S.I. 1996/1919 (N.I. 16)).
(3) For the purposes of this section and those sections—
“contractual payment” means a payment which, under an agreement, an employer is liable to make to an employee on the termination of the employee’s contract of employment, and
a contractual payment is “approved” if, in respect of that agreement, an order is in force under—
section 157 of the Employment Rights Act 1996, or
Article 192 of the Employment Rights (Northern Ireland) Order 1996.
Income Tax (Trading and Other Income) Act 2005