Income and Corporation Taxes Act 1970 (repealed 6.4.1992)

• (3) Where the capital allowances taken into account by virtue of this section are those for the year of assessment for which the claim is made or for the preceding year (the year of loss being the basis year for that year itself, or the claim being made by way of carry-forward of the loss by virtue of section 168(2) above), relief shall not be given by reference to those allowances in respect of an amount greater than the amount non-effective in the year for which the claim is made, or, in the case of allowances for the preceding year, the amount non-effective in both years.

• (4) For the purposes of this section—

• (a) where the end of the basis period for a year of assessment (as defined in section 72 of the Capital Allowances Act 1968) falls in, or coincides with the end of, any year of assessment, that year is the basis year for the first-mentioned year of assessment, but so that, if a year of assessment would under the foregoing provision be the basis year both for that year itself and for another year of assessment, it shall be the basis year for the year itself and not for the other year,

• (b) any reference to the capital allowances or balancing charges for a year of assessment shall be construed as a reference to those falling to be made in taxing the trade for that year (but not including, in the case of allowances, any part of the allowances for an earlier year carried forward under section 70(4) of the said Act of 1968),

• (c) any reference to an amount of capital allowances non effective in a year shall be construed as referring to the amount to which, by reason of an insufficiency of profits or gains, effect cannot be given in taxing the trade for the year, and

• (d) effect shall be deemed to be given in taxing the trade to allowances carried forward from an earlier year before it is given to allowances arising in a later year.

• (5) Where, on a claim made by virtue of this section, relief is not given under section 168 above for the full amount of the loss determined as mentioned in subsection (1) of this section, the relief shall be referred as far as may be to the loss sustained by the claimant in the trade rather than to the capital allowances in respect of the trade.

• (6) Subject to subsection (7) below, where for any year of assessment relief is given under section 168 above by reference to any capital allowances, then, for all the purposes of the Income Tax Acts, effect shall be deemed to have been given to those allowances up to the amount in respect of which relief is so given, as if (in accordance with section 70(2) of the Capital Allowances Act 1968) a deduction in respect thereof had been allowed in taxing the trade for that year, or, in the case of allowances for the following year, in taxing the trade for that following year; and any relief previously given for a subsequent year on the basis that effect had not been given to the allowances as aforesaid shall be adjusted where necessary by an assessment.

• (7) Where, in any year of assessment, a trade is permanently discontinued, or is treated for the purposes of section 154 above as permanently discontinued, and, immediately before the discontinuance, the trade was being carried on in partnership, then, notwithstanding subsection (6) above, for the purposes of any claim for relief made by virtue of section 171(4)(c) or 174 below and relating to that discontinuance, effect shall not be deemed to have been given either—

• (a) to any part of the capital allowances falling to be made in taxing the trade for that year by reason of relief given under section 168 above by reference to those allowances, or

• (b) to any part of the capital allowances falling to be made in taxing the trade for the preceding year by reason of relief so given by reference to them, in so far as that relief must be referred to the part of the allowances apportionable to the part of the year within twelve months of the discontinuance on an apportionment made by reference to the comparative lengths of the two parts of the year,

but where the same partner claims relief both under section 168 above and under one or other of sections 171(4) and 174 below in respect of the same allowances, the total amount for which relief is to be given to him by reference thereto shall not exceed the greater of the amounts for which, apart from any deficiency of income, relief might have been given under either section separately, and the total amount for which relief is to be given to all the partners under those sections in respect of any allowances shall not in any event exceed the amount of the allowances to which effect has not been given apart from those sections.

• (8) Where a person claiming relief under section 168 above has, since the end of the year for which the claim is made, carried on the trade in question in partnership, effect shall not be given to this section in relation to that claim except with the written consent of, or of the personal representatives of, every other person who has been engaged in carrying on the trade between the end of that year and the making of the claim:

Provided that, where the claim is for a loss sustained before an event treated as the permanent discontinuance of the trade, this subsection shall not require the consent of any person as having been so engaged since that discontinuance, or as the personal representative of such a person.

• (9) Relief from tax may be given by virtue of this section by reference to capital allowances for a year of assessment before the passing of any Act granting income tax for that year, as if income tax had been granted for the year without alteration; but if relief given to a person by virtue of this section for any year of assessment is affected by a subsequent alteration of the law, or by any discontinuance of the trade or other event occurring after the end of the year, any necessary adjustment may be made, and so much of any repayment of tax as exceeded the amount repayable in the events that happened may, if not otherwise made good, be assessed under Case VI of Schedule D and recovered from that person accordingly.

• (10) This section applies (with any necessary adaptations) in relation to a profession, employment or vocation, and in relation to the occupation of woodlands the profits or gains of which are assessable under Schedule D by virtue of an election under section 111 of this Act, as it applies in relation to a trade.

Restrictions on right of set-off

170

• (1) A loss (including any amount in respect of capital allowances which, by virtue of section 169 above, is to be treated as a loss) shall not be available for relief under section 168 above unless it is shown that, for the year of assessment in which the loss is claimed to have been sustained, the trade was being carried on a commercial basis and with a view to the realisation of profits in the trade or, where the carrying on of the trade formed part of a larger undertaking, in the undertaking as a whole:

Provided that this subsection shall not apply—

• (a) to a loss made, or an allowance in respect of expenditure incurred, by any person in the exercise of functions conferred by or under any enactment (including an enactment contained in a local or private Act), or

• (b) to an allowance in respect of expenditure incurred before 6th April 1960.

• (2) Where during a year of assessment there is a change in the manner in which a trade is being carried on, it shall be treated for the purposes of this section as having been carried on throughout the year in the way in which it was being carried on by the end of the year.

• (3) Subject to subsection (4) below, where a trade is (or falls to be treated as being) carried on for a part only of a year of assessment by reason of its being (or falling to be treated as being) set up and commenced, or discontinued, or both, in that year, subsections (1) and (2) above shall have effect in relation to the trade as regards that part of that year as ii any reference to the manner of carrying on the trade for or by the end of that year were a reference to the manner of carrying it on for or by the end of the said part thereof.

• (4) Where in any year of assessment there is a change in the persons engaged in carrying on a trade, then, for the purposes of the application of subsections (1) to (3) above in the case of any person who, being engaged in carrying on the trade immediately before the change, continues to be so engaged immediately after it, the trade carried on by that person immediately before the change shall be treated as continuing to be carried on by him notwithstanding the change, whether or not it falls to be treated for any other purpose as having been discontinued on the change.

• (5) For the purposes of this section, the fact that a trade was being carried on at any time so as to afford a reasonable expectation of profit shall be conclusive evidence that it was then being carried on with a view to the realisation of profits.

• (6) This section—

• (a) applies to professions and vocations as it applies to trades, with references to a commercial basis construed accordingly, and

• (b) has effect without prejudice to section 180 below (special restrictions for farming and market gardening).

Carry-forward against subsequent profits

171

• (1) Where a person has, in any trade, profession or vocation carried on by him either solely or in partnership, sustained a loss (to be computed in the same way as profits or gains under the provisions of the Income Tax Acts applicable to Cases I and II of Schedule D) in respect of which relief has not been wholly given either under section 168 above or under any other provision of those Acts, he may make a claim requiring that any portion of the loss for which relief has not been so given shall be carried forward and, as far as may be, deducted from or set off against the amount of profits or gains on which he is assessed to income tax under Schedule D in respect of that trade, profession or vocation for subsequent years of assessment.

In the application of this section to a loss sustained by a partner in a partnership, " the amount of profits or gains on which he is assessed " shall, in respect of any year, be taken to mean such portion of the amount on which the partnership is assessed to income tax under Schedule D in respect of the trade, profession or vocation as he would be required to include in a return of his total income for that year.

• (2) Any relief under this section shall be given as far as possible from the first subsequent assessment, and, so far as it cannot be so given, then from the next assessment, and so on.

• (3) Where in any year of assessment relief cannot be given, or cannot be wholly given, in respect of a loss carried forward under this section because the amount of the profits or gains of the trade assessed under Case I of Schedule D for that year is insufficient, any interest or dividends on investments arising in that year, being interest or dividends which would fall to be taken into account as trading receipts in computing the profits or gains of the trade for the purpose of assessment under that Case but for the fact that they have been subjected to tax under other provisions of the Income Tax Acts, shall be treated for the purposes of the application of this section as if they were profits or gains on which the person carrying on the trade was assessed under the said Case I in respect of that trade for that year of assessment, and relief shall be given accordingly by repayment or otherwise.

• (4) Where there is in any year of assessment a change on which a trade, profession or vocation is treated under section 154 above as permanently discontinued, and a person engaged in carrying on the trade, profession or vocation immediately before the change continues to be so engaged immediately after it, then—

• (a) the trade, profession or vocation carried on by him immediately before and immediately after the change shall, notwithstanding the discontinuance, be treated as the same trade, profession or vocation for the purposes of this section, except as respects the computation of profits or gains and losses, and

• (b) in respect of a loss sustained by him in the trade, profession or vocation in the part of the said year before the change, relief shall be given under this section from the assessment relating to the part of the year after the change as if it were an assessment for a subsequent year, and

• (c) for the purposes of this section, there shall be treated as a loss so sustained in the part of the year before the change his share of the non-effective amount (if any) of any capital allowances falling to be made in taxing the trade, profession or vocation for that part of that year.

For the purposes of paragraph (c) above, the persons engaged in carrying on the trade, profession or vocation immediately before the change shall be treated as entitled to capital allowances in the shares in which they are then entitled to the profits of the trade, profession or vocation, and " the non-effective amount" means, in relation to any such allowances, the amount to which, because of an insufficiency of profits or gains, effect cannot be given in taxing the trade, profession or vocation.

• (5) Where a loss is sustained by a person in the occupation of woodlands, and that person, if he had made a profit, would by reason of his election under section 111 of this Act have been chargeable for the following year to income tax under Schedule D computed on the amount of that profit, this section shall apply so as to give relief in respect, of that loss in the same manner, and to the same extent, as if it were a loss sustained in a trade.

• (6) In so far as relief in respect of any loss has been given to any person under this section, that person shall not be entitled to claim relief in respect of that loss under any other provision of the Income Tax Acts.

• (7) So far as a claim under this section concerns the amount of the loss for any year of assessment after the year 1964-65, it must be made within six years after the year of assessment in question; but the question whether any and, if so, how much relief on that amount should be given under this section against tax for any year of assessment may be the subject of a separate claim made not later than six years after that year of assessment.

Carry-forward where business transferred to a company

172

• (1) Where—

• (a) a business carried on by any individual, or any individuals in partnership, has been transferred to a company in consideration solely or mainly of the allotment of shares of the company to that individual or those individuals, and

• (b) in the case of any individual to whom, or to whose nominee or nominees, shares have .been so allotted, his total income for any year of assessment throughout which he is the beneficial owner of the shares, and throughout which the company carries on the business, includes any income derived by him from the company, whether by way of dividends on those shares or otherwise,

then, subject to subsection (2) below, section 171 above (except subsection (4)) shall apply as if the income so derived were profits or gains on which that individual was assessed under Schedule D in respect of that business for that year.

• (2) Where, under the said section 171 as applied by subsection (1) above, a loss falls to be deducted from or set off against any income for any year of assessment, the deduction or set-off shall be made in the first place against that part, if any, of the income in respect of which the individual has been, or is liable to be, assessed to tax for that year.

• (3) This section, in its application to the year of assessment in which a business is transferred, shall have effect as if, for the reference in subsection (1)(b) to the year of assessment throughout which the individual is the beneficial owner of the shares and the business is carried on by the company, there were substituted a reference to the period from the date of transfer to the following 5th April.

• (4) Where a change to which section 171(4) above applies has occurred before a transfer to which this section applies, paragraph (a), but not paragraph (c), of the said section 171(4) shall for the purposes of this section apply in relation to the earlier change as it applies for the purposes of the said section 171.

Carry-forward as losses of amounts taxed under s. 53

173

• (1) Subject to the provisions of this section, where under section 53 of this Act (payments not out of profits or gains brought into charge to income tax) a person has been assessed to income tax in respect of a payment made wholly and exclusively for the purposes of a trade, profession or vocation, the amount on which tax has been paid under that assessment shall be treated for the purposes of sections 171 and 172 above as though it were a loss sustained in that trade, profession or vocation, and relief in respect thereof shall be allowed accordingly.

• (2) Relief shall not be allowed by virtue of this section in respect of any payment, or part of a payment, which is not ultimately borne by the person assessed, or which is charged to capital.

• (3) This section shall not apply—

• (a) to any payment to which the said section 53 applies by virtue of section 89(1) of this Act (Schedule A, and associated charges: non-residents),

• (b) to any such payment of rent as is referred to in section 157(4) of this Act (easements in connection with radio relay services),

• (c) to any capital sum paid in respect of any patent rights assessed under the said section 53 by virtue of section 380 of this Act,

• (d) to any payment of, or on account of, copyright royalties to which section 391 of this Act applies, or

• (e) to any payment to which the said section 53 applies by virtue of section 477 of this Act (manufactured dividends).

Carry-back of terminal losses

174

• (1) Where a trade, profession or vocation is permanently discontinued, and any person then carrying it on, either solely or in partnership, has sustained therein a loss to which this section applies (hereafter referred to as a " terminal loss "), that person may, subject to the provisions of this section, make a claim requiring that the amount of the terminal loss shall, as far as may be, be deducted from or set off against the amount of profits or gains on which he has been charged to income tax under Schedule D in respect of the trade, profession or vocation for the three years of assessment last preceding that in which the discontinuance occurs; and there shall be made all such reductions of assessments or repayments of tax as may be necessary to give effect to the claim :

Provided that relief shall not be given in respect of the same matter both under this section and under some other provision of the Income Tax Acts.

• (2) Any relief under this section shall be given as far as possible from the assessment for a later rather than an earlier year.

• (3) Where a claim under this section is made in respect of a terminal loss sustained in a trade, and relief cannot be given, or cannot be wholly given, against the profits or gains of the trade charged to income tax under Schedule D for any year because the amount of those profits or gains is insufficient, any interest or dividends on investments arising in that year, being interest or dividends which would fall to be taken into account as trading receipts in computing the profits or gains of the trade for the purpose of assessment under Case I of that Schedule but for the fact that they have been subjected to tax under other provisions of the Income Tax Acts, shall be treated for the purposes of the application of this section as if they were profits or gains on which the person carrying on the trade was assessed under the said Case I in respect of that trade for that year of assessment, and relief shall be given accordingly by repayment or otherwise.

• (4) The profits or gains on which a person or partnership has been charged to income tax for any year of assessment shall be treated for the purposes of any relief under this section from the assessment for that year as reduced by the amount of those profits or gains applied in making any payment from which income tax was deducted, but was not accounted for because the payment was made out of profits or gains brought into charge to income tax; and the like reduction shall be made in the amount of the terminal loss for which relief may be given under this section from the assessments for earlier years unless the payment was one which, if not made out of profits or gains brought into charge to income tax, could have been assessed to income tax under section 53 of this Act, and, if so assessed, could have been 'treated as a loss by virtue of section 173 above.

• (5) The question whether a person has sustained any and, if so, what terminal loss in a trade, profession or vocation shall be determined for the purposes of this section by taking the amounts (if any) of the following, in so far as they have not otherwise been taken into account so as to reduce or relieve any charge to tax—

• (a) the loss sustained by him in the trade, profession or vocation in the year of assessment in which it is permanently discontinued,

• (b) the relevant capital allowances for that year of assessment,

• (c) the loss sustained by him in the trade, profession or vocation in the part of the preceding year of assessment beginning twelve months before the date of the discontinuance, and

• (d) the same fraction of the relevant capital allowances for that preceding year of assessment as the part thereof beginning twelve months before the discontinuance is of a year.

• (6) In subsection (5) above " the relevant capital allowances " means, in relation to any year of assessment, any capital allowances falling to be made in taxing the trade, profession or vocation for that year, excluding amounts carried forward from an earlier year; and, for the purposes of paragraphs (a) and (c) of that subsection, the amount of a loss shall, subject to the provisions of this section, be computed in the same way as profits or gains under the provisions of the Income Tax Acts applicable to Cases I and II of Schedule D.

• (7) Section 173 above, and sections 324 and 328 of this Act (capital redemption business, non-resident banks etc.), shall apply to the computation of losses, or of profit or loss, for any purpose of this section as they apply to the computation thereof for the corresponding purposes of section 171 above.

• (8) Where, on the permanent discontinuance of a trade which consists of or includes the working of a mine, oil well or other source of mineral deposits within the meaning of Chapter III of Part I of the Capital Allowances Act 1968, a claim for relief is made both under this section and under section 15(1) of that Act (carry-back of balancing allowances), the balancing allowance in respect of which the claim is made under the said section 15(1) shall be left out of account for the purposes of subsection (5) above, but relief under this section shall be given in priority to relief under the said section 15(1).

• (9) Where a person claiming relief under this section on a discontinuance has, since the beginning of the third year of assessment preceding that in which the discontinuance occurs, carried on the trade, profession or vocation in partnership—

• (a) in subsection (1) above, " the amount of profits or gains on which he has been charged to income tax " shall be taken to mean, in respect of any year or part of a year for which the partnership was assessed in respect of the trade, profession or vocation, such portion of the amount of the profits or gains on which the partnership has been, or is treated by virtue of subsection (4) above as having been, charged to income tax in respect of it for that year or part of a year as would be required to be included in a return of his total income for that year,

• (b) any reduction in the amount of his terminal loss which falls to be made under the said subsection (4) by reason of profits or gains having been applied by the partnership in any such year or part of a year in making any payment shall be limited to the same proportion of the profits or gains brought into charge which were so applied, and

• (c) if he was carrying on the trade, profession or vocation immediately before the discontinuance, the amounts to be included in his terminal loss by virtue of subsection (5)(b) or (d) above shall be such part only of the amounts therein mentioned (in so far as they have not otherwise been taken into account so as to reduce or relieve any charge to tax) as would fall to his share on a division made according to the shares in which the partners were then entitled to the profits of the trade, profession or vocation.

• (10) For all the purposes of this section, a trade, profession or vocation shall be treated as discontinued, and a new trade, profession or vocation as set up and commenced, when it is so treated for the purposes of section 154 of this Act; but—

• (a) a person who continues to be engaged in carrying it on immediately after such a discontinuance shall not be entitled to relief in respect of any terminal loss on that discontinuance, and

• (b) on any discontinuance, a person not continuing to be so engaged may be given relief in respect of a terminal loss against profits or gains on which he was charged in respect of the same trade, profession or vocation for a period before a previous discontinuance, if he has been continuously engaged in carrying it on between the two discontinuances, and, in his case, if the previous discontinuance occurred within twelve months before the other—

• (i) it shall be disregarded for the purposes of paragraphs (a) and (c) of subsection (5) above, except that those paragraphs shall be taken to include any amount on which relief could have been allowed to him as for a loss sustained before the previous discontinuance by virtue of section 171(4)(c) above, so far as it is referable to a period within those twelve months, and

• (ii) paragraph (d) of the said subsection (5) shall be taken to include the whole amount of the allowances in question, instead of the fraction there mentioned.

• (11) Where a trade, profession or vocation is being carried on by any persons in partnership immediately before it is permanently discontinued, relief under this section given to one of them on the discontinuance shall not, in relation to a claim made by another of them by virtue of section 171(4)(c) above, be taken to affect the non-effective amount of any allowances within the meaning of the said section 171(4)(c).

• (12) A claim for relief under this section may require that, in so far as they have not been otherwise taken into account so as to reduce or relieve any charge to tax, capital allowances in respect of the trade, profession or vocation under Part I of the Capital Allowances Act 1968, being allowances which fall to be made to the claimant by way of discharge or repayment of tax, and to be so made for the year of assessment in which the discontinuance occurs or the preceding year of assessment, shall be added to the terminal loss sustained by him (or, if he has not sustained a terminal loss computed in accordance with the provisions of this section, shall be treated as a terminal loss so sustained) and the allowances to be taken into account for this purpose may include allowances arising before a previous discontinuance:

Provided that—

• (a) there shall be taken into account such fraction only of the allowances for the said preceding year of assessment as the part of that year beginning twelve months before the discontinuance giving rise to the claim is of a year, and

• (b) the allowances for any year shall not be treated as including any amounts carried forward from an earlier year.

• (13) Where a person occupying woodlands has elected to be charged to income tax in respect thereof under Schedule D, this section shall apply to a terminal loss sustained by him in the occupation of the woodlands as it applies to a terminal loss sustained in a trade.

Treatment of interest as a loss for purposes of carry forward and carry-back

175

• (1) Where a payment to which this section applies is money wholly and exclusively laid out or expended for the purposes of a trade, profession or vocation the profits of which are chargeable to tax under Case I or Case II of Schedule D, and full effect cannot be given to the relief specified in subsection (2) below as respects the payment by reason of a want or deficiency of income of the year of assessment in which the payment is made, the amount unallowed may be carried forward to succeeding years of assessment as if it were a loss carried forward under section 171 above, or may be treated for the purposes of section 174 above as a loss sustained at the date of payment.

• (2) This section applies to—

• (a) interest eligible for relief under section 57 of this Act (loans for purchase or improvement of land),

• (b) payments of interest eligible for relief under section 62 of this Act (certain pre-1970 loans),

• (c) payments in respect of tithe redemption annuities to which section 66(2) of this Act applies, and

• (d) payments of interest to which section 445(3)(b) of the Income Tax Act 1952 (building societies etc.) applied.

• (3) So far as it relates to the carrying forward of payments mentioned in paragraphs (c) and (d) of subsection (2) above, this section shall be deemed always to have had effect.

Case VI losses

Case VI losses

176

• (1) Where in any year of assessment a person sustains a loss in any transaction, whether he was engaged therein solely or in partnership, being a transaction of such a nature that, if any profits had arisen therefrom, he would have been liable to be assessed to income tax in respect thereof under Case VI of Schedule D, he may make a claim requiring that the amount of the loss sustained by him shall, as far as may be, be deducted from or set off against the amount of any profits or gains arising from any transaction in respect of which he is assessed for that year under the said Case VI, and that any portion of the loss for which relief is not so given shall, as far as may be, be carried forward and deducted from or set off against the amount of any profits or gains arising from any transaction in respect of which he is assessed to income tax under the said Case VI for any subsequent year of assessment.

• (2) In the application of this section to a loss sustained by a partner in a partnership, " the amount of any profits or gains arising from any transaction in respect of which he is assessed " shall be taken to mean in respect of any year such portion of the amount on which the partnership is assessed under Case VI of Schedule D in respect of any transaction as falls to be taken into account in computing his total income for that year.

• (3) Any relief under this section by way of the carrying forward of the loss shall be given as far as possible from the first subsequent assessment in respect of any such profits or gains as aforesaid for any year, and, so far as it cannot be so given, then from the next such assessment, and so on.

• (4) This section does not apply to any loss sustained in a transaction falling within section 80, 81 or 82 of this Act (premiums, leases at undervalue, etc.).

• (5) So far as a claim under this section concerns the amount of the loss for any year of assessment after the year 1964-65, it must be made within six years after the year of assessment in question ; but the question whether any and, if so, how much relief on that amount should be given under this section against tax for any year of assessment may be the subject of a separate claim made not later than six years after that year of assessment.

CHAPTER II — Corporation Tax

Trade etc. losses

Losses other than terminal losses

177

• (1) Where in any accounting period a company carrying on a trade incurs a loss in the trade, the company may make a claim requiring that the loss be set off for the purposes of corporation tax against any trading income from the trade in succeeding accounting periods; and (so long as the company continues to carry on the trade) its trading income from the trade in any succeeding accounting period shall then be treated as reduced by the amount of the loss, or by so much of that amount as cannot, on that claim or on a claim (if made) under subsection (2) below, be relieved against income or profits of an earlier accounting period.

• (2) Where in any accounting period a company carrying on a trade incurs a loss in the trade, then (subject to subsection (4) below) the company may make a claim requiring that the loss be set off for the purposes of corporation tax against profits (of whatever description) of that accounting period and, if the company was then carrying on the trade and the claim so requires, of preceding accounting periods ending within the time specified in subsection (3) below; and, subject to that subsection and to any relief for an earlier loss, the profits of any of those periods shall then be treated as reduced by the amount of the loss, or by so much of that amount as cannot be relieved under this subsection against profits of a later accounting period.

• (3) The time referred to in subsection (2) above is a time equal in length to the accounting period in which the loss is incurred; but the amount of the reduction which may be made under that subsection in the profits of an accounting period falling partly before that time shall not exceed a part of those profits proportionate to the part of the period falling within that time.

• (4) Subsection (2) above shall not apply to trades falling within Case V of Schedule D; and, except in so far as it represents an excess in respect of expenditure incurred before the year 1960-61 of capital allowances over balancing charges, a loss incurred in a trade in any accounting period shall not be relieved under that subsection unless the trade is one carried on in the exercise of functions conferred by or under any enactment (including an enactment contained in a local or private Act), or it is shown that for that accounting period the trade was being carried on a commercial basis and with a view to the realisation of gain in the trade or in any larger undertaking of which the trade formed part.

This subsection has effect without prejudice to section 180 below (special restrictions for farming and market gardening).

• (5) For the purposes of subsection (4) above, the fact that a trade was being carried on at any time so as to afford a reasonable expectation of gain shall be conclusive evidence that it was then being carried on with a view to the realisation of gain; and where in an accounting period there is a change in the manner in which a trade is being carried on, it shall for those purposes be treated as having throughout the accounting period been carried on in the way in which it was being carried on by the end of that period.

• (6) The amount of a loss incurred in a trade in an accounting period shall be computed for the purposes of this section in the same way as trading income from the trade in that period would have been computed.

• (7) For the purposes of this section " trading income " means, in relation to any trade, the income which falls or would fall to be included in respect of the trade in the total profits of the company; but where in an accounting period a company incurs a loss in a trade in respect of which it is within the charge to corporation tax under Case I or Case V of Schedule D, and in any later accounting period to which the loss or any part of it is carried forward under subsection (1) above relief in respect thereof cannot be given, or cannot wholly be given, because the amount of the trading income of the trade is insufficient, any interest or dividends on investments which would fall to be taken into account as trading receipts in computing that trading income but for the fact that they have been subjected to tax under other provisions shall be treated for the purposes of subsection (1) above as if they were trading income of the trade.

• (8) Where in an accounting period the charges on income paid by a company—

• (a) exceed the amount of the profits against which they are deductible, and

• (b) include payments made wholly and exclusively for the purposes of a trade carried on by the company,

then, up to the amount of that excess or of those payments, whichever is the less, the charges on income so paid shall in computing a loss for the purposes of subsection (1) above be deductible as if they were trading expenses of the trade.

• (9) In this section references to a company carrying on a trade refer to the company carrying it on so as to be within the charge to corporation tax in respect of it.

• (10) A claim under subsection (1) above must be made within six years after the end of the accounting period in which the loss is incurred, and must be so made notwithstanding that relief cannot be given in respect of the loss until after the end of that period of six years; and a claim under subsection (2) above must be made within two years from the end of the accounting period in which the loss is incurred.

Terminal losses

178

• (1) Where a company ceasing to carry on a trade has in any accounting period falling wholly or partly within the previous twelve months incurred a loss in the trade, the company may make a claim requiring that the loss be set off for the purposes of corporation tax against trading income from the trade in accounting periods falling wholly or partly within the three years preceding those twelve months (or within any less period throughout which the company has carried on the trade); and, subject to subsections (2) to (5) below and to any relief for earlier losses, the trading income of any of those periods shall be then treated as reduced by the amount of the loss, or by so much of that amount as cannot be relieved under this subsection against income of a later accounting period:

Provided that relief shall not be given under this subsection in respect of any loss in so far as the loss has been or can be otherwise taken into account so as to reduce or relieve any charge to tax.

• (2) Where a loss is incurred in an accounting period falling partly outside the twelve months mentioned in subsection (1) above, relief shall be given under that subsection in respect of a part only of that loss proportionate to the part of the period falling within those twelve months; and the amount of the reduction which may be made under that subsection in the trading income of an accounting period falling partly outside the three years there mentioned shall not exceed a part of that income proportionate to the part of the period falling within those three years.

• (3) A claim for relief under this section may require that capital allowances in respect of the trade, being allowances which fall to be made to the company by way of discharge or repayment of tax, and to be so made for an accounting period falling wholly or partly within the twelve months ending when the company ceases to carry on the trade, shall (so far as they cannot be otherwise taken into account so as to reduce or relieve any charge to corporation tax) be added to the loss incurred by the company in that accounting period or, if the company has not incurred a loss in the period, shall be treated as a loss so incurred:

Provided that the allowances for any period shall not be treated as including amounts carried forward from an earlier period.

• (4) Subsections (6) to (9) of section 177 above shall apply for the purposes of this section as they apply for the purposes of subsection (1) of that section; and relief shall not be given under this section in respect of a loss incurred in a trade so as to interfere with any relief under section 248 of this Act (charges on income) in respect of payments made wholly and exclusively for the purposes of that trade.

• (5) A claim under this section must be made within six years from the time when the company ceases to carry on the trade.

Case VI losses

Case VI losses

179

• (1) Subject to subsection (2) below, where in any accounting period a company incurs a loss in a transaction in respect of which the company is within the charge to corporation tax under Case VI of Schedule D, the company may make a claim requiring that the loss be set off against the amount of any income arising from transactions in respect of which the company is assessed to corporation tax under that Case for the same or any subsequent accounting period ; and the company's income in any accounting period from such transactions shall then be treated as reduced by the amount of the loss, or by so much of that amount as cannot be relieved under this section against income of an earlier accounting period.

• (2) This section shall not apply to a loss incurred in a transaction falling within section 80, 81 or 82 of this Act (premiums, leases at under-value, etc.).

• (3) A claim under this section must be made within six years after the end of the accounting period in which the loss is incurred, and must be so made notwithstanding that relief cannot be given in respect of the loss until after the end of that period of six years.

CHAPTER III — Income Tax and Corporation Tax

Restriction of relief under ss. 168 and 177 in case of farming and market gardening

180

• (1) Any loss incurred in a trade of farming or market gardening shall be excluded from section 168 above if in each of the prior five years a loss was incurred in carrying on that trade; and where a loss is so excluded any related capital allowance shall also be excluded from that section.

• (2) Any loss incurred in any accounting period by a company in carrying on a trade of farming or market gardening shall be excluded from section 177(2) above if a loss, computed without regard to capital allowances, was incurred in carrying on that trade in that accounting period, and in each of the chargeable periods wholly or partly comprised in the prior five years.

• (3) Subsections (1) and (2) above shall not restrict relief for any loss or for any capital allowance, if it is shown by the claimant that the whole of his farming or market gardening activities in the year next following the prior five years are of such a nature, and carried on in such a way, as would have justified a reasonable expectation of the realisation of profits in the future if they had been undertaken by a competent farmer or market gardener, but that, if that farmer or market gardener had undertaken those activities at the beginning of the prior period of loss, he could not reasonably have expected the activities to become profitable until after the end of the year next following the prior period of loss.

• (4) Subsections (1) and (2) above shall not restrict relief where the carrying on of the trade forms part of, and is ancillary to, a larger trading undertaking.

• (5) In this section—

• " basis year ", in relation to any capital allowance, shall be construed in accordance with section 169(4)(a) above,

• " chargeable period ", in relation to a company, means any accounting period, or any basis period ending before its first accounting period, " basis period " having the meaning given in section 72 of the Capital Allowances Act 1968,

• " prior five years "— in relation to a loss incurred in a year of assessment, means the last five years of assessment before that year, and in relation to a loss incurred in a company's accounting period, means the last five years before the beginning of the accounting period,

• " prior period of loss " means the prior five years, except that, if losses were incurred in the trade in successive years of assessment or chargeable periods amounting in all to a period longer than five years (and ending when the prior five years end), it means that longer period, and in applying this definition to a chargeable period of a company " losses " means losses computed without regard to capital allowances, and

• " farming " and " market gardening " shall be construed in accordance with the definitions of those terms under section 526(5) of this Act, but as if those definitions were not restricted to activities in the United Kingdom.

• (6) For the purposes of this section, a capital allowance is related to a loss incurred in a trade if it falls to be made in taxing that trade and its basis year is the year of assessment in which the loss was incurred.

• (7) In ascertaining for the purposes of this section whether a loss was incurred in any part of the prior five years, or earlier, the rules applicable to Case I of Schedule D shall be applied; and in this section " loss computed without regard to capital allowances " means, in relation to a chargeable period of a company, a loss so ascertained, but so that, notwithstanding section 73(2) of the Capital Allowances Act 1968, no account shall be taken of any allowance or charge under that Act (including the enactments which under this Act are to be treated as contained in Part I of that Act).

• (8) Subsections (1) and (2) above shall not restrict relief for any loss or capital allowance if the trade was set up and commenced within the prior five years, and, for the purposes of this subsection, a trade shall be treated as discontinued, and a new trade set up, in any event which under any of the provisions of the Tax Acts is to be treated as equivalent to the permanent discontinuance or setting up of a trade:

Provided that a trade shall not be treated as discontinued if, under section 252(2) of this Act or section 17 of the Finance Act 1954 (company reconstructions) it is not to be treated as discontinued for the purpose of capital allowances and charges.

• (9) Where at any time there has been a change in the persons engaged in carrying on a trade, this section shall, notwithstanding subsection (8) above, apply to any person who was engaged in carrying on the trade immediately before and immediately after the change as if the trade were the same before and after without any discontinuance, and as if—

• (a) a husband and his wife were the same person, and

• (b) a husband or his wife were the same person as any company of which either the husband or the wife has control, or of which the two of them have control,

and accordingly relief from income tax or from corporation tax may be restricted under this section by reference to losses some of which are incurred in years of assessment and some, computed without regard to capital allowances, are incurred in a company's chargeable periods.

In this subsection " control" has the same meaning as in Chapter III of Part XI of this Act (close companies).

PART VIII — Schedule E

CHAPTER I — The Charge

The Schedule

Schedule E

181

• (1) The Schedule referred to as Schedule E is as follows:—

SCHEDULE E (1) Tax under this Schedule shall be charged in respect of any office or employment on emoluments therefrom which fall under one, or more than one, of the following Cases— - Case I: where the person holding the office or employment is resident and ordinarily resident in the United Kingdom, and does not perform the duties of the office or employment wholly outside the United Kingdom in the chargeable period (and the emoluments are not excepted as foreign emoluments), any emoluments for the chargeable period ; - Case II: where that person is not resident or, if resident, then not ordinarily resident in the United Kingdom (and the emoluments are not excepted as foreign emoluments), any emoluments for the chargeable period in respect of duties performed in the United Kingdom; - Case III: where that person is resident in the United Kingdom (whether ordinarily resident there or not), any emoluments received in the United Kingdom in the chargeable period, being emoluments either for that period or for an earlier period in which he has been resident there, and any emoluments for that period received in the United Kingdom in an earlier period; and tax shall not be chargeable in respect of emoluments of an office or employment under any other paragraph of this Schedule. The emoluments excepted from Cases I and II as foreign emoluments are emoluments of a person not domiciled in the United Kingdom from an office or employment under or with any person, body of persons or partnership resident outside, and not resident in, the United Kingdom. (2) Tax under this Schedule shall be charged in respect of every annuity, pension or stipend payable by the Crown or out of the public revenue of the United Kingdom or of Northern Ireland, other than annuities charged under Schedule C (3) Tax under this Schedule shall also be charged in respect of any pension which is paid otherwise than by or on behalf of a person outside the United Kingdom. (4) Where— (a) any pension or annuity is payable in the United Kingdom by or through any public department, officer or agent of the government of a territory to which this paragraph applies (but otherwise than out of the public revenue of the United Kingdom or the public revenue of Northern Ireland) to a person who has been employed in relevant service outside the United Kingdom in respect of that service, or (b) any pension or annuity is so payable to the widow, child, relative or dependant of any such person as aforesaid, and the person in receipt of the pension or annuity is chargeable to tax as a person resident in the United Kingdom, the pension or annuity shall be chargeable to tax under this Schedule. The territories to which this paragraph applies are— (i) any country forming part of Her Majesty's dominions, (ii) any other country for the time being mentioned in section 1(3) of the British Nationality Act 1948, and (iii) any territory under Her Majesty's protection, and in this paragraph " relevant service " means the service of the Crown, or service under the government of a territory to which this paragraph applies. (5) The preceding provisions of this Schedule are without prejudice to any other provision of the Tax Acts directing tax to be charged under this Schedule, and tax so directed to be charged shall be charged accordingly.

• (2) References in the Tax Acts to Cases I, II and III of Schedule E shall be taken as referring to the Cases under which tax is chargeable under paragraph 1 of that Schedule.

Supplementary charging provisions

Voluntary pensions

182

• (1) Where—

• (a) a person has ceased to hold any office or employment, and

• (b) a pension or annual payment is paid to him, or to his widow or child, or to any relative or dependant of his, by the person under whom he held the office or by whom he was employed, or by the successors of that person, and

• (c) that pension or annual payment is paid otherwise than by or on behalf of a person outside the United Kingdom,

then, notwithstanding that the pension or payment is paid voluntarily, or is capable of being discontinued, it shall be deemed to be income for the purposes of assessment to tax, and shall be assessed and charged under Schedule E.

• (2) For the avoidance of doubt, it is hereby declared that the expressions " annuity" and " pension" in Schedule E include respectively an annuity and a pension which is paid voluntarily or is capable of being discontinued.

Offices and employments: scope of charge

183

• (1) Tax under Case I, II or III of Schedule E shall, except as hereinafter mentioned, be chargeable on the full amount of the emoluments falling under that Case, subject to such deductions only as may be authorised by the Tax Acts, and the expression "emoluments" shall include all salaries, fees, wages, perquisites and profits whatsoever.

• (2) Tax under Case III of Schedule E shall be chargeable whether or not tax is chargeable in respect of the same office or employment under Case I or II of that Schedule, but shall not be chargeable on any emoluments falling under the said Case I or II for the same or another chargeable period (or on any emoluments charged under Schedule E for a chargeable period earlier than the year 1956-57).

Offices and employments: place of performance, and meaning of emoluments received in United Kingdom

184

• (1) Where a person ordinarily performs the whole or part of the duties of his office or employment in the United Kingdom, then, for the purposes of Cases I and II of Schedule E his emoluments for any period of absence from the office or employment shall be treated as emoluments for duties performed in the United Kingdom, except in so far as it is shown that, but for that absence, they would have been emoluments for duties performed outside the United Kingdom.

• (2) Where an office or employment is in substance one the duties of which fall in the chargeable period to be performed outside the United Kingdom, then, for the purposes of Cases I and II of Schedule E, there shall be treated as so performed any duties performed in the United Kingdom the performance of which is merely incidental to the performance of the other duties outside the United Kingdom.

• (3) For the purposes of Cases I and II of Schedule E the following duties shall be treated as performed in the United Kingdom, namely—

• (a) the duties of any office or employment under the Crown which is of a public nature and the emoluments of which are payable out of the public revenue of the United Kingdom or of Northern Ireland, and

• (b) any duties which a person performs on a vessel engaged on a voyage not extending to a port outside the United Kingdom, or which a person resident in the United Kingdom performs on a vessel or aircraft engaged on a voyage or journey beginning or ending in the United Kingdom, or on a part beginning or ending in the United Kingdom of any other voyage or journey.

• (4) For the purposes of Case III of Schedule E, emoluments shall be treated as received in the United Kingdom if they are paid, used or enjoyed in, or in any manner or form transmitted or brought to, the United Kingdom, and subsections (4) to (7) of section 122 of this Act (under which income applied outside the United Kingdom in payment of debts is, in certain cases, treated for the purposes of Cases IV and V of Schedule D as received in the United Kingdom) shall apply for the purposes of this subsection as they apply for the purposes of subsection (3) of the said section 122.

Accommodation occupied by holder of office or employment

185

• (1) Where any premises in the United Kingdom are available to the occupier by reason of his or his wife's holding an office or employment, and—

• (a) he pays no rent for the premises, or

• (b) the rent which he pays for them is less than the annual value of the premises, determined in accordance with section 531 of this Act,

the holder of the office or employment shall be treated for the purpose of tax under Schedule E as being in receipt (in addition to any other emoluments) of emoluments at an annual rate equal to the annual value of the premises, determined as aforesaid, reduced by the annual amount of any rent which he pays for them:

Provided that this section shall not apply if the rent is not less than might reasonably be expected to have been obtained at the time when the tenancy was granted, having regard to the terms of the tenancy, and, if at any subsequent time the landlord of the premises had the power (whether by terminating the tenancy or otherwise) to obtain a higher rent, the rent is not less than might reasonably be expected to have been obtained as aforesaid at that subsequent time.

• (2) Where the occupier of premises holds them under a tenancy from or by the leave of the person from whom he or his wife holds an office or employment, or any other person with whom that person is within the terms of section 533 of this Act, connected, the premises shall be conclusively presumed to be available to him by reason of his or his wife's holding the office or employment.

• (3) Subsection (1) above shall not apply in the case of premises provided by a local authority if the occupier proves that the terms on which he occupies are no more favourable than those on which similar premises provided by that authority are available to persons similarly circumstanced apart from the identity of the employer.

• (4) For the purposes of this section any person who under section 198(1) below would be a director of a body corporate shall be treated as holding an office from the body corporate.

• (5) This section shall apply to an occupier being a woman as it applies to an occupier being a man, with the substitution of " her husband " for " his wife ".

• (6) In this section " terms of the tenancy " does not include any obligation imposed on the occupier or his wife in connection with his or her office or employment.

Directors and employees of companies granted rights to acquire shares

186

• (1) Where a person realises a gain by the exercise, or by the assignment or release, of a right to acquire shares in a body corporate obtained by that person as a director or employee of that or any other body corporate, he shall be chargeable to tax under Schedule E on an amount equal to the amount of his gain, as computed in accordance with this section.

• (2) Where tax may by virtue of this section become chargeable in respect of any gain which may be realised by the exercise of a right, tax shall not be chargeable under any other provision of the Tax Acts in respect of the receipt of the right.

• (3) Subject to subsection (8) below—

• (a) the gain realised by the exercise of any such right at any time shall be taken to be the difference between the amount that a person might reasonably expect to obtain from a sale in the open market at that time of the shares acquired and the amount or value of the consideration given whether for them or for the grant of the right, and

• (b) the gain realised by the assignment or release of any such right shall be taken to be the difference between the amount or value of the consideration for the assignment or release and the amount or value of the consideration given for the grant of the right,

(a just apportionment being made of any entire consideration given for the grant of the right to acquire those shares and other shares or otherwise for the grant of the right to acquire those shares and for something besides):

Provided that neither the consideration given for the grant of the right nor any such entire consideration shall be taken to include the performance of any duties in or in connection with the office or employment by reason of which the right was granted, and no part of the amount or value of the consideration given for the grant shall be deducted more than once under this subsection.

• (4) Subject to subsection (5) below a person shall, in the case of a right granted by reason of his office or employment, be chargeable to tax under this section in respect of a gain realised by another person—

• (a) if the right was granted to that other person, or

• (b) if the other person acquired the right otherwise than by or under an assignment made by way of a bargain at arm's length, or if the two are connected persons at the time when the gain is realised,

but in a case within paragraph (b) above the gain realised shall be treated as reduced by the amount of any gain realised by a previous holder on an assignment of the right.

• (5) A person shall not be chargeable to tax by virtue of subsection (4)(6) above in respect of any gain realised by another person if the first mentioned person was divested of the right by operation of law on his bankruptcy or otherwise, but the other person shall be chargeable to tax in respect of the gain under Case VI of Schedule D.

• (6) If a right to acquire shares in a body corporate is assigned or released in whole or in part for a consideration which consists of or comprises another right to acquire shares in that or any other body corporate, that other right shall not be treated as consideration for the assignment or release, but this section shall apply in relation to it as it applies in relation to the right assigned or released and as if the consideration for its acquisition did not include the value of the right assigned or released but did include the amount or value of the consideration given for the grant of the right assigned or released so far as that has not been offset by any valuable consideration for the assignment or release other than the consideration consisting of the other right.

• (7) If as a result of two or more transactions a person ceases to hold a right to acquire shares in a body corporate and he or a connected person comes to hold another right to acquire shares in that or any other body corporate (whether or not acquired from the person to whom the other right was assigned) and any of those transactions was effected under arrangements to which two or more persons holding rights in respect of which tax may be chargeable under this section were parties, those transactions shall be treated for the purposes of the last preceding subsection as a single transaction whereby the one right is assigned for a consideration which consists of or comprises the other right.

This subsection applies in relation to two or more transactions whether they involve an assignment preceding, coinciding with, or subsequent to, an acquisition.

• (8) In the case of a right to acquire shares granted before 3rd May 1966—

• (a) the amount of the gain realised at any time by the exercise, or by the assignment or release, of the right shall not exceed the difference between the market value of those shares at that time and their market value on 3rd May 1966 (and no gain shall be treated as so realised unless the later value exceeds the earlier value), and

• (b) subsection (2) above shall not affect tax chargeable under Case I of Schedule E in respect of the receipt of the right, but the amount, if any, on which tax is so chargeable shall be taken into account under subsection (3)(a) and (b) above in relation to the gain realised by the exercise, or by the assignment or release, of the right as if that amount formed part (in addition to any other amount) of the consideration for the grant of the right.

• (9) For the purposes of this section a right to acquire shares is obtained by a person as a director or employee of a body corporate—

• (a) if it is granted to him by reason of his office or employment as a director or employee of the body corporate who is chargeable to tax in respect of that office or employment under Case I of Schedule E, or

• (b) if the right is assigned to him and was granted by reason of any such office or employment of his to some other person,

and paragraph (a) above shall apply to a right granted by reason of a person's office or employment after he has ceased to hold it if it would apply to a right so granted in the last chargeable period in which he did hold it.

• (10) For the purposes of this section—

• (a) references to the release of a right include references to agreeing to the restriction of the exercise of the right,

• (b) any question whether a person is connected with another shall be determined in accordance with section 533 of this Act,

• (c) " director " and " employee " have the meanings given by section 224(1) of this Act, and

• (d) in so far as the context permits, " shares " includes stock,

and this section shall apply in relation to any securities (as defined in section 237(5) of this Act) issued by a body corporate as it applies to shares in that body corporate.

• (11) Where in any year of assessment a body corporate grants a right in respect of which tax may become chargeable under this section, or allots or transfers any shares in pursuance of such a right, or gives any consideration for the assignment or for the release in whole or in part of such a right, or receives written notice of the assignment of such a right, it shall deliver particulars thereof in writing to the inspector not later than thirty days after the end of that year.

• (12) If a gain chargeable to tax under subsection (1) or subsection (4) of this section is realised by the exercise of a right to acquire shares—

• (a) paragraph 4(1)(a) of Schedule 6 to the Finance Act 1965 (computation of chargeable gains: allowable expenditure) shall apply as if a sum equal to the amount of the gain so chargeable to tax formed part of the consideration given by the person acquiring the shares for their acquisition by him, and

• (b) without prejudice to section 162(5) above (Case VII of Schedule D: acquisition of assets taken into account as receipts for tax purposes), the amount of the gain or loss accruing to that person on the acquisition and disposal of any of the shares shall be computed for the purposes of the said Case VII as if the acquisition of the shares were for a consideration equal to their market value at the time when the right is exercised.

Payments on retirement or removal from office or employment

187

• (1) Subject to the provisions of this section and section 188 below, tax shall be charged under Schedule E in respect of any payment to which this section applies which is made to the holder or past holder of any office or employment, or to his executors or administrators, whether made by the person under whom he holds or held the office or employment or by any other person.

• (2) This section applies to any payment (not otherwise chargeable to tax) which is made, whether in pursuance of any legal obligation or not, either directly or indirectly in consideration or in consequence of, or otherwise in connection with, the termination of the holding of the office or employment 01 any change in its functions or emoluments, including any payment in commutation of annual or periodical payments (whether chargeable to tax or not) which would otherwise have beer made as aforesaid.

• (3) For the purposes of this section and the said section 188. any payment made to the spouse or any relative or dependant of a person who holds or has held an office or employment, or made on behalf of or to the order of that person, shall be treated as made to that person, and any valuable consideration other than money shall be treated as a payment of money equal to the value of that consideration at the date when it is given.

• (4) Any payment which is chargeable to tax by virtue of this section shall be treated as income received on the following date, that is to say—

• (a) in the case of a payment in commutation of annual or other periodical payments, the date on which the commutation is effected, and

• (b) in the case of any other payment, the date of the termination or change in respect of which the payment is made,

and shall be treated as emoluments of the holder or past holder of the office or employment assessable to tax under Schedule E ; and any such payment shall be treated for all the purposes of the Income Tax Acts as earned income.

• (5) In the case of the death of any person who, if he had not died, would have been chargeable to tax in respect of any such payment, the tax which would have been so chargeable shall be assessed and charged upon his executors or administrators and shall be a debt due from and payable out of his estate.

• (6) This section does not apply to any payment made in pursuance of an obligation incurred before 6th April 1960.

• (7) Where any payment chargeable to tax under this section is made to any person in any year of assessment, it shall be the duty of the person by whom it is made to deliver particulars thereof in writing to the inspector not later than thirty days after the end of that year.

Exemptions and reliefs in respect of tax under s. 187

188

• (1) Tax shall not be charged by virtue of section 187 above in respect of the following payments, that is to say—

• (a) any payment made in connection with the termination of the holding of an office or employment by the death of the holder, or made on account of injury to or disability of the holder of an office or employment,

• (b) any sum chargeable to surtax under section 34 of this Act (consideration for certain restrictive covenants),

• (c) a benefit provided in pursuance of any such scheme or agreement as is referred to in section 220 of this Act (retirement benefits etc. for directors and employees of bodies corporate), where the holder of the office or employment was chargeable to tax in respect of sums paid, or treated as paid, with a view to the provision of the benefit,

• (d) a benefit paid in pursuance of any such scheme or fund as is described in subsections (1) and (2) of section 221 of this Act (exemptions from charge to tax under the said section 220),

• (e) any terminal grant, gratuity or other lump sum paid under any Royal Warrant, Queen's Order, or Order in Council relating to members of Her Majesty's forces, and any payment made in commutation of annual or other periodical payments authorised by any such Warrant or Order,

• (f) a payment of benefit under any superannuation scheme administered by the government of an overseas territory within the Commonwealth, or of compensation for loss of career, interruption of service or disturbance made in connection with any change in the constitution of any such overseas territory to persons who, before the change, were employed in the public services of that territory,

and references in paragraph (f) above to an overseas territory, to the government of such a territory, and to employment in the public services of such a territory shall be construed as if they occurred in the Overseas Service Act 1958, and subsections (2) and (3) of section 7 of that Act (which relate to the construction of such references) shall apply accordingly.

• (2) Tax shall not be charged by virtue of section 187 above in respect of a payment in the case of which any of the following conditions is satisfied, that is to say—

• (a) in any case, that on the relevant date the holder of the office or employment was domiciled elsewhere than in the United Kingdom, and that immediately before that date he held the office or employment under or with any person, body of persons or partnership then resident outside, and not resident in, the United Kingdom, or

• (b) in the case of a payment of compensation for loss of office—

• (i) that the holder of the office or employment held it under a contract which did not require him to perform any of the duties of the office or employment in the United Kingdom, or

• (ii) there being no express requirement in the contract as to the place of performance of those duties, that he did not perform any of them in the United Kingdom during the three years immediately preceding the relevant date, or

• (c) in the case of a payment in respect of an office or employment in which the holder's service included foreign service, not being a payment of compensation for loss of office, that the foreign service comprised either—

• (i) in any case, three-quarters of the whole period of service down to the relevant date, or

• (ii) where the period of service down to the relevant date exceeded ten years, the whole of the last ten years, or

• (iii) where the period of service down to the relevant date exceeded twenty years, one-half of that period, including any ten of the last twenty years ;

and where an office or employment was in substance one the duties of which fell in any year to be performed outside the United Kingdom, there shall, for the purposes of paragraph (b) above, be treated as so performed any duties performed in the United Kingdom the performance of which was merely incidental to the performance of the other duties outside the United Kingdom.

• (3) Tax shall not be charged by virtue of section 187 above in respect of a payment of an amount not exceeding £5,000, and in the case of a payment which exceeds that amount shall be charged only in respect of the excess:

Provided that, where two or more payments in respect of which tax is chargeable by virtue of that section, or would be so chargeable apart from the preceding provisions of this subsection, are made to or in respect of the same person in respect of the same office or employment, or in respect of different offices or employments held under the same employer or under associated employers, this subsection shall apply as if those payments were a single payment of an amount equal to that aggregate amount; and the amount of any one payment chargeable to tax shall be ascertained as follows, that is to say—

• (a) where the payments are treated as income of different chargeable periods, the said sum of £5,000 shall be deducted from a payment treated as income of an earlier period before any payment treated as income of a later period, and

• (b) subject as aforesaid, the said sum shall be deducted rateably from the payments according to their respective amounts.

• (4) The person chargeable to tax by virtue of section 187 above in respect of any payment may make a claim for such relief in respect of the payment as is applicable thereto under Schedule 8 to this Act.

• (5) For the purposes of this section and the said Schedule 8 offices or employments in respect of which payments to which section 187 above applies are made shall be treated as held under associated employers if, on the date which is the relevant date in relation to any of those payments, one of those employers is under the control of the other or of a third person who controls or is under the control of the other on that or any other such date (" control" here having the meaning given by section 534 of this Act).

• (6) In this section " the relevant date ", " payment of compensation for loss of office " and " foreign service " have the same meaning as in the said Schedule 8, and references to an employer or to a person controlling or controlled by an employer include references to his successors.

Reliefs

Relief for necessary expenses

189

• (1) If the holder of an office or employment is necessarily obliged to incur and defray out of the emoluments thereof the expenses of travelling in the performance of the duties of the office or employment, or of keeping and maintaining a horse to enable him to perform the same, or otherwise to expend money wholly, exclusively and necessarily in the performance of the said duties, there may be deducted from the emoluments to be assessed the expenses so necessarily incurred and defrayed.

• (2) Subject to subsection (3) below, where the emoluments for any duties do not fall within Case I or II of Schedule E, then in relation to those or any other emoluments of the office or employment, subsection (1) above and Chapter II of Part I of the Capital Allowances Act 1968 (capital allowances in respect of machinery and plant) shall apply as if the performance of those duties did not belong to that office or employment.

• (3) There may be deducted from any emoluments chargeable under Case III of Schedule E the amount of any expenses defrayed out of those emoluments, and of any other expenses defrayed in the United Kingdom in the chargeable period or in an earlier chargeable period in which the holder of the office or employment has been resident in the United Kingdom, being in either case expenses for which a deduction might have been made under subsection (1) above from emoluments of the office or employment if they had been chargeable under Case I of Schedule E for the chargeable period in which the expenses were incurred ; but a deduction shall not be made twice, whether under this subsection or otherwise, in respect of the same expenses from emoluments of the office or employment.

Interest on loans to purchase machinery or plant

190

• (1) Subject to the provisions of this section, where the holder of an office or employment—

• (a) is under Chapter II of Part I of the Capital Allowances Act 1968 entitled to a capital allowance, or liable to a balancing charge, for any year of assessment in respect of machinery or plant belonging to him and in use for the purposes of the office or employment, and

• (b) pays interest in that year on a loan to defray money applied as capital expenditure on the provision of that machinery or plant,

there may be deducted from the emoluments to be assessed for that year the amount of the interest so paid.

• (2) No relief shall be given under this section in respect of interest falling due and payable more than three years after the end of the year of assessment in which the debt was incurred, or in respect of interest at more than a reasonable commercial rate.

• (3) Where the machinery or plant is in use partly for the purposes of the office or employment and partly for other purposes, section 28 of the Capital Allowances Act 1968 (part-time use) shall apply in relation to relief under this section as it applies in relation to writing-down allowances.

• (4) Where credit is given for any money payable to defray any capital expenditure, that shall be treated for the purposes of this section as the making of a loan to defray that capital expenditure.

• (5) Section 63 of this Act (overdrafts) shall have effect as if this section were included in sections 57 to 61 of this Act.

Expenses necessarily incurred, and defrayed from official emoluments

191

Where the Minister for the Civil Service is satisfied with respect to any class of persons in receipt of any salary, fees or emoluments payable out of the public revenue that such persons are obliged to lay out and expend money wholly, exclusively and necessarily in the performance of the duties in respect of which such salary, fees or emoluments are payable, the Minister for the Civil Service may fix such sum as in his opinion represents a fair equivalent of the average annual amount laid out and expended as aforesaid by persons of that class, and in charging income tax on the said salary, fees or emoluments there shall be deducted from the amount thereof the sums so fixed by the Minister for the Civil Service:

Fees and subscriptions to professional bodies, learned societies etc.

192

• (1) Subject to the following provisions of this section, the following may be deducted from the emoluments of any office or employment to be assessed to tax, if defrayed out of those emoluments, that is to say—

• (a) any fee or contribution mentioned in subsection (2) below, and

• (b) any annual subscription paid to a body of persons approved for the purposes of this section by the Board.

• (2) The fees and contributions referred to in subsection (1)(a) above are—

• (a) the fee payable in respect of the retention of a name in the Register of Architects,

• (b) the fee payable in respect of the retention of a name in the dentists register or in a roll or record kept for a class of ancillary dental workers,

• (c) the fee payable in respect of the retention of a name in either of the registers of ophthalmic opticians or in the register of dispensing opticians,

• (d) the annual fee payable by a registered patent agent,

• (e) the fee payable in respect of the retention of a name in the register of pharmaceutical chemists,

• (f) the fee and contribution to the Compensation Fund or Guarantee Fund payable on the issue of a solicitor's practising certificate, and

• (g) the annual fee payable by a registered veterinary surgeon or by a person registered in the Supplementary Veterinary Register.

• (3) The Board may, on the application of the body, approve for the purposes of this section any body of persons not of a mainly local character whose activities are carried on otherwise than for profit and are solely or mainly directed to all or any of the following objects—

• (a) the advancement or spreading of knowledge (whether generally or among persons belonging to the same or similar professions or occupying the same or similar positions),

• (b) the maintenance or improvement of standards of conduct and competence among the members of any profession,

• (c) the indemnification or protection of members of any profession against claims in respect of liabilities incurred by them in the exercise of their profession.

• (4) If the activities of a body approved for the purposes of this section are to a significant extent directed to objects other than those mentioned in subsection (3) above, the Board may determine that such specified part only of any annual subscription paid to the body may be deducted under this section as corresponds to the extent to which its activities are directed to objects mentioned in that subsection ; and in doing so the Board shall have regard to all relevant circumstances and, in particular, to the proportions of the body's expenditure attributable to the furtherance of objects so mentioned and other objects respectively.

• (5) A fee, contribution or subscription shall not be deducted under this section from the emoluments of any office or employment unless—

• (a) the fee is payable in respect of a registration (or retention of a name in a roll or record) or certificate which is a condition, or one of alternative conditions, of the performance of the duties of the office or employment or, as the case may be, the contribution is payable on the issue of such a certificate, or

• (b) the subscription is paid to a body the activities of which, so far as they are directed to the objects mentioned in subsection (3) above, are relevant to the office or employment, that is to say, the performance of the duties of the office or employment is directly affected by the knowledge concerned or involves the exercise of the profession concerned.

• (6) Any approval given and any determination made under this section may be withdrawn, and any such determination varied, so as to take account of any change of circumstances; and where a body is approved for the purposes of this section in pursuance of an application made before the end of any year of assessment, a deduction may be made under this section in respect of a subscription paid to the body in that year, whether the approval is given before or after the end of the year.

• (7) Any body aggrieved by the failure of the Board to approve the body for the purposes of this section, or by their withdrawal of the approval, or by any determination made by them under this section or the variation of or refusal to withdraw or vary such a determination may, by notice in writing given to the Board within thirty days from the date on which the body is notified of their decision, require the matter to be determined by the Special Commissioners, and the Special Commissioners shall thereupon hear and determine the matter in like manner as an appeal.

Travelling expenses due to war of 1939

193

If it is shown in the case of a person assessed to income tax under Schedule E in respect of any office or employment—

• (a) that his place of work or his residence has changed through circumstances connected with the war which began in the year 1939, and

• (b) that in consequence he is obliged to incur, and defray out of the salary, fees, wages, perquisites or profits or gains arising from the office or employment, additional expense in travelling between his residence and his work,

the additional expense so incurred and defrayed shall be allowed as a deduction from the salary, fees, wages, perquisites or profits or gains of the office or employment in computing the amount of the assessment, so, however, that not more than £10 shall be allowed in the case of any person in any year.

Expenditure and houses of ministers of religion

194

• (1) For the purposes of section 185 of this Act, any premises an interest in which belongs to a charity or any ecclesiastical corporation, and in which (in right of that interest)—

• (a) the persons from time to time holding any full-time office as clergyman or minister of any religious denomination, or

• (b) any particular person holding such an office,

have or has a residence from which to perform the duties of the office, shall be treated as occupied otherwise than by the holder of the office, whether apart from this section they would be so treated for those purposes or not.

• (2) Where a clergyman or minister of any religious denomination has such a residence as aforesaid in any premises, and has it in right of such an interest as aforesaid, then, for the purposes of income tax with which he may be chargeable under Schedule E, there shall be disregarded—

• (a) the making good to him, in consequence of his being the holder of his office, of statutory amounts payable in connection with the premises or statutory deductions falling to be made in connection therewith, except in so far as an amount or deduction is properly attributable to a part of the premises in respect of which he receives rent,

• (b) the payment on his behalf, except as aforesaid, of such a statutory amount, and

• (c) the value to him of any expenses incurred in connection with the provision in the premises of living accommodation for him, being expenses incurred in consequence of his being the holder of his office.

• (3) In assessing the income tax chargeable (whether under Schedule E or any other Schedule) upon a clergyman or minister of any religious denomination, the following deductions may be made from any profits, fees, or emoluments of his profession or vocation—

• (a) any sums of money paid or expenses incurred by him wholly, exclusively and necessarily in the performance of his duty as a clergyman or minister,

• (b) such part of the rent (not exceeding one-quarter) as the inspector by whom the assessment is made may allow, paid by him in respect of a dwelling-house any part of which is used mainly and substantially for the purposes of his duty as such clergyman or minister, and

• (c) in respect of expenses borne by him in the maintenance, repairs, insurance or management of any premises in which, in right of such an interest as is mentioned in subsection (1) above, he has such a residence as is therein mentioned, such part of the expenses as, together with any deduction allowable in respect of such expenses under paragraph (a) above, is equal to one-quarter of the amount of the expenses.

On an appeal to the General Commissioners or the Special Commissioners, the Commissioners shall have jurisdiction to review the inspector's decision under paragraph (b) above.

• (4) In this section, "statutory amount" and " statutory deduction" mean an amount paid and a deduction made in pursuance of any provision contained in or having the force of an Act.

CHAPTER II — Expenses Allowances to Directors and Others

Expenses allowances, etc.

195

• (1) Subject to the provisions of this Chapter, any sum paid in respect of expenses by a body corporate to any of its directors, or to any person employed by it in an employment to which this Chapter applies, shall, if not otherwise chargeable to tax as income of that director or employee, be treated for the purposes of section 183 above as a perquisite of the office or employment of that director or employee and included in the emoluments thereof assessable to tax accordingly:

Provided that nothing in this subsection shall prevent a claim for a deduction being made under section 189 above in respect of any money expended wholly, exclusively and necessarily in performing the duties of the office or employment, or under section 192 above in respect of any such fee, contribution or subscription as is mentioned in that section.

• (2) In this section, and, in relation to any director or person employed in an employment to which this Chapter applies, in so much of section 15 of the Taxes Management Act 1970 as requires employers in certain cases to give particulars of payments to directors and employees in respect of expenses, any reference to a sum paid in respect of expenses includes a reference to any sum put by a body corporate at the disposal of a director or employee and paid away by him.

Benefits in kind to be taken into account

196

• (1) Subject to the following provisions of this Chapter, where a body corporate incurs expense in or in connection with the provision, for any of its directors or for any person employed by it in an employment to which this Chapter applies, of living or other accommodation, of entertainment, of domestic or other services or of other benefits or facilities of whatsoever nature, and, apart from this section, the expense would not be chargeable to tax as income of the director or employee, section 195 above, and section 15 of the Taxes Management Act 1970, shall have effect in relation to so much of the said expense as is not made good to the body corporate by the director or employee as if the expense had been incurred by the director or employee and the amount thereof had been refunded to him by the body corporate by means of a payment in respect of expenses:

Provided that, where in the case of any premises any amount falls under section 185(1) of this Act to be treated as a person's emoluments, then, if this subsection applies to expense incurred in the provision of accommodation for him in the premises, the expense shall be treated for the purposes of this section as reduced by that amount (or, if that amount is greater than the expense, shall be treated as not having been incurred).

• (2) The provisions of subsection (1) above shall not apply to expense incurred by the body corporate in or in connection with the provision for a director or employee, in any of its business premises, of any accommodation, supplies or services provided for the director or employee himself and used by him solely in performing the duties of his office or employment.

• (3) The provisions of subsection (1) above shall not apply to expense incurred by the body corporate in or in connection with the provision of living accommodation for an employee in part of any of its business premises which include living accommodation if the employee is, for the purpose of enabling him properly to perform his duties, required by the terms of his employment to reside in the accommodation and either—

• (a) the accommodation is provided in accordance with a practice which since before 30th July 1928 has commonly prevailed in trades of the class in question as respects employees of the class in question, or

• (b) it is necessary, in the case of trades of the class in question, that employees of the class in question should reside on premises of the class in question:

Provided that this subsection shall not apply where the employee is a director of the body corporate in question or of any other body corporate over which that body corporate has control or which has control over that body corporate or which is under the control of a person who also has control over that body corporate.

• (4) The provisions of subsection (1) above shall not apply to expense incurred by the body corporate in or in connection with the provision of meals in any canteen in which meals are provided for the staff generally.

• (5) The provisions of subsection (1) above shall not apply to expense incurred by the body corporate in or in connection with the provision for a director or employee himself, or for his spouse, children or dependants, of any pension, annuity, lump sum, gratuity or other like benefit to be given on his death or retirement.

• (6) Any reference in this section to expense incurred in or in connection with any matter includes a reference to a proper proportion of any expense incurred partly in or in connection with that matter.

Valuation of benefits in kind

197

• (1) Any expense incurred by a body corporate in the acquisition or production of an asset which remains its own property shall be left out of account for the purposes of section 196 above.

• (2) Where the making of any such provision as is mentioned in subsection (1) of the said section 196 takes the form of a transfer of the property in any asset of the body corporate, and, since the acquisition or production thereof by the body corporate, the asset has been used or has depreciated, the body corporate shall be deemed to have incurred in the making of the said provision expense equal to the value of the asset at the time of the transfer.