Legalize / United Kingdom / Public General Act

Income Tax (Trading and Other Income) Act 2005

Type Public General Act

Publication 2005-03-24

State In force

Department Statute Law Database

Source legislation.gov.uk

Reform history JSON API

Part 1 — Overview

Counselling and other outplacement services

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(1) This Act imposes charges to income tax under—

(a) Part 2 (trading income),

(b) Part 3 (property income),

(d) Part 5 (certain miscellaneous income).

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) Exemptions from those charges are dealt with in Part 6 (exempt income) but any Part 6 exemptions which are most obviously relevant to particular types of income are also mentioned in the provisions about those types of income.

(4) What is or is not mentioned in those provisions does not limit the effect of Part 6.

(5) This Act also contains—

(za) provision about a trading allowance and property allowance (see Part 6A),

(a) provision about rent-a-room relief and qualifying care relief (see Part 7),

(b) special rules for foreign income (see Part 8),

(d) certain calculation rules and general provisions (see Part 10).

(6) For abbreviations and defined expressions used in this Act, see section 885 and Schedule 4.

Contents of Chapter

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(1) This Act contains some rules establishing an order of priority in respect of certain amounts which would otherwise—

(a) fall within a charge to income tax under two or more Chapters or Parts of this Act, or

(b) fall within a charge to income tax under a Chapter or Part of this Act and ITEPA 2003.

(2) See, in particular—

section 4 (provisions which must be given priority over Part 2),

section 261 (provisions which must be given priority over Part 3),

section 262 (priority between Chapters within Part 3),

section 366 (provisions which must be given priority over Part 4),

section 367 (priority between Chapters within Part 4),

section 575 (provisions which must be given priority over Part 5), and

section 576 (priority between Chapters within Part 5).

(3) But the rules in those sections need to be read with other rules of law (whether in this Act or otherwise) about the scope of particular provisions or the order of priority to be given to them.

(4) Section 171(2) of FA 1993 (profits of Lloyd's underwriters charged only under Chapter 2 of Part 2 of this Act) and sections 16A (voluntary office-holders: compensation for lost profits), 16B (payments to company directors) and 16C (professionals in practice: incidental income from an office or employment) of this Act are each an example of another rule of law.

Part 2 — Trading income

Chapter 1 — Introduction

Relief for policies and contracts with European Economic Area insurers

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(1) This Part imposes charges to income tax under—

(a) Chapter 2 (the profits of a trade, profession or vocation which meet the territorial conditions mentioned in section 6),

(b) Chapter 17 (amounts treated as adjustment income under section 228), and

(2) Part 6 deals with exemptions from the charges under this Part.

(3) See, in particular, the exemptions under sections 777 (VAT repayment supplements) and 778 (incentives to use electronic communications).

(4) The charges under this Part apply to non-UK residents as well as UK residents but this is subject to sections 6(1A), (2) and (3) and 243(3) and (4) (charges on non-UK residents only on UK income).

(5) The rest of this Part contains rules relevant to the charges to tax under this Part.

(6) This section needs to be read with the relevant priority rules (see sections 2 and 4).

Exempt sum: term dependent solely on duration of life

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(1) Any receipt or other credit item, so far as it falls within—

(a) Chapter 2 of this Part (receipts of trade, profession or vocation), and

(b) Chapter 3 of Part 3 so far as it relates to a UK property business,

is dealt with under Part 3.

(2) Any receipt or other credit item, so far as it falls within—

(a) this Part, and

(b) Part 2, 9 or 10 of ITEPA 2003 (employment income, pension income or social security income),

is dealt with under the relevant Part of ITEPA 2003.

Chapter 2 — Income taxed as trade profits

Charge to tax on trade profits

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Income tax is charged on the profits of a trade, profession or vocation.

Territorial scope of charge to tax

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(1) Profits of a trade arising to a UK resident are chargeable to tax under this Chapter wherever the trade is carried on.

(1A) Profits of a trade of dealing in or developing UK land arising to a non-UK resident are chargeable to tax under this Chapter wherever the trade is carried on.

(2) Profits of a trade other than a trade of dealing in or developing UK land arising to a non-UK resident are chargeable to tax under this Chapter only if they arise—

(a) from a trade carried on wholly in the United Kingdom, or

(b) in the case of a trade carried on partly in the United Kingdom and partly elsewhere, from the part of the trade carried on in the United Kingdom.

(2A) If the tax year is a split year as respects a UK resident individual, this section has effect as if, for the overseas part of that year, the individual were non-UK resident.

(3) This section applies to professions and vocations as it applies to trades.

Income charged

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(1) Tax is charged under this Chapter on the full amount of the profits of the tax year (including amounts treated as profits of the tax year under section 23E(1)).

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) This section is subject to Part 8 (foreign income: special rules).

(5) And, for the purposes of section 830 (meaning of “relevant foreign income”), the profits of a trade, profession or vocation arise from a source outside the United Kingdom only if the trade, profession or vocation is carried on wholly outside the United Kingdom.

Person liable

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The person liable for any tax charged under this Chapter is the person receiving or entitled to the profits.

Trades and trade profits

Farming and market gardening

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(1) Farming or market gardening in the United Kingdom is treated for income tax purposes as the carrying on of a trade or part of a trade (whether or not the land is managed on a commercial basis and with a view to the realisation of profits).

(2) All farming in the United Kingdom carried on by a person, other than farming carried on as part of another trade, is treated for income tax purposes as one trade.

(3) In the case of farming carried on by a firm, this rule is explained by section 859(1).

Commercial occupation of land other than woodlands

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(1) The commercial occupation of land in the United Kingdom is treated for income tax purposes as the carrying on of a trade or part of a trade.

(2) For this purpose the occupation of land is commercial if the land is managed—

(a) on a commercial basis, and

(b) with a view to the realisation of profits.

(3) This section does not apply—

(a) to farming or market gardening (which is dealt with by section 9),

(b) if the land is being prepared for forestry purposes, or

Commercial occupation of woodlands

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(1) The commercial occupation of woodlands in the United Kingdom is not a trade or part of a trade for any income tax purpose.

(2) For this purpose the occupation of woodlands is commercial if the woodlands are managed—

(a) on a commercial basis, and

(b) with a view to the realisation of profits.

(3) See also sections 267 and 768 (which, when read with this section, secure that profits or losses from the commercial occupation of woodlands in the United Kingdom are ignored for income tax purposes).

Profits of mines, quarries and other concerns

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(1) Profits or losses arising out of land in the case of a concern to which this section applies are calculated as if the concern were a trade.

(2) Any profits arising out of the land are charged to income tax as if the concern were a trade carried on in the United Kingdom.

But this does not impose a charge to tax on a non-UK resident in the case of a concern outside the United Kingdom.

(3) Any losses arising out of the land are treated for the purposes of Part 4 of ITA 2007(loss relief) as losses of a trade carried on in the United Kingdom.

(4) The concerns to which this section applies are—

(a) mines and quarries (including gravel pits, sand pits and brickfields),

(b) ironworks, gasworks, salt springs or works, alum mines or works, waterworks and streams of water,

(d) rights of fishing,

(e) rights of markets and fairs, tolls, bridges and ferries,

(f) railways and other kinds of way, and

(g) a concern of the same kind as one specified in paragraph (b), (c), (d) or (e).

(5) This section does not apply to a concern if section 10 (commercial occupation of land other than woodlands) applies to the occupation of the land out of which the profits or losses arise.

Visiting performers

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(1) This section applies if an entertainer, sportsman or sportswoman of a prescribed description (a “performer”)—

(a) is non-UK resident in a tax year, and

(b) performs a relevant activity in the United Kingdom in the tax year.

(2) If a payment or transfer connected with the relevant activity is made, the performer is treated for income tax purposes as performing the relevant activity in the course of a trade, profession or vocation carried on in the United Kingdom.

(3) It does not matter whether the payment or transfer is made to the performer or anyone else.

(4) Subsection (2) does not apply—

(a) so far as the performer would otherwise be performing the relevant activity in the course of a trade, profession or vocation carried on in the United Kingdom, or

(b) if the relevant activity is performed in the course of an employment or office.

(5) If a payment or transfer connected with the relevant activity is made to —

(a) a person other than the performer, and

(b) that person is of a prescribed description,

the payment or transfer is treated for income tax purposes as made instead to the performer in the course of a trade, profession or vocation carried on in the United Kingdom.

(6) Subsection (5) does not apply in such circumstances as may be prescribed.

(7) If—

(a) income tax is chargeable on profits arising from payments or transfers (made to any person), and

(b) the payments or transfers are connected with the relevant activity,

the tax is charged as if the payments or transfers were received in the course of a separate trade, profession or vocation (distinct from any other trade, profession or vocation carried on by the performer).

(8) In this section and section 14—

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

“prescribed” means prescribed by regulations,

“regulations” means regulations made by the Treasury,

“relevant activity” means an activity of a prescribed description, and

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

and a payment or transfer is connected with a relevant activity if it has a connection of the prescribed kind with that activity.

(9) In this section and section 14—

(a) references to a payment include references to a payment by way of loan of money, and

(b) references to a transfer do not include references to a transfer of money but, subject to that, include references to—

(i) a temporary transfer (as by way of loan), and

(ii) a transfer of a right (whether or not a right to receive money).

(10) This section does not apply to payments or transfers of a kind prescribed in regulations under section 966(6) of ITA 2007.

Visiting performers: supplementary

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(1) Regulations may provide—

(a) for the deduction, in calculating any profits of the performer arising from the payment or transfer, of expenses incurred by other persons in relation to the payment or transfer,

(b) that any liability to income tax (whether of the performer or anyone else) which would, apart from section 13(5), arise in relation to the payment or transfer is not to arise (or is to arise so far as prescribed).

(2) Regulations may provide—

(a) for the apportionment of profits between different trades, professions or vocations of the performer,

(b) for the apportionment between different tax years of the profits arising from relevant activities of the performer,

(c) for losses made in any trade, profession or vocation of the performer to be deducted from or set off against the profits of another trade, profession or vocation of the performer,

(d) that prescribed provisions of the Income Tax Acts about losses, or about expenses, are not to apply (or are to apply with prescribed modifications) in prescribed circumstances relating to the performer.

(3) References in this section to a trade, profession or vocation of the performer include references to the separate one referred to in section 13(7) as well as to any other carried on by the performer.

(4) Regulations may—

(a) make provision generally for giving effect to section 13, and

(b) make different provision for different cases or descriptions of cases.

Divers and diving supervisors

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(1) This section applies if—

(a) a person performs the duties of employment as a diver or diving supervisor in the United Kingdom or in any area designated by Order in Council under section 1(7) of the Continental Shelf Act 1964 (c. 29),

(b) the duties consist wholly or mainly of seabed diving activities, and

(2) The performance of the duties of employment is instead treated for income tax purposes as the carrying on of a trade in the United Kingdom.

(3) For the purposes of this section the following are seabed diving activities—

(a) taking part as a diver in diving operations concerned with the exploration or exploitation of the seabed, its subsoil and their natural resources, and

(b) acting as a diving supervisor in relation to any such diving operations.

Oil extraction and related activities

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(1) If a person carries on any oil-related activities as part of a trade, those activities are treated for income tax purposes as a separate trade, distinct from all other activities carried on by the person as part of the trade.

(2) For this purpose the following are oil-related activities—

(a) oil extraction activities, and

(b) any activities consisting of the acquisition, enjoyment or exploitation of oil rights.

(3) “Oil extraction activities” and “oil rights” have the meaning given by sections 225A and 225B.

Starting and ceasing to trade

Effect of becoming or ceasing to be a UK resident

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(1) This section applies if—

(a) an individual carries on a trade (alone or in partnership), and

(b) there is a change of residence.

(1A) For the purposes of this section there is a “change of residence” if—

(a) the individual becomes or ceases to be UK resident, or

(b) a tax year is, as respects the individual, a split year.

(1B) The change of residence occurs—

(a) in a case falling within subsection (1A)(a), at the start of the tax year for which the individual becomes or ceases to be UK resident, and

(b) in a case falling within subsection (1A)(b), at the start of whichever of the UK part or the overseas part of the tax year is the later part.

(2) If this section applies and the individual does not actually cease permanently to carry on the trade immediately before the change of residence occurs, the individual is treated for income tax purposes—

(a) as permanently ceasing to carry on the trade at the time of the change of residence, and

(b) so far as the individual continues to carry on the trade, as starting to carry on a new trade immediately afterwards.

(3) But subsection (2) does not prevent a loss made before the change of residence from being deducted under section 83 of ITA 2007 from profits arising after the change.

(4) This section applies to professions and vocations as it applies to trades.

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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(1) This section applies if a company starts or ceases to be within the charge to income tax under this Chapter in respect of a trade.

(2) The company is treated for the purposes of this Part—

(a) as starting to carry on the trade when it starts to be within the charge, or

(b) as permanently ceasing to carry on the trade when it ceases to be within the charge.

Trading income and property income

Tied premises

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(1) This section applies if —

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