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Income Tax (Trading and Other Income) Act 2005

Type Public General Act

Publication 2005-03-24

Last updated 2026-01-20

State In force

Department Statute Law Database

Source legislation.gov.uk

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(d) an election by the individual has effect to apply the alternative method of calculating profits for the tax year (see sections 818 and 819).

Alternative calculation of profits: trading income

816

(1) This section applies if the individual's qualifying care receipts for the tax year are the receipts of a trade.

(2) The profits of the trade for the tax year are—

(a) the individual's total qualifying care receipts for the tax year, less

(b) the individual's limit for the tax year.

Alternative calculation of profits: income chargeable under Chapter 8 of Part 5

817

(1) This section applies if the individual has qualifying care receipts for the tax year which are chargeable to income tax under Chapter 8 of Part 5 (income not otherwise charged).

(2) The amount charged for the tax year arising from all the arrangements from which the receipts are derived is—

(a) the individual's total qualifying care receipts for the tax year, less

(b) the individual's limit for the year.

Election for alternative methodof calculating profits

818

(1) An individual may elect for the alternative method of calculating profits given in sections 816 and 817 to apply if—

(a) the individual qualifies for qualifying care relief for a tax year,

(b) the individual's total qualifying care receipts for the tax year exceed the individual's limit for the tax year, and

(2) An election under this section—

(a) must specify the tax year for which it is made, and

(b) has effect for that year (unless withdrawn by notice given by the individual).

(3) An election or notice of withdrawal under this section must be made or given to the Inland Revenue on or before—

(a) the first anniversary of the normal self-assessment filing date for the tax year for which the election is made, or

(b) such later date as the Inland Revenue may, in a particular case, allow.

Adjustment of assessment

819

(1) This section applies if—

(a) an individual does not make an election under section 818 for a tax year on or before the date for making the election, and

(b) an adjustment is made after that date to the profits from the individual's provision of qualifying care on which the individual is liable to tax for the tax year.

(2) The individual may make an election under this section to apply the alternative method of calculating profits given in sections 816 and 817 for the tax year.

(3) The election—

(a) must specify that tax year, and

(b) has effect for that tax year (unless withdrawn by notice given by the individual).

(4) An election or notice of withdrawal under this section must be made or given to the Inland Revenue on or before—

(a) the first anniversary of the normal self-assessment filing date for the tax year in which the adjustment is made, or

(b) such later date as the Inland Revenue may, in a particular case, allow.

Periods of account not ending on 5th April

820

(1) Sections 822 and 823 (which deal with the period of account of a trade not ending on 5th April) apply if—

(a) an individual qualifies for qualifying care relief for a tax year,

(b) the individual's qualifying care receipts for the tax year are the receipts of a trade, and

(2) Where the profits of the trade are required under section 24A to be calculated on the cash basis, any reference in this section or sections 821 to 823 to the period of account in which receipts accrue is to be read as a reference to the period of account in which receipts are received.

Meaning of “relevant limit”

821

(1) For the purposes of sections 822 and 823 the “relevant limit” for a period of account in which the individual's qualifying care receipts accrue is found by adding—

(a) the fixed amount for the tax year in which that period ends or (as the case may be) the individual's share of the fixed amount for that year (found in accordance with sections 808 to 810), and

(b) for each of the tax years in which the period of account falls, each amount per adult or child for the individual for each part of the period of account falling in that tax year.

(2) For this purpose an individual's amount per adult or child for a part of the period of account is each amount that would be the individual's amount per adult or child under section 811 for the tax year in which the part falls if that part were the income period for that year.

Full relief

822

(1) This section applies if the individual's total qualifying care receipts for the period of account do not exceed the individual's relevant limit for the period.

(2) The profits or losses of the trade for the tax year are treated as nil.

Alternative method of calculating profits

823

(1) This section applies if—

(a) the individual's total qualifying care receipts for the period of account exceed the individual's relevant limit for the period, and

(b) the individual makes an election under this section.

(2) The profits of the trade for the tax year are—

(a) the individual's total qualifying care receipts for the period of account, less

(b) the individual's relevant limit for the period.

(3) Sections 818(2) and (3) and 819 (adjustment of assessment) apply for the purposes of an election under this section as they apply for the purposes of an election under those sections.

Capital allowances for foster carers carrying on trade

Capital allowances: introduction

824

(1) In this group of sections (that is, this section and sections 825 to 827) an individual is a “relevant individual” if in a tax year—

(a) the full qualifying care relief in section 813 or 822 (trading income), or

(b) the alternative method of calculating profits under section 816 or 823 (trading income),

applies to the individual for the tax year.

(2) In this group of sections a period is a “relevant chargeable period” of a relevant individual if—

(a) it is a chargeable period of the individual, and

(b) it corresponds to the income period for the individual's qualifying care receipts in the tax year for which the individual is a relevant individual.

(2A) In this group of sections, in relation to a relevant individual—

(a) “the care business” means the provision of qualifying care by the individual,

(b) “care business expenditure” means qualifying expenditure incurred on the provision of plant or machinery wholly or partly for the care business,

(c) “care business pool” means a pool of care business expenditure (even if the balance for the time being is nil), and

(d) a reference to “another activity” is to a qualifying activity carried on by the individual other than the care business.

(2B) In this group of sections, plant or machinery is referred to as being “in” a pool if qualifying expenditure incurred on its provision has been allocated at any time to that pool.

(3) Expressions—

(a) which are used in CAA 2001 and in this group of sections, but

(b) which are not otherwise defined in this Chapter,

have the same meaning in this group of sections as in CAA 2001.

Carried forward unrelieved qualifying expenditure

825

(1) This section applies if—

(a) at the beginning of a relevant chargeable period of a relevant individual, there is care business expenditure which has not been allocated to a care business pool,

(b) the individual is entitled under CAA 2001 to allocate the expenditure, or a part of it, to a care business pool for that period, and

(2) So much of the expenditure as the individual is entitled to allocate to a care business pool for that period is to be treated for the purposes of CAA 2001 as allocated to the appropriate kind of care business pool for that period (whether or not any of it is actually so allocated).

(3) For the different kinds of pool, see section 54 of CAA 2001.

Excluded capital expenditure

826

Capital expenditure (“excluded capital expenditure”) does not constitute qualifying expenditure for the purposes of CAA 2001 if it is—

(a) incurred by a relevant individual in a relevant chargeable period, and

(b) incurred on the provision of plant or machinery wholly or partly for the provision of qualifying care by the individual.

Excluded capital expenditure: subsequent treatment of asset

827

If a relevant individual incurs excluded capital expenditure in a relevant chargeable period, section 13 of CAA 2001 applies as if, on the first day of the first subsequent chargeable period which is not a relevant chargeable period—

(a) the individual brings into use for the provision of qualifying care such of the plant or machinery on which the expenditure was incurred as the individual still owns on that day, and

(b) the individual owns the plant or machinery as a result of incurring capital expenditure on its provision for other purposes.

Overlap profit

828

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

Part 8 — Foreign income: special rules

Chapter 1 — Introduction

Overview of Part 8

829

This Part provides for—

(a) the charging of relevant foreign income of a person to whom section 809B, 809D or 809E of ITA 2007 applies (remittance basis),

(b) certain deductions in calculating relevant foreign income where that basis does not apply (see Chapter 3), and

Meaning of “relevant foreign income”

830

(1) In this Act “relevant foreign income” means income which—

(a) arises from a source outside the United Kingdom, and

(b) is chargeable under any of the provisions specified in subsection (2) (or would be so chargeable if section 832 did not apply to it).

(2) The provisions are—

(a) Chapter 2 of Part 2 (trade profits),

(b) Chapter 17 of Part 2 (adjustment income),

(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(e) Chapter 2 of Part 4 (interest),

(f) Chapter 4 of Part 4 (dividends from non-UK resident companies),

(g) Chapter 7 of Part 4 (purchased life annuity payments),

(h) Chapter 8 of Part 4 (profits from deeply discounted securities),

(i) Chapter 13 of Part 4 (sales of foreign dividend coupons),

(j) section 579 (royalties and other income from intellectual property),

(k) Chapter 3 of Part 5 (films and sound recordings: non-trading businesses),

(l) Chapter 4 of Part 5 (certain telecommunication rights: non-trading income),

(m) section 649 (estate income),

(n) Chapter 7 of Part 5 (annual payments not otherwise charged), and

(o) Chapter 8 of Part 5 (income not otherwise charged).

(3) But “relevant foreign income” does not include income chargeable as a result of—

(a) section 844 (unremittable income: income charged on withdrawal of relief after source ceases), or

(b) section 517C or 517E of ITA 2007 (profits on certain disposals concerned with land in the United Kingdom treated as trading profits).

(3A) “Relevant foreign income” does not include income paid in respect of a security, within the meaning of section 138ZB of TCGA 1992, if—

(a) the security is treated, for the purposes of that Act, as situated in the United Kingdom as a result of section 138ZB of that Act, and

(b) that section applies in respect of the security as a result of an issue of shares in or debentures of a company in exchange for, or in respect of, shares in or debentures of another company that is incorporated, and is resident, in the United Kingdom.

(4) For the treatment of other income as relevant foreign income, see—

(a) section 857(3) (a partner's share of a firm's trading income),

(aa) regulation 19 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001),

(b) paragraph 6(3) of Schedule 3 to the Commonwealth Development Corporation Act 1999 (c. 20) (distributions by the Commonwealth Development Corporation),

(d) section 613(4) of that Act (taxable pension income: foreign annuities),

(e) section 631(3) of that Act (pre-1973 pensions paid under the Overseas Pensions Act 1973 (c. 21)),

(f) section 635(4) of that Act (taxable pension income: foreign voluntary annual payments), ...

(g) section 679(2) of that Act (taxable social security income: foreign benefits).

(h) section 670A of ITA 2007 (accrued income profits),...

(i) sections 726, 730 and 735 of that Act (transfer of assets abroad: foreign deemed income) , and

(j) paragraph 46(2) of Schedule 2 to FA 2022 (qualifying asset holding companies).

Chapter 2 — Relevant foreign income charged on remittance basis

Remittance basis

Claims for relevant foreign income to be charged on the remittance basis

831

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Relevant foreign income charged on the remittance basis

832

(1) This section applied to an individual's relevant foreign income for a tax year (“the relevant foreign income”) if section 809B, 809D or 809E of ITA 2007 (remittance basis) applies to the individual for that year (being a tax year before tax year 2025-26).

(2) For any tax year for which the individual is UK resident, income tax is charged on the full amount of so much (if any) of the relevant foreign income as is remitted to the United Kingdom—

(a) in that year, or

(b) in the UK part of that year, if that year is a split year as respects the individual.

(3) Subsection (2) applies whether or not the source of the income exists when the income is remitted.

(4) See Chapter A1 of Part 14 of ITA 2007 for the meaning of “remitted to the United Kingdom” etc.

Income treated as remitted: repayment of UK-linked debts

833

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Arrangements treated as repayment of UK-linked debts

834

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Relief for delayed remittances

835

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

Relief for delayed remittances: backdated pensions

836

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Claims for relief on delayed remittances

837

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Chapter 3 — Relevant foreign income charged on arising basis: deductions and reliefs

Expenses attributable to collection or payment of relevant foreign income

838

(1) In calculating the amount of relevant foreign income to be charged to income tax for a tax year, a deduction is allowed for expenses incurred outside the United Kingdom that are attributable to the collection or payment of the income.

(2) Subsection (1) does not apply to income charged for the tax year in accordance with section 832 (relevant foreign income charged on the remittance basis).

Annual payments payable out of relevant foreign income

839

(1) In calculating the amount of relevant foreign income to be charged to income tax for a tax year, a deduction is to be allowed for an annual payment other than interest if it meets conditions A, B1 or B2 and C .

(2) Condition A is that the payment is payable out of the relevant foreign income.

(3) Condition B1 is that, had the payment arisen in the United Kingdom, it would have been chargeable to income tax under one of the following provisions ...—

section 579 (charge to tax on royalties and other income from intellectual property),

Chapter 4 of Part 5 (certain telecommunication rights: non-trading income), ...

Chapter 7 of Part 5 (annual payments not otherwise charged).

, or regulation 15 of the Unauthorised Unit Trusts (Tax) Regulations 2013.

(3A) Condition B2 is that, had the payment arisen in the United Kingdom it would have been—

(a) required to be brought into account under Part 5 of CTA 2009 (loan relationships) as a non-trading credit, or

(b) chargeable to corporation tax under Chapter 7 of Part 10 of that Act (annual payments not otherwise charged) or regulation 15 of the Unauthorised Unit Trusts (Tax) Regulations 2013 .

(4) Condition C is that the payment is made to a non-UK resident.

(5) Subsection (1) does not apply if—

(a) the relevant foreign income is received in the United Kingdom, or

(b) it is charged for the tax year in accordance with section 832 (relevant foreign income charged on remittance basis).

(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Relief for backdated pensions charged on the arising basis

840

(1) This section applies if—

(a) as a result of section 575(3), 613(4) or 635(4) of ITEPA 2003 a pension or annuity or an increase in a pension or annuity is treated as relevant foreign income,

(b) the pension, annuity or increase is paid in respect of a tax year (“the earlier year”) before the tax year in which the pension, annuity or increase arose, and

(2) If the person liable for the income tax makes a claim for relief under this section for the tax year in which the pension, annuity or increase paid in respect of the earlier year arises, that pension, annuity or increase is treated as income arising in the earlier year from a source that the person possessed in the earlier year.

(3) But subsection (2) does not affect the calculation of the full amount of the income so arising under section 575(2), 613(3) or 635(3) of ITEPA 2003 (under which the full amount of that income is to be calculated on the basis that the pension or annuity is 90% of its actual amount).

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 4 — Unremittable income

Unremittable income: introduction

841

(1) This Chapter applies if—

(a) a person is liable for income tax on income arising in a territory outside the United Kingdom, and

(b) the income is unremittable.

(2) For the purposes of this Chapter, income is unremittable if conditions A and B are met.

(3) Condition A is that the income cannot be transferred to the United Kingdom by the person who is liable for income tax in respect of the income because of—

(a) the laws of the territory where the income arises,

(b) executive action of its government, or

(4) Condition B is that the person who is liable for income tax in respect of the income has not realised it outside that territory for an amount in sterling or in another currency which the person is not prevented from transferring to the United Kingdom.

(5) This Chapter does not apply to accrued income profits which a person is treated as making under Chapter 2 of Part 12 of ITA 2007, but see sections 668 and 669 of that Act (which make similar provision).

Claim for relief for unremittable income

842

(1) If a person liable for income tax on unremittable income makes a claim for relief under this section in respect of that income, it is not taken into account for income tax purposes.

(2) Subsection (1) is subject to section 843.

(3) No claim under this section may be made in respect of any income so far as an ECGD payment has been made in relation to it.

(4) In subsection (3) “ECGD payment” means a payment made by the Export Credit Guarantee Department under an agreement entered into as a result of arrangements made under—

(a) section 2 of the Export and Investment Guarantees Act 1991 (c. 67) (insurance in connection with overseas investment), or

(b) section 11 of the Export Guarantees and Overseas Investment Act 1978 (c. 18).

(5) A claim under this section must be made on or before the first anniversary of the normal self-assessment filing date for the tax year for which the income would be charged to tax if no claim were made.

Withdrawal of relief

843

(1) This section applies if—

(a) a claim under section 842 has been made in relation to any income, and

(b) either—

(i) the income ceases to be unremittable, or

(ii) an ECGD payment is made in relation to it.

(2) In this section “ECGD payment” has the meaning given by section 842(4).

(3) If income ceases to be unremittable, the income is treated as arising on the date on which it ceases to be unremittable.

(4) If an ECGD payment is made in relation to income, the income is treated, to the extent of the payment, as arising on the date on which the ECGD payment is made.

(5) The income treated as arising under subsection (3) or (4), and any tax payable in respect of it under the law of the territory where it arises, are taken into account for income tax purposes at their value at the date on which the income is treated as arising.

(6) Subsections (3) to (5) do not apply so far as the income has already been treated as arising as a result of this section.

(7) If a person who would have become liable for income tax as a result of this section has died—

(a) the personal representatives are liable for the tax instead, and

(b) the tax is a debt due from and payable out of the estate.

Income charged on withdrawal of relief after source ceases

844

(1) This section applies if—

(a) income is treated as arising as a result of section 843, and

(b) at the time it is so treated the person who would have become liable for income tax as a result of that section—

(i) has permanently ceased to carry on the trade, profession, vocation or property business from which the income arises, or

(ii) in the case of income from another source, has ceased to possess that source.

(2) In the case of income from a trade, profession or vocation—

(a) the income is treated as a post-cessation receipt for the purposes of Chapter 18 of Part 2 (trading income: post-cessation receipts), but

(b) in the application of that Chapter to that income, section 243 (extent of charge to tax) is omitted.

(3) In the case of income from a property business—

(a) the income is treated as a post-cessation receipt from a UK property business for the purposes of Chapter 10 of Part 3 (property income: post-cessation receipts), but

(b) in the application of that Chapter to that income, section 350 (extent of charge to tax) is omitted.

(4) In the case of income from another source, the income is taxed as if the person continued to possess that source.

Valuing unremittable income

845

(1) If no claim is made under section 842 in relation to unremittable income arising in a territory outside the United Kingdom, the amount of the income to be taken into account for income tax purposes is determined as follows.

(2) If the currency in which the income is denominated has a generally recognised market value in the United Kingdom, the amount is determined by reference to that value.

(3) In any other case, the amount is determined according to the official rate of exchange of the territory where the income arises.

Part 9 — Partnerships

Introduction

Overview of Part 9

846

This Part contains some special rules about partnerships.

General provisions

847

(1) In this Act persons carrying on a trade in partnership are referred to collectively as a “firm”.

(2) The provisions of this Part which are expressed to apply to trades also apply, unless otherwise indicated (whether expressly or by implication) —

(a) to professions, and

(b) in the case of this section and sections 849, 850, 857 and 858 to businesses that are not trades or professions.

(3) In those sections as applied by subsection (2)(b)—

(a) references to a trade are references to a business, and

(b) references to the profits of a trade are references to the income arising from a business.

(4) For the purposes of this Part, a person is an indirect partner in a partnership (“the underlying partnership”) if the person is a partner in—

(a) a partnership which is a partner in the underlying partnership, or

(b) any partnership which is an indirect partner in the underlying partnership by virtue of the preceding application of this subsection.

Assessment of partnerships

848

Unless otherwise indicated (whether expressly or by implication), a firm is not to be regarded for income tax purposes as an entity separate and distinct from the partners.

Calculation of partners' shares

Calculation of firm’s profits or losses

849

(1) If—

(a) a firm carries on a trade, and

(b) any partner in the firm is chargeable to income tax,

the profits or losses of the trade are calculated on the basis set out in subsection (2) or (3), as the case may require.

(2) For any period of account in which the partner is a UK resident individual, the profits or losses of the trade are calculated as if the firm were a UK resident individual.

(3) For any period of account in which the partner is non-UK resident, the profits or losses of the trade are calculated as if the firm were a non-UK resident individual.

(3A) For any tax year that is a split year as respects the partner, this section has effect as if the partner were non-UK resident in the overseas part of the year.

(4) In calculating under subsection (2) or (3) the profits of a trade for any period of account no account is taken of any losses for another period of account.

Allocation of firm’s profits or losses between partners

850

(1) For any period of account a partner's share of a profit or loss of a trade carried on by a firm is determined for income tax purposes in accordance with the firm's profit-sharing arrangements during that period.

This is subject to sections 850A to 850D and section 12ABZB of TMA 1970 (partnership return is conclusive).

(2) In this section and sections 850A and 850B “profit-sharing arrangements” means the rights of the partners to share in the profits of the trade and the liabilities of the partners to share in the losses of the trade.

Calculations etc. where firm has other income or losses

851

(1) This section applies if—

(a) sections 849 and 850 apply in relation to the profits or losses of a trade carried on by a firm, and

(b) the firm has other income or losses.

(2) Those sections also apply as if references to the profits or losses of the trade were references to the other income or losses.

Firms with trading income

Carrying on by partner of notional trade

852

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Basis periods for partners' notional trades

853

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Firms with trading and other source income

Carrying on by partner of notional business

854

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Basis periods for partners' notional businesses

855

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Overlap profits from partners' notional businesses

856

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Firms with a foreign element

Partners to whom the remittance basis may apply

857

(1) This section applies if—

(a) a firm carries on a trade wholly or partly outside the United Kingdom,

(b) the control and management of the trade is outside the United Kingdom, and

(2) The partner's share of the profits of the trade arising in the United Kingdom is determined in accordance with sections 849 to 851.

(3) The partner's share of the profits of the trade arising outside the United Kingdom is treated as relevant foreign income ....

Resident partners and double taxation agreements

858

(1) This section applies if—

(a) a UK resident (“the partner”) is a member of a firm which—

(i) resides outside the United Kingdom, or

(ii) carries on a trade the control and management of which is outside the United Kingdom, and

(b) by virtue of any arrangements having effect under section 2(1) of TIOPA 2010 (“the arrangements”) any of the income of the firm is relieved from income tax in the United Kingdom.

(2) The partner is liable to income tax on the partner's share of the income of the firm despite the arrangements.

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

(4) For the purposes of this section the members of a firm include any person entitled to a share of income of the firm.

Miscellaneous

Special provisions about farming and property income

859

(1) The rule in section 9(2) (farming trades) operates in relation to firms so that—

(a) all farming in the United Kingdom which a firm carries on, other than farming carried on as part of another trade, is treated as one trade, but

(b) the farming carried on by a firm which is treated as one trade is not included in any farming trade of any partner in the firm.

(2) Section 264 (UK property business) operates in relation to firms so that—

(a) every business and transaction mentioned in that section carried on, or entered into, by a firm constitutes the firm's UK property business, but

(b) each business or transaction included in the firm's UK property business is not included in any UK property business of any partner in the firm.

(3) Section 265 (overseas property business) operates in relation to firms so that—

(a) every business and transaction mentioned in that section carried on, or entered into, by a firm constitutes the firm's overseas property business, but

(b) each business or transaction included in the firm's overseas property business is not included in any overseas property business of any partner in the firm.

Adjustment income

860

(1) A change in the persons carrying on a trade from one period of account to the next does not prevent Chapter 17 of Part 2 (adjustment income) applying in relation to the trade so long as a person carrying on the trade immediately before the change continues to carry on the trade immediately after the change.

(1A) A change in the persons carrying on a property business from one period of account to the next does not prevent Chapter 7 of Part 3 (adjustment income) applying in relation to the property business so long as a person carrying on the property business immediately before the change continues to carry on the property business immediately after the change.

(2) A change in the persons carrying on a trade does not constitute the permanent cessation of the trade for the purposes of Chapter 17 of Part 2 so long as a person carrying on the trade immediately before the change continues to carry on the trade immediately after the change.

(3) In the case of a trade or property business carried on by a firm the amount of any adjustment under Chapter 17 of Part 2 , or Chapter 7 of Part 3, is calculated as if the firm were a UK resident individual.

(4) Each partner's share of any amount of adjustment income is determined according to the firm's profit-sharing arrangements for the 12 months ending immediately before the date on which the new basis was adopted.

(5) Any election under Chapter 17 of Part 2 , or under section 239B as applied to property businesses by section 334A, must be made jointly by all the persons who have been members of the firm in that 12 month period.

(6) For the purposes of this section—

(a) “adjustment income” and “change of basis” have the same meaning as in Chapter 17 of Part 2, or Chapter 7 of Part 3 (as the case requires)

(b) “profit-sharing arrangements” means the rights of the partners to share in the profits of the trade or property business (as the case requires), and

(c) references to the date on which a new basis was adopted are to the first day of the first period of account for which the new basis was adopted.

(7) Sections 849 to 851 do not apply so far as this section applies.

Sale of patent rights: effect of partnership changes

861

(1) This section applies if each of the following conditions is met—

(a) a person (“the trader”) sells the whole or part of any patent rights in carrying on a trade,

(b) tax is chargeable under section 587 of this Act or section 912 of CTA 2009 on the proceeds of the sale or on any instalment of those proceeds,

(c) the tax is chargeable in one or more tax years or accounting periods (referred to in this section as “the tax charge periods”),

(d) there is a change in the persons carrying on the trade at any time between the beginning of the first of those tax charge periods and the end of the last of them, and

(e) the partnership condition and the continuity condition are met.

(2) The partnership condition is that—

(a) the trader is a firm at the time of the sale, or

(b) the trade is carried on in partnership at any time between the beginning of the first of the tax charge periods and the end of the last of them.

(3) The continuity condition is—

(a) in the case of an amount chargeable under section 587, that a person who carried on the trade immediately before the change continues to carry it on after the change, or

(b) in the case of an amount chargeable under section 912 of CTA 2009, that a company which carried on the trade in partnership immediately before the change continues to carry it on in partnership after the change.

(4) Any amounts chargeable in respect of the proceeds or instalment that would (apart from this section) be treated in accordance with Chapter 2 of Part 5 of this Act or Chapter 3 of Part 9 of CTA 2009 as profits of the seller of the patent rights chargeable in tax charge periods falling wholly after the change are treated for income tax purposes—

(a) as proceeds, arising at a constant daily rate during the remainder of the relevant period, of a sale of patent rights by the person or persons carrying on the trade after the change, and

(b) if the trade is carried on in partnership after the change, as arising to the partners in shares calculated in accordance with the firm's profit-sharing arrangements.

(5) If the change occurs during the course of a tax charge period—

(a) any person who would, but for this section, have been charged to income tax in that period on a sum (“S”) in respect of the proceeds or instalment is so charged on a fraction of S proportionate to the length of the part of the period before the change, and

(b) the balance of S not dealt with under paragraph (a) is treated for the purposes of this section and section 1271 of CTA 2009 (sale of patent rights: effect of partnership changes) as if it were an amount such as is described in subsection (4).

(6) In this section “the remainder of the relevant period” means—

(a) if one or more tax charge periods begins after the tax charge period in which the change occurs, the period beginning immediately after the change and ending 6 years after the beginning of the first of the tax charge periods, or

(b) otherwise, the period beginning immediately after the change and ending at the end of the tax charge period in which the change occurs.

(7) In this section “profit-sharing arrangements” means the rights of the partners to share in the profits of the trade.

Sale of patent rights: effect of later cessation of trade

862

(1) This section applies if—

(a) a person (“the trader”) sells the whole or part of any patent rights in carrying on a trade,

(b) by virtue of section 861 amounts are chargeable to income tax under section 587 as profits of one or more persons for the time being carrying on the trade in partnership,

(d) no person who carried on the trade immediately before the cessation continues to carry on the trade immediately after the cessation.

(2) Any amounts mentioned in subsection (1)(b) which would have been chargeable in any tax year later than that in which the cessation occurred are charged in the tax year in which the cessation occurred.

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

(4) If an additional amount is chargeable under subsection (2), the person liable may elect that the amount of income tax payable should be reduced to the amount that would have been payable on the assumptions mentioned in subsection (5).

(5) The assumptions are—

(a) that subsection (2) does not apply, and

(b) that the total of the amounts that would have been charged in later tax years is charged in equal instalments in each of the tax years—

(i) beginning with the year in which the trader received the proceeds of the sale or instalment of those proceeds, and

(ii) ending with the year in which the cessation occurs.

(6) The election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year in which the cessation occurred.

(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Limited liability partnerships

863

(1) For income tax purposes, if a limited liability partnership carries on a trade, profession or business with a view to profit—

(a) all the activities of the limited liability partnership are treated as carried on in partnership by its members (and not by the limited liability partnership as such),

(b) anything done by, to or in relation to the limited liability partnership for the purposes of, or in connection with, any of its activities is treated as done by, to or in relation to the members as partners, and

References in this subsection to the activities of the limited liability partnership are to anything that it does, whether or not in the course of carrying on a trade, profession or business with a view to profit.

(2) For all purposes, except as otherwise provided, in the Income Tax Acts—

(a) references to a firm or partnership include a limited liability partnership in relation to which subsection (1) applies,

(b) references to members or partners of a firm or partnership include members of such a limited liability partnership,

(d) references to members of a company do not include members of such a limited liability partnership.

(3) Subsection (1) continues to apply in relation to a limited liability partnership which no longer carries on any trade, profession or business with a view to profit—

(a) if the cessation is only temporary, or

(b) during a period of winding up following a permanent cessation, provided—

(i) the winding up is not for reasons connected in whole or in part with the avoidance of tax, and

(ii) the period of winding up is not unreasonably prolonged.

This is subject to subsection (4).

(4) Subsection (1) ceases to apply in relation to a limited liability partnership—

(a) on the appointment of a liquidator or (if earlier) the making of a winding-up order by the court, or

(b) on the occurrence of any event under the law of a territory outside the United Kingdom corresponding to an event specified in paragraph (a).

Part 10 — General provisions

Chapter 1 — Introduction

Overview of Part 10

864

This Part —

(a) contains general rules which are of wider application than to a particular Part of this Act including certain calculation rules (see Chapter 2), and

(b) deals with supplementary matters including general definitions (see Chapter 3).

Chapter 2 — General calculation rules etc.

Unpaid remuneration

Unpaid remuneration: non-trades and non-property businesses

865

(1) This section applies if, in calculating profits or other income of a period of account for income tax purposes—

(a) an amount is charged in the accounts for the period in respect of employees' remuneration, and

(b) a deduction for the remuneration would otherwise be allowable for the period.

(2) For this purpose “profits or other income” does not include the profits of—

(a) a trade, profession or vocation, or

(b) a property business,

but see subsection (6).

(3) No deduction is allowed for the remuneration for the period of account unless it is paid before the end of the period of 9 months immediately following the end of the period of account.

(4) If the remuneration is paid after the end of that 9 month period, a deduction for it is allowed for the period of account in which it is paid.

(5) Section 37 (supplementary provision) applies for the purposes of this section as it applies for the purposes of section 36 (unpaid remuneration: trades, professions and vocations).

(6) Provision corresponding to that made by this section is made by—

(a) sections 36 and 37 (in relation to trades, professions and vocations), and

(b) section 272 (in relation to property businesses).

Employee benefit contributions

Employee benefit contributions: non-trades and non-property businesses

866

(1) This section applies if, in calculating a person's profits or other income of a period for income tax purposes—

(a) the profits or other income of the period are required to be calculated for those purposes, and

(b) a deduction would otherwise be allowable for the period for any employee benefit contributions made or to be made by the person (“the employer”) (but see subsection (5)).

(2) For this purpose “profits or other income” does not include the profits of—

(a) a trade, profession or vocation, or

(b) a property business,

but see subsection (7).

(2A) No deduction is allowed under this section in respect of employee benefit contributions for a period of account which starts more than 5 years after the end of the period of account in which the contributions are made.

(3) No deduction is allowed for the contributions for the period except so far as—

(a) qualifying benefits are provided, or qualifying expenses are paid, out of the contributions during the period or within 9 months from the end of it, or

(b) if the making of the contributions is itself the provision of qualifying benefits, the contributions are made during the period or within 9 months from the end of it.

(3A) Subsection (3) is subject to subsections (2A) and (3B).

(3B) Where subsection (4C) applies, no deduction is allowed for an amount in respect of the contributions for the period except so far as the amount is a qualifying amount (see subsection (4D)).

(4) An amount disallowed under subsection (3) is allowed as a deduction for a subsequent period so far as—

(a) qualifying benefits are provided out of the contributions before the end of the subsequent period, or

(b) if the making of the contributions is itself the provision of qualifying benefits, the contributions are made before the end of the subsequent period.

(4A) Subsection (4) is subject to subsections (2A) and (4B).

(4B) Where subsection (4C) applies, an amount disallowed under subsection (3) is allowed as a deduction for a subsequent period only so far as it is a qualifying amount.

(4C) This subsection applies where the provision of qualifying benefits out of, or by way of, the contributions gives rise both to an employment income tax charge and to an NIC charge.

(4D) An amount in respect of employee benefit contributions is a “qualifying amount” if the relevant tax charges are paid before the end of the relevant period (and are not repaid).

(4E) For the purposes of subsection (4D)—

(a) the “relevant tax charges”, in relation to an amount, are the employment income tax charge and the NIC charge arising in respect of benefits which are provided out of, or by way of, that amount, and

(b) the “relevant period” is the period of 12 months immediately following the end of the period of account for which the deduction for the employee benefit contributions would (apart from this section) be allowable.

(4F) For the purposes of subsections (4C) and (4E), “employment income tax charge” and “NIC charge” have the meaning given by section 40(7).

(4G) Subsection (4H) applies where—

(a) a deduction would, apart from this section, be allowable for an amount (the “remuneration amount”) in respect of employees' remuneration, and

(b) in consequence of the payment of the employees' remuneration, employee benefit contributions are made, or are to be made, in respect of the remuneration amount.

(4H) In calculating for income tax purposes a person's profits or other income, the deduction referred to in subsection (4G)(a) is to be treated as a deduction in respect of employee benefit contributions made or to be made (and is to be treated as not being a deduction in respect of employees' remuneration).

(5) This section does not apply to any deduction that is allowable for—

(a) anything given as consideration for goods or services provided in the course of a trade or profession,

(b) contributions under a registered pension scheme or under a superannuation fund to which section 615(3) of ICTA applies,

(c) contributions under a qualifying overseas pension scheme in respect of an individual who is a relevant migrant member of the pension scheme in relation to the contributions, or

(d) contributions under an accident benefit scheme.

For the purposes of paragraph (c) “qualifying overseas pension scheme” and “relevant migrant member” have the same meaning as in Schedule 33 to FA 2004 (see paragraphs 4 to 6 of that Schedule).

(6) Sections 39 to 44 (supplementary provisions) apply for the purposes of this section as they apply for the purposes of section 38 (employee benefit contributions: trades, professions and vocations).

(7) Provision corresponding to that made by this section is made by—

(a) sections 38 to 44 (in relation to trades, professions and vocations), and

(b) sections 272 and 272ZA (in relation to property businesses).

Business entertainment and gifts

Business entertainment and gifts: non-trades and non-property businesses

867

(1) This section applies for the purpose of calculating profits or other income charged to income tax which arise from the carrying on of a business.

(2) For this purpose “business” does not include—

(a) a trade, profession or vocation, or

(b) a property business,

but see subsection (7).

(3) The general rule is that no deduction is allowed in calculating the profits or other income for expenses incurred in providing entertainment or gifts in connection with the business.

(4) A deduction for expenses which are incurred—

(a) in paying sums to or on behalf of an employee of the person carrying on the business, or

(b) in putting sums at the disposal of an employee of that person,

is prohibited by the general rule if (and only if) the sums are paid, or put at the employee's disposal, exclusively for meeting expenses incurred or to be incurred by the employee in providing the entertainment or gift.

(5) The general rule is subject to—

section 46 (business entertainment: exceptions), and

section 47 (business gifts: exceptions),

which apply in relation to a business as they apply in relation to a trade ....

(6) For the purposes of this section and those two sections as so applied—

(a) “employee”, in relation to a company, includes a director of the company and a person engaged in the management of the company,

(b) “entertainment” includes hospitality of any kind, and

(c) the expenses incurred in providing entertainment or a gift include expenses incurred in providing anything incidental to the provision of entertainment or a gift.

(7) Provision corresponding to that made by this section is made by—

(a) sections 45 to 47 (in relation to trades, professions and vocations), and

(b) sections 272 and 272ZA (in relation to property businesses).

868

(1) This section applies for the purpose of calculating profits or other income charged to income tax.

(2) For this purpose “profits or other income” does not include—

(a) the profits of a trade, profession, or vocation,

(b) the profits of a property business, or

but see subsection (6).

(3) No deduction is allowed for any contribution paid by any person under—

(a) Part 1 of the Social Security Contributions and Benefits Act 1992 (c. 4), or

(b) Part 1 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7).

(4) But this prohibition does not apply to an employer's contribution.

(5) For this purpose “an employer's contribution” means—

(a) a secondary Class 1 contribution,

(b) a Class 1A contribution, or

within the meaning of Part 1 of the Social Security Contributions and Benefits Act 1992 (c. 4) or of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7).

(6) Provision corresponding to that made by this section is made by—

(a) section 53 (in relation to trades, professions and vocations),

(b) sections 272 and 272ZA (in relation to property businesses), and

Penalties , interest and VAT surcharges and interest

Penalties, interest and VAT surcharges: non-trades etc.

869

(1) This section applies for the purpose of calculating profits or other income charged to income tax.

(2) For this purpose “profits or other income” does not include the profits of—

(a) a trade, profession, or vocation, or

(b) a property business,

but see subsection (6).

(3) No deduction is allowed for any penalty or interest mentioned in the first column of the following table.

(4) This is the table—

Penalty or interest	Description of tax, levy or duty
Interest under any provision of Part 9 of TMA 1970	Income tax, capital gains tax and corporation tax
Interest required to be paid by regulations made under section 71 of FA 2004 (construction industry)
Penalty under any of sections 60 to 70 of VATA 1994	Value added tax
Interest under section 101 of FA 2009 in respect of an amount of value added tax
Penalty under any of sections 8 to 11 of FA 1994	Excise duties
Penalty under any of paragraphs 12 to 19 of Schedule 7 to FA 1994	Insurance premium tax
Interest under section 60(8) of FA 1994 or paragraph 21 to Schedule 7 to FA 1994
Penalty under any provision of Part 5 of Schedule 5 to FA 1996	Landfill tax
Interest under section 56(5) of, or paragraph 26 or 27 of Schedule 5 to, FA 1996
Penalty under any provision of Schedule 6 to FA 2000	Climate change levy
Interest under any of paragraphs 70, 81 to 85 , 109 and 123(6) of that Schedule
Penalty under any provision of Part 2 of FA 2001	Aggregates levy
Interest under section 42(6) of, or any of paragraphs 5 to 9 of Schedule 5 to, paragraph 6 of Schedule 8 to and paragraph 5 of Schedule 10 to, FA 2001
Penalty under section 25 or 26 of FA 2003	Customs duties
Penalty under any provision of Part 4 of FA 2003	Stamp duty land tax
Interest under any provision of that Part
Penalty under Schedule 24 to FA 2007	Various taxes and excise duties
Penalty under Schedule 41 to FA 2008	Various taxes and excise duties

(5) No deduction is allowed for any surcharge under section 59 of VATA 1994.

(6) Provision corresponding to that made by this section is made by—

(a) section 54 (in relation to trades, professions and vocations), and

(b) sections 272 and 272ZA (in relation to property businesses).

870

(1) This section—

(a) applies for the purpose of calculating profits or other income charged to income tax, but

(b) does not apply for the purpose of calculating the profits of a trade, profession or vocation or of a property business (but see subsection (4)).

(2) No deduction is allowed for expenses incurred—

(a) in making a payment if the making of the payment constitutes a criminal offence, or

(b) in making a payment outside the United Kingdom if the making of a corresponding payment in any part of the United Kingdom would constitute a criminal offence in that part.

(3) No deduction is allowed for expenses incurred in making a payment induced by a demand which constitutes—

(a) the offence of blackmail under section 21 of the Theft Act 1968 (c. 60) (England and Wales),

(b) the offence of extortion (Scotland), or

(c) the offence of blackmail under section 20 of the Theft Act (Northern Ireland) 1969 (c. 16 (N.I.)) (Northern Ireland).

(4) Provision corresponding to that made by this section is made by—

(a) section 55 (in relation to trades, professions and vocations), and

(b) sections 272 and 272ZA (in relation to property businesses).

Apportionment of profits

Apportionment etc. of miscellaneous profits to tax year

871

(1) This section applies if—

(a) income is chargeable to income tax under or by virtue of any provision to which section 1016 of ITA 2007 applies, and

(b) any period for which the accounts are drawn up (a “period of account”) does not coincide with a tax year.

(2) For this purpose the reference to any provision to which section 1016 of ITA 2007 applies is to be read as if subsection (3)(a) of that section were omitted (exclusion for relevant foreign income charged under this Act).

(3) Any of the following steps may be taken if they are necessary in order to arrive at the profits or losses of the tax year—

(a) apportioning the profits or losses of a period of account to the parts of that period falling in different tax years, and

(b) adding the profits or losses of a period of account (or part of a period) to profits or losses of other periods of account (or parts).

(4) The steps must be taken by reference to the number of days in the periods concerned.

(5) But the person to whom the profits or losses arise may use a different way of measuring the length of the periods concerned if—

(a) it is reasonable to do so, and

(b) the way of measuring the length of periods is used consistently for the purpose of charging to income tax the income in question.

Calculation of losses

Losses calculated on same basis as miscellaneous income

872

(1) The same rules apply for income tax purposes in calculating miscellaneous losses as apply in calculating corresponding miscellaneous income.

(2) This is subject to any express provision to the contrary.

(3) In this section—

(a) “miscellaneous income” means profits or other income charged to income tax under or by virtue of a provision to which section 1016 of ITA 2007 applies, and

(b) “miscellaneous losses” means losses arising from a transaction which is of such a nature that, if profits or other income had arisen from it, the income would have been charged to income tax under or by virtue of such a provision.

(4) Provision corresponding to that made by this section is made by—

(a) section 26 (in relation to trades, professions and vocations), and

(b) sections 272 and 272ZA (in relation to property businesses).

Chapter 3 — Supplementary and general provisions

Orders and regulations

Orders and regulations made by Treasury or Board

873

(1) Any power of the Treasury or the Commissioners for Her Majesty’s Revenue and Customs to make any order or regulations under this Act is exercisable by statutory instrument.

(2) Any statutory instrument containing any order or regulations made by the Treasury or the Commissioners for Her Majesty’s Revenue and Customs under this Act is subject to annulment in pursuance of a resolution of the House of Commons.

(3) Subsection (2) does not apply in relation to any order or regulations made under—

(a) section 86 (meaning of “urban regeneration company”),

(b) section 724 (purchased life annuity payments),

(ba) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(ca) section 828A (qualifying care relief: indexation of amounts), or

(d) section 883(5) (transitional or saving provision).

(4) Further, subsection (2) does not apply if any other Parliamentary procedure is expressly provided to apply in relation to the order or regulations.

Interpretation

Activities in UK sector of continental shelf

874

(1) Any profits—

(a) from exploration or exploitation activities carried on in the UK sector of the continental shelf, or

(b) from exploration or exploitation rights,

are treated for income tax purposes as profits from activities or property in the United Kingdom.

(2) In this section—

“exploration or exploitation activities” means activities carried on in connection with the exploration or exploitation of so much of the seabed and subsoil and their natural resources as is situated in the United Kingdom or the UK sector of the continental shelf,

“exploration or exploitation rights” means rights to assets to be produced by exploration or exploitation activities or interests in or to the benefit of such assets, and

“the UK sector of the continental shelf” means the areas designated by Order in Council under section 1(7) of the Continental Shelf Act 1964 (c. 29).

Meaning of “caravan”

875

(1) In this Act “caravan” means—

(a) a structure designed or adapted for human habitation which is capable of being moved by being towed or being transported on a motor vehicle or trailer, or

(b) a motor vehicle designed or adapted for human habitation,

but does not include railway rolling stock which is on rails forming part of a railway system or any tent.

(2) A structure composed of two sections—

(a) separately constructed, and

(b) designed to be assembled on a site by means of bolts, clamps or other devices,

is not prevented from being a caravan just because it cannot, when assembled, be lawfully moved on a highway (or, in Scotland or Northern Ireland, road) by being towed or being transported on a motor vehicle or trailer.

876

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

Meaning of grossing up

877

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

Other definitions

878

(1) In this Act, unless otherwise indicated (whether expressly or by implication)—

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

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

“houseboat” means a boat or similar structure designed or adapted for use as a place of human habitation, and

“income” includes amounts treated as income (whether expressly or by implication),

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

“non-UK resident” means not resident in the United Kingdom (and references to a non-UK resident or a non-UK resident person are to a person who is not resident there),

“normal self-assessment filing date”, in relation to a tax year, means the 31st January following the tax year,

“personal representatives”, in relation to a person who has died, means—in the United Kingdom, persons responsible for administering the estate of the deceased, andin a territory outside the United Kingdom, those persons having functions under its law equivalent to those of administering the estate of the deceased,

“tax year”, in relation to income tax, means a year for which any Act provides for income tax to be charged,

“the tax year 2005-06” means the tax year beginning on 6th April 2005 (and any corresponding expression in which two years are similarly mentioned is to be read in the same way), and

“UK resident” means resident in the United Kingdom (and references to a UK resident or a UK resident person are to a person who is resident there).

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

(3) In this Act any reference to a claim or election is to a claim or election in writing or in any form authorised (in relation to the case in question) by directions under section 43E(1) of TMA 1970.

(4) For further information about claims and elections, see TMA 1970 more generally (but in particular, section 42(2), (10) and (11) and Schedule 1A).

(5) Section 993 of ITA 2007 (how to tell whether persons are connected) applies for the purposes of this Act unless otherwise indicated (whether expressly or by implication).

(6) Section 995 of ITA 2007 (meaning of “control”) applies for the purposes of this Act unless otherwise indicated (whether expressly or by implication).

Interpretation: Scotland

879

(1) In the application of this Act to Scotland—

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

“mortgage” means—a standard security, ora heritable security, as defined in the Conveyancing (Scotland) Act 1924 (c. 27), but including a security constituted by ex facie absolute disposition or assignation, . . .

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

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

(3) In the application of section 755 (interest on foreign currency securities etc. owned by non-UK residents) to Scotland, “Act” includes an Act of the Scottish Parliament.

(4) In the application of sections 769 (housing grants) and 882 (consequential amendments) and Part 1 of Schedule 2 (transitionals and savings: general provisions) to Scotland, “enactment” includes an enactment comprised in, or in an instrument made under, an Act of the Scottish Parliament.

(5) The express provision made by subsection (4) does not affect the construction of “enactment” in the application of section 631 (retained and accumulated income) to Scotland.

Interpretation: Northern Ireland

880

(1) In the application of section 755 (interest on foreign currency securities etc. owned by non-UK residents) to Northern Ireland, “Act” includes any Act, Order in Council or Measure constituting Northern Ireland legislation.

(2) In the application of section 769 (housing grants) and 882 (consequential amendments) and Part 1 of Schedule 2 (transitionals and savings: general provisions) to Northern Ireland, “enactment” includes an enactment comprised in, or in an instrument made under, Northern Ireland legislation.

(3) The express provision made by subsection (2) does not affect the construction of “enactment” in the application of section 631 (retained and accumulated income) to Northern Ireland.

General and final

Disapplication of corporation tax: section 9 of ICTA

881

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

Consequential amendments

882

(1) Schedule 1 (which contains consequential amendments) has effect.

(2) The Treasury may by order make such modifications of any enactment or provision made under an enactment as the Treasury consider appropriate in consequence of this Act.

(3) In subsection (2) “modifications” includes amendments or repeals.

(4) An order under subsection (2)—

(a) must not change the effect of the law as it was immediately before 6th April 2005, and

(b) may include such transitional or saving provision as the Treasury consider appropriate.

(5) Subsection (4)(a) does not apply so far as an order contains provision made in consequence of a change already made by this Act in the effect of the law.

Commencement and transitional provisions etc.

883

(1) This Act comes into force on 6th April 2005 and has effect—

(a) for income tax purposes, for the tax year 2005-06 and subsequent tax years, and

(b) for corporation tax purposes, for accounting periods ending after 5th April 2005.

(2) Subsection (1) is subject to subsections (3) to (5) (including Schedule 2).

(3) Subsection (1) does not apply to the following provisions of this Act (which therefore come into force on the passing of this Act)—

(a) section 873 (orders and regulations made by Treasury or Commissioners),

(b) sections 875 to 881 (certain interpretation and general provisions),

(d) this section other than subsection (4) below,

(e) section 885 and Schedule 4 (abbreviations and general index),

(f) section 886 (short title), and

(g) paragraphs 78 and 148(5) of Schedule 2 (powers relating to open-ended investment companies and periodical payments of personal injury damages etc.) and subsection (4) below so far as it applies for the purposes of those provisions.

(4) Schedule 2 (which contains transitional provisions and savings etc.) has effect.

(5) The Treasury may by order make such transitional or saving provision as the Treasury consider appropriate in connection with the coming into force of this Act.

Repeals and revocations

884

Schedule 3 (which contains repeals and revocations of enactments including certain spent enactments) has effect.

Abbreviations and general index in Schedule 4

885

(1) Schedule 4 (which contains abbreviations and defined expressions that apply for the purposes of this Act) has effect.

(2) Part 1 of that Schedule gives the meaning of the abbreviated references to Acts used in this Act.

(3) Part 2 of that Schedule lists the places where expressions used in this Act are defined or otherwise explained—

(a) in this Act for the purposes of this Act or for purposes including this Act,

(b) in this Act for the purposes of a Part or Chapter of this Act, or

Short title

886

This Act may be cited as the Income Tax (Trading and Other Income) Act 2005.

SCHEDULE 1

Part 1 — Income and Corporation Taxes Act 1988

1

The Income and Corporation Taxes Act 1988 (c. 1) is amended as follows.

2

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

3

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

4

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

5

In section 4 (construction of references in Income Tax Acts to deduction of tax), omit subsection (1B).

6

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

7

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

8

(1) Amend section 15 (Schedule A) as follows.

(2) In subsection (1A)—

(a) in paragraph (b) for “within the charge to income tax under Schedule A” substitute “ the profits of a UK property business within the charge to income tax under Chapter 3 of Part 3 of ITTOIA 2005 ”, and

(b) for “as separate Schedule A businesses” substitute “ for the purposes of those charges as separate businesses ”.

(3) Before subsection (4) insert—

(3A) Subsection (1) applies for corporation tax purposes (and does not apply for income tax purposes except so far as necessary to ensure its application for corporation tax purposes by virtue of section 9).

(4) In subsection (4) at the end insert “ and under Chapter 3 of Part 3 of ITTOIA 2005 (profits of a property business) ”.

9

(1) Amend section 18 (Schedule D) as follows.

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

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

(4) Omit subsection (6).

10

Omit section 20 (Schedule F).

11

Omit section 21 (persons chargeable and basis of assessment under Schedule A).

12

(1) Amend section 21A (computation of amount chargeable under Schedule A) as follows.

(2) In subsection (2) omit “sections 112 and 113 of that Act (expenditure in connection with provision of security asset or service);”.

(3) In subsection (4)—

(a) omit “section 82 (interest paid to non-residents),”, and

(b) omit “section 96 (farming and market gardening: relief for fluctuating profits),”.

13

In section 21B (application of other rules applicable to Case I of Schedule D)—

(a) omit “, 108, 109A”,

(b) after “(post-cessation receipts and expenses, etc)” insert “ , with any reference to a trade within the charge to income tax being read as a reference to a UK property business ”, and

14

In section 21C (the Schedule A charge and mutual business)—

(a) in subsection (1) after “the charge to” insert “ corporation ”, and

(b) in subsection (4) from the beginning to “the person who would” substitute “ The company to which the profit arises is the company which would ”.

15

(1) Amend section 30 (expenditure on making sea walls) as follows.

(2) In subsection (1) for “he shall be” substitute “ that person shall be ”.

(3) In subsection (2) for “he would be” substitute “ that person would be ”.

(4) After that subsection insert—

(2A) If— (a) the transferor is a company within the charge to corporation tax and the transferee is a person within the charge to income tax, or (b) the transferor is a person within the charge to income tax and the transferee is a company within the charge to corporation tax, subsection (2) above shall apply only for the purpose of determining the amount of the payment which the company is treated as making in any year of assessment. For any entitlement of the person within the charge to income tax to a deduction for any of the expenditure, see sections 316 and 318 of ITTOIA 2005 (corresponding income tax provision).

16

Omit sections 31A and 31B (deductions for expenditure by landlords on energy-saving items).

17

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18

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19

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