Legalize / United Kingdom / Public General Act

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

articles Not indexed

Reform history JSON API

“the relevant conditions” means—the conditions in subsections (3) and (4) of section 311 of ITEPA 2003 (employment income exemptions: retraining courses), andin the case of travel expenses, the conditions in subsection (5) of that section.

Retraining courses: recovery of tax

75

(1) This section applies if—

(a) an employer's liability to tax for a tax year is determined on the assumption that a deduction for expenditure is allowed under section 74, and

(b) the deduction would not otherwise have been allowed.

(2) If, subsequently—

(a) the condition in section 311(4)(a) of ITEPA 2003 is not met because of the employee's failure to begin the course within the period of one year after ceasing to be employed, or

(b) the condition in section 311(4)(b) of ITEPA 2003 is not met because of the employee's continued employment or re-employment,

an assessment of an amount or further amount of tax due as a result of the condition not being met may be made under section 29(1) of TMA 1970.

(3) Such an assessment must be made before the end of the period of 6 years immediately following the end of the tax year in which the failure to meet the condition occurred.

(4) If subsection (2) applies, the employer must give an officer of Revenue and Customs a notice containing particulars of—

(a) the employee's failure to begin the course,

(b) the employee's continued employment, or

within 60 days of coming to know of it.

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

(6) A notice under subsection (5) may specify a time (not less than 60 days) within which the required information must be provided.

Redundancy payments etc.

Redundancy payments and approved contractual payments

76

(1) Sections 77 to 79 apply if—

(a) a person (“the employer”) makes a redundancy payment or an approved contractual payment to another person (“the employee”), and

(b) the payment is in respect of the employee's employment wholly in the employer's trade or partly in the employer's trade and partly in one or more other capacities.

(2) For the purposes of this section and sections 77 to 80 “redundancy payment” means a redundancy payment payable under—

(a) Part 11 of the Employment Rights Act 1996 (c. 18), or

(b) Part 12 of the Employment Rights (Northern Ireland) Order 1996 (S.I. 1996/1919 (N.I. 16)).

(3) For the purposes of this section and those sections—

“contractual payment” means a payment which, under an agreement, an employer is liable to make to an employee on the termination of the employee's contract of employment, and

a contractual payment is “approved” if, in respect of that agreement, an order is in force under—section 157 of the Employment Rights Act 1996, orArticle 192 of the Employment Rights (Northern Ireland) Order 1996.

Payments in respect of employment wholly in employer’s trade

77

(1) This section applies if—

(a) the payment is in respect of the employee's employment wholly in the employer's trade, and

(b) no deduction would otherwise be allowable for the payment.

(2) In calculating the profits of the trade, a deduction is allowed under this section for the payment.

(3) The deduction under this section for an approved contractual payment must not exceed the amount which would have been due to the employee if a redundancy payment had been payable.

(4) If the payment is made after the employer has permanently ceased to carry on the trade, it is treated as made on the last day on which the employer carried on the trade.

(5) If there is a change in the persons carrying on the trade, subsection (4) does not apply so long as a person carrying on the trade immediately before the change continues to carry it on after the change.

(6) The deduction under this section is allowed for the period of account in which the payment is made (or treated under subsection (4) as made).

Payments in respect of employment in more than one capacity

78

(1) This section applies if the payment is in respect of the employee's employment with the employer—

(a) partly in the employer's trade, and

(b) partly in one or more other capacities.

(2) The amount of the redundancy payment, or the amount which would have been due if a redundancy payment had been payable, is to be apportioned on a just and reasonable basis between—

(a) the employment in the trade, and

(b) the employment in the other capacities.

(3) The part of the payment apportioned to the employment in the trade is treated as a payment in respect of the employee's employment wholly in the trade for the purposes of section 77.

Additional payments

79

(1) This section applies if the employer permanently ceases to carry on a trade or part of a trade and makes a payment to the employee in addition to—

(a) the redundancy payment, or

(b) if an approved contractual payment is made, the amount that would have been due if a redundancy payment had been payable.

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

(3) If, in calculating the profits of the trade—

(a) no deduction would otherwise be allowable for the additional payment, but

(b) a deduction would be allowable for it if the employer had not permanently ceased to carry on the trade or the part of the trade,

a deduction is allowed under this section for the additional payment.

(4) The deduction under this section is limited to 3 times the amount of—

(a) the redundancy payment, or

(b) if an approved contractual payment is made, the amount that would have been due if a redundancy payment had been payable.

(5) If the payment is made after the employer has permanently ceased to carry on the trade or the part of the trade, it is treated as made on the last day on which the employer carried on the trade or the part of the trade.

(6) The deduction under this section is allowed for the period of account in which the payment is made (or treated under subsection (5) as made).

Payments made by the Government

80

(1) This section applies if, in respect of a redundancy payment or an approved contractual payment payable by an employer—

(a) the Secretary of State makes a payment under section 167 of the Employment Rights Act 1996 (c. 18), or

(b) the Department for Employment and Learning makes a payment under Article 202 of the Employment Rights (Northern Ireland) Order 1996 (S.I. 1996/1919 (N.I. 16)).

(2) So far as the employer reimburses the Secretary of State or Department for the payment, sections 77 to 79A apply as if the payment were—

(a) a redundancy payment, or

(b) an approved contractual payment,

made by the employer.

Personal security expenses

81

(1) This section applies if—

(a) an individual (“the trader”) carries on a trade (alone or in a partnership of individuals),

(b) there is a special threat to the personal physical security of the trader which arises wholly or mainly because of the particular trade,

(d) the person incurring expenses in connection with that use or provision does so with the sole object of meeting the threat, and

(e) a deduction for the expenses would not otherwise be allowable in calculating the profits of the trade because (and only because) they were not incurred wholly and exclusively for the purposes of the trade.

(2) In calculating the profits of the trade, a deduction is allowed for the expenses—

(a) in the case of a service, if the benefit resulting to the trader consists wholly or mainly of an improvement of the trader's personal physical security, and

(b) in the case of an asset, if the person incurring the expenses intends the asset to be used to improve personal physical security (whether solely or partly).

(3) If the person incurring the expenses intends the asset to be used solely to improve personal physical security, any use of the asset which is incidental to improving personal physical security is ignored.

(4) If the person incurring the expenses intends the asset to be used partly to improve personal physical security, a deduction is allowed only for the proportion of the expenses which is attributable to the intended use to improve personal physical security.

(5) The fact that a service or asset improves the personal physical security of a member of the trader's family or household (as well as that of the trader) does not prevent a deduction from being allowed.

(6) In determining whether or not this section applies in relation to an asset, it does not matter if—

(a) the asset becomes fixed to land, or

(b) the trader is or becomes entitled to the property in the asset or (if the asset is a fixture) to any estate or interest in the land concerned.

(7) In this section—

“asset” includes equipment and a structure (such as a wall), but does not include a car, ship or aircraft or a dwelling or grounds appurtenant to a dwelling, and

“service” does not include a dwelling or grounds appurtenant to a dwelling.

Contributions to local enterprise organisations or urban regeneration companies

82

(1) This section applies if a person carrying on a trade (“the contributor”) incurs expenses in making a contribution (whether in cash or in kind)—

(a) to a local enterprise organisation (see section 83), or

(b) to an urban regeneration company (see section 86),

and a deduction would not otherwise be allowable for the expenses in calculating the profits of the trade.

(2) In calculating the profits of the trade, a deduction is allowed under this section for the expenses.

(3) But if, in connection with the making of the contribution, the contributor or a connected person—

(a) receives a disqualifying benefit of any kind, or

(b) is entitled to receive such a benefit,

the amount of the deduction is restricted to the amount of the expenses less the value of the benefit.

(4) For this purpose it does not matter whether a person receives, or is entitled to receive, the benefit —

(a) from the organisation or company concerned, or

(b) from anyone else.

(5) Subsection (6) applies if—

(a) a deduction has been made under this section, and

(b) the contributor or a connected person receives a disqualifying benefit that is in any way attributable to the contribution.

(6) An amount equal to the value of the benefit (so far as not brought into account in determining the amount of the deduction)—

(a) is brought into account in calculating the profits of the trade, as a receipt arising on the date on which the benefit is received, or

(b) if the contributor has permanently ceased to carry on the trade before that date, is treated as a post-cessation receipt (see Chapter 18).

(7) In this section “disqualifying benefit” means a benefit the expenses of obtaining which, if incurred by the contributor directly in a transaction at arm's length, would not be allowable as a deduction in calculating the profits of the trade.

Meaning of “local enterprise organisation”

83

(1) For the purposes of section 82 “local enterprise organisation” means—

(a) a local enterprise agency,

(b) a training and enterprise council,

(d) a business link organisation.

(2) “Local enterprise agency” means a body for the time being approved as a local enterprise agency for the purposes of section 82 by the relevant national authority, that is to say by—

(a) the Secretary of State (in relation to England or Northern Ireland),

(b) the Scottish Ministers (in relation to Scotland), or

For further provision about approvals by the relevant national authority, see sections 84 and 85.

(3) “Training and enterprise council” means a body with which the Secretary of State has an agreement under which the body is to carry out the functions of a training and enterprise council.

(4) “Scottish local enterprise company” means a company with which—

(a) Scottish Enterprise, or

(b) Highlands and Islands Enterprise,

has an agreement under which the company is to carry out the functions of a local enterprise company.

(5) “Business link organisation” means a person authorised by or on behalf of the Secretary of State to use a trade mark designated by the Secretary of State for the purposes of this subsection.

Approval of local enterprise agencies

84

(1) The relevant national authority may approve a body as a local enterprise agency for the purposes of section 82 only if conditions A and B are met.

(2) But if those conditions are met, the body may be approved—

(a) whatever its status or structure, and

(b) even if it is not described as a local enterprise agency.

(3) Condition A is that the relevant national authority is satisfied—

(a) that the body's sole aim is the promotion or encouragement of local enterprise, or

(b) that one of the body's main aims is the promotion or encouragement of local enterprise and that it has or is about to have a separate fund for the sole purpose of pursuing that aim.

(4) For this purpose “local enterprise” means industrial and commercial activity or enterprise in a particular area in the United Kingdom, with particular reference to encouraging the formation and development of small businesses.

(5) Condition B is that the body is precluded from paying or transferring any of its income or profit directly or indirectly—

(a) to any of its members, or

(b) to any person charged with the control and direction of its affairs.

(6) The payment of—

(a) reasonable remuneration for goods, labour or power supplied or for services provided,

(b) reasonable interest on money lent, or

does not count as a payment or transfer of income or profit for the purposes of subsection (5).

Supplementary provisions with respect to approvals

85

(1) This section applies for the purposes of section 84.

(2) The relevant national authority may give a body approval that is conditional on its compliance with such requirements as to—

(a) accounts,

(b) provision of information, and

as the relevant national authority considers appropriate

(3) If the relevant national authority approves a body on the basis that it has or is about to have a separate fund (see section 84(3)(b))—

(a) the approval must specify the fund, and

(b) section 82 applies only to a contribution to the body made wholly to or for the purposes of the fund.

(4) The relevant national authority must withdraw the approval of a body as a local enterprise agency if—

(a) condition A or B in section 84 is no longer met, or

(b) the body is failing to comply with a requirement imposed as a condition of its approval.

(5) The relevant national authority must give notice of withdrawal to the body concerned, specifying the date from which the withdrawal takes effect (which may be earlier than the date on which the notice is given).

Meaning of “urban regeneration company”

86

(1) For the purposes of section 82 “urban regeneration company” means any body of persons which the Treasury by order designates as an urban regeneration company for the purposes of that section.

(2) A body may be so designated only if—

(a) its sole or main function is to co-ordinate the regeneration of a specific urban area in the United Kingdom,

(b) it is expected to seek to perform that function by creating a plan for the development of that area and trying to secure that the plan is carried into effect, and

(c) in co-ordinating the regeneration of that area, it is expected to work together with some or all local or other public authorities which exercise functions in relation to the whole or part of that area.

(3) An order under this section may be framed so as to take effect on a date earlier than the making of the order, but not earlier than three months before the date on which the order is made.

Scientific research

Expenses of research and development

87

(1) If a person carrying on a trade incurs expenses of a revenue nature on research and development—

(a) related to the trade, and

(b) directly undertaken by or on behalf of the person,

a deduction is allowed for the expenses in calculating the profits of the trade.

(2) For this purpose expenses incurred on research and development—

(a) do not include expenses incurred in the acquisition of rights in, or arising out of, research and development, but

(b) subject to that, include all expenses incurred in carrying out, or providing facilities for carrying out, research and development.

(3) The reference in this section to research and development related to a trade includes—

(a) research and development which may lead to or facilitate an extension of the trade, and

(b) research and development of a medical nature which has a special relation to the welfare of workers employed in the trade.

(4) The same expenses may not be brought into account under this section in relation to more than one trade.

(5) In this section “research and development” has the meaning given by section 1006 of ITA 2007 and includes oil and gas exploration and appraisal.

(6) This section does not apply to professions or vocations.

Payments to research associations, universities etc.

88

(1) If a person carrying on a trade—

(a) pays any sum to an Association in the case of which exemption may be claimed under section 508 of ICTA and which has as its object the undertaking of research and development which may lead to or facilitate an extension of the class of trade to which the trade carried on by the person belongs, or

(b) pays any sum to be used for scientific research related to that class of trade to an approved university, college research institute or other similar institution,

a deduction is allowed for the sum in calculating the profits of the trade.

(2) The deduction is allowed for the period of account in which the payment is made.

(3) “Scientific research” means any activities in the fields of natural or applied science for the extension of knowledge.

(4) For the purposes of this section—

(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) a university, college research institute or other similar institution,

is approved if it is for the time being approved for the purposes of this section by the Secretary of State.

(5) The reference in subsection (1)(b) to scientific research related to a class of trade include—

(a) scientific research which may lead to or facilitate an extension of trades of the class, and

(b) scientific research of a medical nature which has a special relation to the welfare of workers employed in trades of the class.

(6) If a question arises as to—

(a) whether, or

(b) to what extent,

any activities constitute or constituted scientific research, the Inland Revenue must refer the question for decision to the Secretary of State, whose decision is final.

(7) The same expenses may not be brought into account under this section in relation to more than one trade.

(8) This section does not apply to professions or vocations.

Expenses connected with patents, designs and trade marks

Expenses connected with patents

89

(1) In calculating the profits of a trade, a deduction is allowed for expenses incurred—

(a) in obtaining for the purposes of the trade the grant of a patent or the extension of a patent's term, or

(b) in connection with a rejected or abandoned application for a patent made for the purposes of the trade.

(2) This section does not apply to professions or vocations.

Expenses connected with designs or trade marks

90

(1) In calculating the profits of a trade, a deduction is allowed for expenses incurred in obtaining for the purposes of the trade—

(a) the registration of a design or trade mark,

(b) the extension of a period for which the right in a registered design subsists, or

(2) This section does not apply to professions or vocations.

Export Credits Guarantee Department

Payments to Export Credits Guarantee Department

91

In calculating the profits of a trade, a deduction is allowed for a sum payable by the person carrying on the trade to the Export Credits Guarantee Department—

(a) under an agreement entered into as a result of arrangements made under section 2 of the Export and Investment Guarantees Act 1991 (c. 67) (insurance in connection with overseas investment), or

(b) with a view to entering into such an agreement.

Expenses connected with foreign trades

92

(1) This section applies if—

(a) an individual (“the trader”) carries on a foreign trade (alone or in partnership),

(b) the trader is absent from the United Kingdom wholly and exclusively for the purpose of carrying on the foreign trade or the foreign trade and one or more other trades (whether or not foreign trades),

(d) a deduction for the expenses would not otherwise be allowable in calculating the profits of the foreign trade because (and only because) they were not incurred wholly and exclusively for the purposes of the foreign trade.

(2) In calculating any profits of the foreign trade which are not charged in accordance with section 832 (relevant foreign income charged on the remittance basis), a deduction is allowed for the expenses.

(3) Any of the following expenses are qualifying expenses incurred in connection with the foreign trade—

(a) expenses incurred by the trader in travelling between a place in the United Kingdom and a place where the foreign trade is carried on,

(b) expenses incurred by the trader on board and lodging at a place where the foreign trade is carried on,

(c) if the trader's absence from the United Kingdom is for a continuous period of 60 days or more, family expenses (as defined in section 94), and

(d) if the trader also carries on another trade outside the United Kingdom (whether or not a foreign trade), expenses incurred by the trader in travelling between a place where the foreign trade is carried on and a place outside the United Kingdom where the other trade is carried on.

(4) In this section and section 93 “foreign trade” means a trade carried on wholly outside the United Kingdom.

Allocation of expenses

93

(1) Expenses within section 92(3)(a), (b) or (c) are allocated to the foreign trade.

(2) If—

(a) the expenses are within section 92(3)(a) or (b), and

(b) the trader carries on more than one foreign trade at the place in question outside the United Kingdom,

those expenses are allocated between the foreign trades on a just and reasonable basis.

(3) If—

(a) the expenses are within section 92(3)(c), and

(b) the trader's absence is for the purpose of carrying on more than one foreign trade,

those expenses are allocated between the foreign trades on a just and reasonable basis.

(4) Expenses within section 92(3)(d) are allocated—

(a) to the trade carried on at the trader's place of destination, if that trade is a foreign trade, and

(b) in any other case, to the foreign trade carried on at the trader's place of departure.

(5) If the trader carries on more than one foreign trade at—

(a) the place of destination (in a case falling within subsection (4)(a)), or

(b) the place of departure (in a case falling within subsection (4)(b)),

the expenses are allocated between the foreign trades on a just and reasonable basis.

Family expenses

94

(1) In section 92(3)(c) “family expenses” means expenses of a journey made by the trader's spouse or civil partner or child if the journey—

(a) is between a place in the United Kingdom and a place outside the United Kingdom where any of the trades is carried on, and

(b) is made in order to accompany the trader at the beginning of the period of absence or to visit the trader during that period or to return after a journey made for either purpose.

(2) But no more than two outward and two return journeys made by the same person in a tax year fall within subsection (1).

(3) In this section “child” includes a stepchild but does not include a person who is aged 18 or over at the start of the outward journey.

Chapter 6 — Trade profits: receipts

Introduction

Professions and vocations

95

Apart from section 105 (industrial development grants), the provisions of this Chapter apply to professions and vocations as they apply to trades.

Capital receipts

96

(1) Items of a capital nature must not be brought into account as receipts in calculating the profits of a trade.

(2) But this does not apply to items which, as a result of any provision of this Part, are brought into account as receipts in calculating the profits of the trade.

Debts released

Debts incurred and later released

97

(1) This section applies if—

(a) in calculating the profits of a trade, a deduction is allowed for the expense giving rise to a debt owed by the person carrying on the trade,

(b) all or part of the debt is released, and

(2) The amount released—

(a) is brought into account as a receipt in calculating the profits of the trade, and

(b) is treated as arising on the date of the release.

Amounts received following earlier cessation

Acquisition of trade: receipts from transferor’s trade

98

(1) This section applies if —

(a) a person (“the transferor”) permanently ceased to carry on a trade at any time,

(b) at that time the transferor transferred to another person (“the transferee”) the right to receive sums arising from the carrying on of the trade, and

(2) Sums—

(a) which the transferee receives as a result of the transfer, and

(b) which are not brought into account in calculating the profits of the transferor's trade for income or corporation tax purposes for any period before the cessation,

are brought into account in calculating the profits of the transferee's trade in the period of account in which they are received.

(3) Any sums mentioned in subsection (1)(b) which are received after the transferor has permanently ceased to carry on the trade are not post-cessation receipts (see Chapter 18).

Reverse premiums

99

(1) For the purposes of sections 101 and 102 a payment or other benefit is a reverse premium—

(a) if conditions A to C are met, and

(b) it is not excluded by section 100.

(2) Condition A is that a person (“the recipient”) receives the payment or other benefit by way of inducement in connection with a transaction being entered into by—

(a) the recipient, or

(b) a person connected with the recipient.

(3) Condition B is that the transaction (the “property transaction”) is one under which—

(a) the recipient, or

(b) the person connected with the recipient,

becomes entitled to an estate, interest or right in or over land.

(4) Condition C is that the payment or other benefit is paid or provided by—

(a) the person (“the grantor”) by whom the estate, interest or right is granted or was granted at an earlier time,

(b) a person connected with the grantor, or

Excluded cases

100

(1) A payment or other benefit is not a reverse premium so far as it is brought into account under section 532 of CAA 2001 (the general rule excluding contributions) to reduce the recipient's expenditure qualifying for capital allowances.

(2) A payment or other benefit received in connection with a property transaction is not a reverse premium if—

(a) the person entering into the transaction is an individual, and

(b) the transaction relates to premises occupied or to be occupied by the individual as the individual's only or main residence.

(3) A payment or other benefit is not a reverse premium so far as it is consideration for the transfer of an estate or interest in land which constitutes the sale in a sale and lease-back arrangement.

(4) A “sale and lease-back arrangement” means any such arrangement as is described in section 681AA(1) or (2), 681AB(1) or (2) or 681BA of ITA 2007 or section 835(1) or (2) or 836(1) or (2) of CTA 2010.

Tax treatment of reverse premiums

101

(1) A reverse premium is treated for income tax purposes as a receipt of a revenue nature.

(2) If the recipient enters into the property transaction for the purposes of a trade carried on (or to be carried on) by the recipient, the reverse premium is brought into account in calculating the profits of the trade.

(3) If subsection (2) does not apply, the reverse premium is charged to income tax in accordance with section 311 (reverse premium taxed as property business receipt).

Arrangements not at arm’s length

102

(1) This section applies if—

(a) two or more of the parties to the property arrangements are connected persons, and

(b) the terms of those arrangements are not such as would reasonably have been expected if those persons had been dealing at arm's length.

(2) The terms of the property arrangements meet the condition in subsection (1)(b) if they differ to a significant extent from the terms which, at the time the arrangements were entered into, would be regarded as normal and reasonable—

(a) in the market conditions then prevailing, and

(b) between persons dealing with each other at arm's length in the open market.

(3) The whole amount or value of the reverse premium brought into account under section 101 is brought into account in the first relevant period of account.

(4) “The first relevant period of account” means the period of account in which the property transaction is entered into.

(5) But if the recipient enters into the property transaction for the purposes of a trade—

(a) which is not then carried on by the recipient, but

(b) which the recipient subsequently starts to carry on,

“the first relevant period of account” means the first period of account in which the recipient carries on the trade.

Connected persons and property arrangements

103

For the purposes of this section and sections 99 to 102—

(a) persons are treated as connected with each other if they are connected (for which see section 878(5)) at any time during the period when the property arrangements are entered into, and

(b) “the property arrangements” means the property transaction and any arrangements entered into in connection with it (whether before it, at the same time as it or after it).

Assets of mutual concerns

Distribution of assets of mutual concerns

104

(1) This section applies if—

(a) a deduction has been allowed in calculating the profits of a trade for a payment to a mutual concern for the purposes of its mutual business,

(b) the concern is being or has been wound up or dissolved,

(c) a person (“the recipient”) who is carrying on the trade, or was doing so at the time of the payment, receives money or money's worth representing the concern's assets, and

(d) the assets in question represent profits of the mutual business conducted by the concern.

(2) If the recipient is carrying on the trade at the time the money or money's worth is received, the amount or value of the money or money's worth is brought into account as a receipt in calculating the profits of the trade.

(3) If the recipient—

(a) is not carrying on the trade at the time the money or money's worth is received, but

(b) was doing so at the time of the payment to the mutual concern,

the amount or value of the money or money's worth is treated as a post-cessation receipt (see Chapter 18).

(4) For the purposes of this section money or money's worth represents assets of a mutual concern if it—

(a) forms part of the assets of the concern,

(b) forms part of the consideration for the transfer of the assets of the concern as part of a scheme of amalgamation or reconstruction which involves its winding up, or

(c) consists of the consideration for a transfer or surrender of a right to receive anything falling within paragraph (a) or (b) and does not give rise to a charge to income tax on the person receiving it otherwise than as a result of this section.

(5) If a transfer or surrender of a right to receive anything which—

(a) forms part of the assets of a mutual concern, or

(b) forms part of the consideration for the transfer of the assets of a mutual concern,

is not at arm's length, the person making the transfer or surrender is treated as receiving consideration equal to the value of the right.

(6) In this section references to a mutual concern are to a body corporate which has at any time carried on a trade which consists of or includes the conduct of mutual business (whether or not confined to the members of the body corporate).

(7) For the purposes of this section a trade does not consist of or include the conduct of mutual business if all the profits of the trade are chargeable to income or corporation tax.

Industrial development grants

105

(1) This section applies if a person carrying on a trade receives a payment by way of a grant under—

(a) section 7 or 8 of the Industrial Development Act 1982 (c. 52), or

(b) Article 7, 9 or 30 of the Industrial Development (Northern Ireland) Order 1982 (S.I. 1982/1083 (N.I. 15)).

(2) The payment is brought into account as a receipt in calculating the profits of the trade unless—

(a) the grant is designated as made towards the cost of specified capital expenditure, (but see subsection (2A))

(b) the grant is designated as compensation for the loss of capital assets, or

(2A) Subsection (2)(a) is to be disregarded in calculating the profits of a trade on the cash basis.

(3) This section does not apply to professions or vocations.

Proceeds of insurance etc.

Sums recovered under insurance policies etc.

106

(1) This section applies if—

(a) a deduction is allowed for a loss or expense in calculating the profits of a trade,

(b) a person carrying on the trade recovers a sum under an insurance policy or a contract of indemnity in respect of the loss or expense, and

(2) The sum is brought into account as a receipt in calculating the profits of the trade (but only up to the amount of the deduction).

Chapter 7 — Trade profits: gifts to charities etc.

Professions and vocations

107

The provisions of this Chapter apply to professions and vocations as they apply to trades.

Gifts of trading stock to charities etc.

108

(1) This section applies if a person carrying on a trade (“the donor”) gives an article for the purposes of—

(a) a charity, a registered club or a body listed in subsection (4), or

(b) a designated educational establishment (see section 110),

and the article is one manufactured, or of a class or description sold, by the donor in the course of the trade.

(2) In calculating the profits of the trade, no amount is required to be brought into account as a receipt in consequence of the disposal of the article.

(3) In this section “registered club” has the meaning given by section 658 of CTA 2010 (community amateur sports clubs).

(4) The bodies referred to in subsection (1)(a) are—

(a) the Trustees of the National Heritage Memorial Fund,

(b) the Historic Buildings and Monuments Commission for England,

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

(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) This section —

(a) needs to be read with section 109 (receipt by donor or connected person of benefit attributable to certain gifts), and

(b) is subject to section 809ZM of ITA 2007 (removal of income tax relief in respect of tainted charity donations etc).

Receipt by donor or connected person of benefit attributable to certain gifts

109

(1) This section applies if a person carrying on a trade (“the donor”) makes a gift in relation to which—

(a) section 108 applies, or

(b) section 63(2) of CAA 2001 applies (gifts to charities etc. of plant or machinery used in the trade),

and the donor, or a person connected with the donor, receives a benefit which is in any way attributable to the making of the gift.

(2) An amount equal to the value of the benefit—

(a) is brought into account in calculating the profits of the trade, as a receipt of the trade arising on the date on which the benefit is received, or

(b) if the donor has permanently ceased to carry on the trade before that date, is treated as a post-cessation receipt (see Chapter 18).

Meaning of “designated educational establishment”

110

(1) For the purposes of section 108 “designated educational establishment” means an educational establishment designated, or within a category designated, in regulations made—

(a) for England and Scotland, by the Secretary of State,

(b) for Wales, by the National Assembly for Wales, and

(2) The regulations may make different provision for different areas.

(3) If any question arises as to whether an educational establishment is within a category designated in the regulations, an officer of Revenue and Customs must refer the question for decision—

(a) in the case of an establishment in England or Scotland, to the Secretary of State,

(b) in the case of an establishment in Wales, to the National Assembly for Wales, and

(4) The power of the Secretary of State or the National Assembly for Wales to make regulations under this section is exercisable by statutory instrument.

(5) A statutory instrument containing any regulations made by the Secretary of State under this section is subject to annulment in pursuance of a resolution of the House of Commons.

(6) Regulations made under this section by the Department of Education—

(a) are a statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)), and

(b) are subject to negative resolution within the meaning of section 41(6) of the Interpretation Act (Northern Ireland) 1954 (c. 33 (N.I.)).

Chapter 8 — Trade profits: herd basis rules

Introduction

Election for application of herd basis rules

111

(1) A person who keeps or has kept a production herd for the purposes of a trade may make an election under this Chapter (a “herd basis election”).

(2) In calculating the profits of the trade, animals which are part of a production herd in relation to which a herd basis election has effect—

(a) are not treated as trading stock (see section 30), but

(b) are treated instead in accordance with sections 114 to 123 (“the herd basis rules”).

(3) This Chapter is expressed in terms of farmers but applies to any person who keeps or has kept a production herd for the purposes of a trade, whether or not the trade is farming.

(4) References in this Chapter to keeping a production herd are to keeping it for the purposes of the trade.

Meaning of “animal”, “herd”, “production herd” etc.

112

(1) In this Chapter—

(a) “animal” means any animal or other living creature,

(b) “herd” includes a flock and any other collection of animals (however named), and

(c) “production herd” means, in relation to a farmer, a herd of animals of the same species (irrespective of breed) kept by the farmer wholly or mainly for the products obtainable from the living animal which the animals produce for the farmer to sell.

(2) For this purpose “the products obtainable from the living animal” means—

(a) the young of the animal, or

(b) any other product obtainable from the animal without slaughtering it.

(3) For the purposes of this Chapter the general rule is that immature animals kept in a production herd are not part of the herd.

(4) There is an exception to this rule if—

(a) the nature of the land on which the herd is kept means that animals which die or cease to be part of the herd can be replaced only by animals bred and reared on the land,

(b) the immature animals in question are bred in the herd and are maintained in the herd for the purpose of replacing other animals, and

(5) In that case the immature animals are part of the herd for the purposes of this Chapter, but only so far as they are required to prevent a fall in the numbers of the herd.

(6) References in this Chapter to an animal being added to a herd include references to an immature animal that is not part of the herd reaching maturity.

(7) This Chapter applies—

(a) in relation to animals kept singly as it applies in relation to herds, and

(b) in relation to shares in animals as it applies in relation to animals themselves.

Other interpretative provisions

113

(1) This section applies for the purposes of this Chapter.

(2) A production herd kept by a farmer is of the same class as another production herd only if—

(a) the animals kept in both herds are of the same species (irrespective of breed), and

(b) the products produced for the farmer to sell (for which the herds are wholly or mainly kept) are of the same kinds in both herds.

(3) References to the sale of an animal include references to its death or destruction.

(4) References to the sale proceeds of an animal include references to—

(a) money received from an insurer because of the animal's death or destruction,

(b) compensation money received because of the animal's death or destruction, and

(5) Female animals become mature—

(a) in the case of laying birds, when they first lay, and

(b) in any other case, when they produce their first young.

(6) 20% or more of a herd is a substantial part of the herd, but a lesser percentage than 20% is capable of being a substantial part of the herd depending on the circumstances of the case concerned.

The herd basis rules

Initial cost of herd and value of herd

114

(1) In calculating the profits of the trade, no deduction is allowed for the initial cost of the herd.

(2) In calculating the profits of the trade, the value of the herd is not brought into account.

Addition of animals to herd

115

(1) This section applies for the purpose of calculating the profits of the trade if an animal is added to the herd, unless it replaces another animal in the herd.

(2) No deduction is allowed for the cost of the animal.

(3) If, immediately before it was added to the herd, the animal was part of the farmer's trading stock, the balancing amount is brought into account as a receipt.

(4) “The balancing amount” means—

(a) in the case of an animal bred by the farmer, the cost of breeding the animal and rearing it to maturity, and

(b) in any other case, the sum of the initial cost of acquiring the animal and the cost (if any) incurred by the farmer in rearing the animal to maturity.

Replacement of animals in herd

116

(1) This section applies for the purpose of calculating the profits of the trade if—

(a) an animal (“the old animal”) is sold from the herd or otherwise ceases to be part of the herd, and

(b) it is replaced in the herd by another animal (“the new animal”).

(2) The sale proceeds (if any) of the old animal are brought into account as a receipt.

(3) But this needs to be read with—

(a) section 117 (amount of receipt if old animal slaughtered under disease control order),

(b) section 120 (acquisition of new herd begun within 5 years of sale), and

(4) Except so far as otherwise allowable, a deduction is allowed under this section for the cost of the new animal.

(5) But if the new animal is of better quality than the old animal, the amount of the deduction must not exceed the amount that it would have been necessary to spend to replace the old animal with an animal of the same quality.

Amount of receipt if old animal slaughtered under disease control order

117

(1) This section applies for the purposes of section 116.

(2) If—

(a) the old animal was slaughtered under a disease control order, and

(b) the new animal is of worse quality than the old animal,

the amount brought into account as a receipt under section 116 must not exceed the equivalent amount for the new animal.

(3) For this purpose “a disease control order” means an order made under the law relating to the diseases of animals by—

(a) central government,

(b) a devolved authority,

(d) another public authority.

(4) If, immediately before it was added to the herd, the new animal was part of the farmer's trading stock, “the equivalent amount for the new animal” means—

(a) in the case of an animal bred by the farmer, the cost of breeding the animal and rearing it to maturity, and

(b) in any other case, the sum of the initial cost of acquiring the animal and the cost (if any) incurred by the farmer in rearing the animal to maturity.

(5) Otherwise “the equivalent amount for the new animal” means the cost of the new animal.

Sale of animals from herd

118

(1) This section applies for the purpose of calculating the profits of the trade if an animal is sold from the herd unless—

(a) it is replaced in the herd by another animal (see section 116), or

(b) it is sold as part of the sale of the whole or a substantial part of the herd that takes place all at once or over a period not longer than 12 months (see section 119).

(2) A profit arising from the sale is brought into account as a receipt.

(3) A deduction is allowed for a loss arising from the sale.

(4) The amount of the profit or loss is the difference between the sale proceeds of the animal and the deductible amount for the animal.

(5) “The deductible amount for the animal” means—

(a) in the case of an animal bred by the farmer, the cost of breeding the animal and rearing it to maturity,

(b) in the case of an animal acquired by the farmer for valuable consideration, the sum of the initial cost to the farmer of acquiring the animal and the cost (if any) incurred by the farmer in rearing the animal to maturity, and

(c) in the case of an animal acquired by the farmer but not for valuable consideration, the sum of the market value of the animal when acquired and the cost (if any) incurred by the farmer in rearing the animal to maturity.

Sale of whole or substantial part of herd

119

(1) This section applies for the purpose of calculating the profits of the trade if, either all at once or over a period not longer than 12 months, the herd or a substantial part of the herd is sold unless—

(a) section 120 applies (acquisition of new herd begun within 5 years of sale), or

(b) section 122 applies (replacement of part sold begun within 5 years of sale),

but paragraph (a) is subject to subsection (5) of section 120 (so far as that section provides for a case in which this section is to apply).

(2) A profit arising from the sale is not brought into account as a receipt.

(3) No deduction is allowed for a loss arising from the sale.

Acquisition of new herd begun within 5 years of sale

120

(1) This section applies for the purpose of calculating the profits of the trade if—

(a) either all at once or over a period not longer than 12 months, the herd (“the old herd”) is sold, and

(b) the farmer acquires or starts to acquire another production herd of the same class (“the new herd”) within 5 years of the sale.

(2) Section 116 (replacement of animals in herd) applies as if a number of animals equal to—

(a) the number of animals in the old herd, or

(b) if smaller, the number of animals in the new herd,

had been sold from the old herd and replaced in that herd (but see section 121 (sale for reasons outside farmer's control)).

(3) For the purposes of section 116, the sale proceeds of an animal that is treated as a result of subsection (2) above as if it had been—

(a) sold from the old herd, and

(b) replaced in that herd by another animal (“the new animal”),

are not brought into account as a receipt until the new animal is acquired.

(4) If—

(a) the number of animals in the new herd is smaller than the number of animals in the old herd, and

(b) the difference is not substantial,

section 118 (sale of animals from herd) applies as if a number of animals equal to the difference had been sold from the old herd.

(5) If the number of animals in the new herd is smaller than the number of animals in the old herd and the difference is substantial—

(a) section 119 (sale of whole or substantial part of herd where replacement not begun within 5 years), or

(b) section 122 (sale of substantial part of herd where replacement begun within 5 years),

applies as if a number of animals equal to the difference had been sold from the old herd.

(6) If the number of animals in the new herd is larger than the number of animals in the old herd, section 115 (addition of animals to herd) applies as if a number of animals equal to the difference had been added to the old herd.

(7) For the purposes of this section—

(a) if the difference between the number of animals in the new herd and the number of animals in the old herd is equal to 20% or more of the number of animals in the old herd, the difference is substantial, but

(b) a lesser percentage than 20% is capable of being a substantial difference depending on the circumstances of the case concerned.

Section 120: sale for reasons outside farmer’s control

121

(1) This section applies for the purposes of section 116, as applied by section 120(2).

(2) If—

(a) the farmer was compelled to sell the old herd for reasons wholly outside the farmer's control, and

(b) an animal (“the new animal”) that is treated as a result of section 120(2) as if it replaced an animal sold (“the old animal”) is of worse quality than the old animal,

the amount brought into account as a receipt under section 116 must not exceed the equivalent amount for the new animal.

(3) If, immediately before it was added to the herd, the new animal was part of the farmer's trading stock, “the equivalent amount for the new animal” means—

(a) in the case of an animal bred by the farmer, the cost of breeding the animal and rearing it to maturity, and

(b) in any other case, the sum of the initial cost of acquiring the animal and the cost (if any) incurred by the farmer in rearing the animal to maturity.

(4) Otherwise “the equivalent amount for the new animal” means the cost of the new animal.

Replacement of part sold begun within 5 years of sale

122

(1) This section applies for the purpose of calculating the profits of the trade if—

(a) either all at once or over a period not longer than 12 months, a substantial part of the herd is sold, and

(b) the farmer acquires or starts to acquire animals to replace the part sold within 5 years of the sale.

(2) Section 116 (replacement of animals in herd) applies so far as the animals included in the part sold are replaced (but see section 123 (sale for reasons outside farmer's control)).

(3) The sale proceeds of an animal included in the part sold are not brought into account as a receipt until the animal that replaces it in the herd is acquired.

(4) If some of the animals included in the part sold are not replaced—

(a) a profit arising from their sale is not brought into account as a receipt, and

(b) no deduction is allowed for a loss arising from their sale.

Section 122: sale for reasons outside farmer’s control

123

(1) This section applies for the purposes of section 116, as applied by section 122(2).

(2) If—

(a) the farmer was compelled to sell the part of the herd for reasons wholly outside the farmer's control, and

(b) an animal (“the new animal”) that replaces an animal sold (“the old animal”) is of worse quality than the old animal,

the amount brought into account as a receipt under section 116 must not exceed the equivalent amount for the new animal.

(3) If, immediately before it was added to the herd, the new animal was part of the farmer's trading stock, “the equivalent amount for the new animal” means—

(a) in the case of an animal bred by the farmer, the cost of breeding the animal and rearing it to maturity, and

(b) in any other case, the sum of the initial cost of acquiring the animal and the cost (if any) incurred by the farmer in rearing the animal to maturity.

(4) Otherwise “the equivalent amount for the new animal” means the cost of the new animal.

Elections

Herd basis elections

124

(1) A herd basis election must specify the class of production herd to which it relates.

(2) A herd basis election must be made—

(a) on or before the first anniversary of the normal self-assessment filing date for the tax year in which the first relevant period of account ends, or

(b) if that is the tax year in which the farmer starts to carry on the trade and the farmer is not a firm, on or before the second anniversary of the normal self-assessment filing date for that tax year.

(3) “The first relevant period of account” means the first period of account in which the farmer making the election keeps a production herd of the class to which the election relates (but see subsection (8)).

(4) A herd basis election cannot relate to more than one class of production herd, but separate elections may be made for different classes.

(5) A herd basis election is irrevocable.

(6) A herd basis election has effect in relation to all production herds of the class to which it relates, including any which the farmer—

(a) has ceased to keep before making the election, or

(b) first keeps after making the election.

(7) A herd basis election has effect for every period of account in which the farmer—

(a) carries on the trade, and

(b) keeps a production herd of the class to which the election relates.

(8) If the farmer is a firm and there is a change in the persons who are partners in the firm—

(a) any herd basis election made by the old firm ceases to have effect, and

(b) in relation to the new firm, “the first relevant period of account” means the first period of account in which the new firm keeps a production herd of the class to which the election relates.

Five year gap in which no production herd kept

125

(1) This section applies if a farmer—

(a) keeps a production herd of a particular class, and

(b) ceases altogether to keep herds of that class for a period of at least 5 years.

(2) If the farmer keeps a production herd of that class after the end of that period—

(a) the period of account in which the farmer starts to keep the herd is treated as the first period of account in which the farmer keeps a production herd of that class, and

(b) any herd basis election previously made by the farmer in relation to production herds of that class ceases to have effect.

Slaughter under disease control order

126

(1) This section applies if—

(a) the whole or a substantial part of a production herd kept by a farmer is slaughtered under a disease control order, and

(b) the circumstances of the slaughter are such that compensation is payable in respect of the animals slaughtered.

(2) The farmer may make a herd basis election in respect of the class of production herd involved in the slaughter as if the period of account —

(a) in which the compensation falls to be brought into account in calculating the profits of the trade, or

(b) in which it would (but for the election) fall to be so brought into account,

were the first period of account in which the farmer keeps a production herd of that class.

(3) An election made as a result of this section has effect for that period of account and every subsequent period of account in which the farmer—

(a) carries on the trade, and

(b) keeps a production herd of the class to which the election relates.

(4) In this section “disease control order” means an order made under the law relating to the diseases of animals by—

(a) central government,

(b) a devolved authority,

(d) another public authority.

Preventing abuse of the herd basis rules

127

(1) This section applies if—

(a) a person carrying on a trade (the “transferor”) transfers the whole or part of a production herd to another person (the “transferee”),

(b) the transfer is not by way of sale or is by way of sale but for a price other than that which the animals sold would have fetched if sold in the open market, and

(2) The control condition is met if—

(a) the transferor is a body of persons over which the transferee has control,

(b) the transferee is a body of persons over which the transferor has control, or

(3) For this purpose “body of persons” includes a firm.

(4) The herd basis benefit condition is met if—

(a) the transferor or transferee (or both) might (but for this section) have been expected to obtain a herd basis benefit as a result of the transfer or the transactions of which the transfer is one, and

(b) the herd basis benefit is the sole or main benefit, or one of the main benefits, that the person in question might have been expected to obtain.

(5) For this purpose a “herd basis benefit” is a benefit resulting from—

(a) the obtaining of a right to make a herd basis election,

(b) the herd basis rules applying or not applying, or

(6) For the purpose of calculating the profits of—

(a) the trade carried on by the transferor, and

(b) any trade carried on by the transferee,

the animals transferred are treated as having been sold at the price which they would have fetched if sold in the open market.

Supplementary

Information if election made

128

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

Further assessment etc. if herd basis rules apply

129

(1) If the herd basis rules apply in calculating the profits of a tax year after an assessment for that tax year has become final and conclusive, any assessment or repayment of tax that is necessary to give effect to the rules must be made.

(2) But repayment of tax is due only if a claim for it is made.

Chapter 9 — Trade profits: . . . sound recordings

Introduction

Expenditure to which this Chapter applies

130

(1) This Chapter makes provision about—

(a) expenditure incurred on the production or acquisition of the original master version of a . . . sound recording, . . .

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2) In this Chapter references to production expenditure are to expenditure incurred on the production of the original master version of a . . . sound recording.

(3) In this Chapter references to acquisition expenditure are to expenditure incurred on the acquisition of the original master version of a . . . sound recording.

(4) In this Chapter references to the original master version of a film or sound recording include any rights in the original master version of a . . . sound recording that are held or acquired with it.

(5) In this Chapter references to production or acquisition expenditure do not include—

(a) interest (as to which, see section 29), or

(b) the incidental costs of obtaining finance (as to which, see sections 58 and 59).

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

(7) In this Chapter “any prohibitive rule” means any provision of the Income Tax Acts which—

(a) prohibits a deduction from being made, or

(b) restricts the extent to which it is allowed,

in calculating the profits of a trade.

131

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

Meaning of “original master version” and “certified master version”

132

(1) In this Chapter “original master version” means—

(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) in relation to a sound recording, the original master audio tape or disc.

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

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

Meaning of “relevant period”

133

In this Chapter “relevant period”, in relation to a trade, means—

(a) a period of account of the trade, or

(b) if no accounts of the trade are drawn up for a period, ... a tax year.

Expenditure treated as revenue in nature

134

(1) If a person carrying on a trade incurs production or acquisition expenditure, the expenditure is treated for income tax purposes as expenditure of a revenue nature.

(2) If expenditure is treated under this section as revenue in nature, sums received by the person carrying on the trade from the disposal of the original master version—

(a) are treated for income tax purposes as receipts of a revenue nature, and

(b) are brought into account in calculating the profits of the trade of the relevant period in which they are received.

(3) For this purpose sums received from the disposal of the original master version include—

(a) sums received from the disposal of any interest or right in or over the original master version (including an interest or right created by the disposal), and

(b) insurance, compensation or similar money derived from the original master version.

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

Rules for allocating expenditure

Films and sound recordings: production or acquisition expenditure

135

(1) This section applies for the purpose of calculating the profits of a trade of a relevant period if—

(a) the trade consists of or includes the exploitation of the original master versions of . . . sound recordings,

(b) the original master versions do not constitute trading stock of the trade (within the meaning of section 174),

(c) the person carrying on the trade incurs production or acquisition expenditure in, or before, the relevant period, and

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

(2) A deduction is allowed for the amount of the production or acquisition expenditure allocated to the relevant period, but this is subject to the application of any prohibitive rule.

(3) The person carrying on the trade must allocate to the relevant period so much of the expenditure as is just and reasonable (but see subsection (5)).

(4) In making this allocation regard must be had to the following—

(a) the amount of the expenditure which remains unallocated at the beginning of the period,

(b) the amount of the expenditure incurred in the period,

(c) the proportion which the estimated value of the original master version realised in the period (by way of income or otherwise) bears to the sum of the value so realised and the estimated remaining value at the end of the period, and

(d) the need to bring the whole of the expenditure into account over the time during which the value of the original master version is expected to be realised.

(5) The person carrying on the trade may also allocate to the relevant period a further amount, so long as the total amount allocated to the period does not exceed the value of the original master version realised in the period (by way of income or otherwise).

(6) Expenditure may not be allocated to the relevant period under this section if it is allocated—

(a) under this section to any other relevant period,

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

Certified master versions: special rules for allocating expenditure

Application of provisions about certified master versions

136

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

Certified master versions: preliminary expenditure

137

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

Certified master versions: production or acquisition expenditure

138

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

Certified master versions: limited-budget films

Certified master versions: production expenditure on limited-budget films

139

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

Certified master versions: acquisition expenditure on limited-budget films

140

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

“Total production expenditure in respect of the original master version”

141

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

When expenditure is incurred

142

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

Election for sections 134 to 140 not to apply

143

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

Supplementary

Meaning of “genuinely intended for theatrical release”

144

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

Chapter 10 — Trade profits: certain telecommunication rights

Professions and vocations

145

The provisions of this Chapter apply to professions and vocations as they apply to trades.

Meaning of “relevant telecommunication right”

146

In this Chapter a “relevant telecommunication right” means—

(a) a licence granted under section 8 of the Wireless Telegraphy Act 2006 in accordance with regulations made under section 14 of that Act (bidding for licences),

(b) an indefeasible right to use a telecommunications cable system, or

Expenditure and receipts treated as revenue in nature

147

(1) This section applies if, in accordance with generally accepted accounting practice, an amount in respect of—

(a) expenditure on the acquisition of a relevant telecommunication right, or

(b) a receipt from the disposal of a relevant telecommunication right,

is recognised in the accounts of a trade as an item in the calculation of profit or loss.

(2) The amount is treated for income tax purposes as an item of a revenue nature.

(3) “The acquisition of a relevant telecommunication right” includes—

(a) the extension of rights attached to a relevant telecommunication right, and

(b) if a relevant telecommunication right is subject to a derivative right, the cancellation or restriction of rights attached to the derivative right.

(4) “The disposal of a relevant telecommunication right” includes—

(a) the cancellation or restriction of rights attached to a relevant telecommunication right, and

(b) the granting of a derivative right or the extension of rights attached to a derivative right.

Credits or debits arising from revaluation

148

(1) This section applies if, in accordance with generally accepted accounting practice, an amount in respect of the revaluation of a relevant telecommunication right is recognised in the accounts of a trade (whether or not as an item in the calculation of profit or loss).

(2) The amount is treated for income tax purposes as an item of a revenue nature.

(3) In calculating the profits of the trade, the amount is brought into account for the period of account in which it is recognised.

Chapter 11 — Trade profits: other specific trades

Dealers in securities etc.

Taxation of amounts taken to reserves

149

(1) This section applies for the purpose of calculating the profits of a person's trade if a profit on the sale of securities would be brought into account in calculating the profits of the trade.

(2) Profits and losses from the securities that in accordance with generally accepted accounting practice are—

(a) calculated by reference to the fair value of the securities, and

(b) recognised in the person's statement of recognised gains and losses or statement of changes in equity,

are brought into account in calculating the profits of the trade.

(3) But subsection (2) does not apply—

(a) to an amount so far as deriving from or otherwise relating to an amount brought into account under that subsection in an earlier period of account, or

(b) to an amount recognised for accounting purposes by way of correction of a fundamental error.

(4) In this section “securities” includes—

(a) shares,

(b) rights of unit holders in unit trust schemes to which TCGA 1992 applies as a result of section 99 of TCGA 1992,

(ba) rights of participants in schemes or funds to which TCGA 1992 applies as a result of section 103D of TCGA 1992, and

but does not include a loan relationship (within the meaning of Chapter 2 of Part 4 of FA 1996).

Conversion etc. of securities held as circulating capital

150

(1) This section applies for the purpose of calculating the profits of a trade if—

(a) a transaction falling within subsection (2) occurs in relation to securities (“the original holding”), and

(b) a profit on the sale of the securities would be brought into account in calculating the profits of the trade.

(2) A transaction falls within this subsection if—

(a) it results in a new holding being treated as the same as the original holding as a result of sections 126 to 136 of TCGA 1992 (CGT roll-over relief in cases of conversion etc.), or

(b) it is treated, as a result of section 134 of TCGA 1992 (compensation stock), as an exchange for a new holding which does not involve a disposal of the original holding,

and it does not fall within section 151(1) or 152(1) below (exchanges of gilts for gilt strips and consolidation of gilt strips).

(3) This section does not apply to securities in respect of which unrealised profits or losses, calculated by reference to the fair value of the securities at the end of the period of account, are taken into account in the period of account in which the transaction occurs.

(4) The transaction is treated as not involving a disposal of the original holding and the new holding is treated as the same asset as the original holding.

(5) But if, under the transaction, the person carrying on the trade—

(a) receives consideration in addition to the new holding, or

(b) becomes entitled to receive such consideration,

subsection (4) applies as if the references to the original holding were to the proportion of the original holding given by the following fraction.

(6) The fraction is—

$$NHNH+C$where—NH is the market value of the new holding at the time of the transaction, andC is the market value of the consideration at the time of the transaction or (if the consideration is cash) the amount of the consideration.$

(7) In determining whether subsection (2)(a) applies as a result of section 135 or 136 of TCGA 1992, the reference to capital gains tax in section 137(1) of TCGA 1992 is to be read as a reference to income tax.

(8) In this section “securities” includes—

(a) shares,

(b) loan stocks or similar securities (whether secured or unsecured) of a government, a local or other public authority (in the United Kingdom or elsewhere) or a company,

(ca) rights of participants in schemes or funds to which TCGA 1992 applies as a result of section 103D of TCGA 1992,

(d) in the case of a company with no share capital, interests in the company possessed by members of the company,

(e) quoted options to subscribe for shares which are treated as shares as a result of section 147 of TCGA 1992, and

(f) earn-out rights which are assumed to be securities as a result of section 138A(3) of TCGA 1992.

Exchanges of gilts for gilt strips

151

(1) This section applies for the purpose of calculating the profits of a trade if—

(a) the person carrying it on (“the trader”) exchanges a gilt-edged security for strips of the security, and

(b) a profit on the sale of the security would be brought into account in calculating the profits of the trade.

(2) The security is treated as having been redeemed at the time of the exchange by the payment to the trader of its market value.

(3) The trader is treated as having acquired each strip for the proportion of the market value of the security given by the following fraction.

(4) The fraction is—

$$SVTV$where—SV is the market value of one strip, andTV is the total of the market values of all the strips received in exchange for the security.$

(5) In this section references to market value are to market value at the time of the exchange.

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

(7) See also—

section 153 (meaning of “gilt-edged security” and “strip”), and

section 154 (regulations for determining market value of securities or strips).

Consolidation of gilt strips

152

(1) This section applies for the purpose of calculating the profits of a trade if—

(a) strips of a gilt-edged security are consolidated into a single security by being exchanged by the person carrying on the trade (“the trader”) for the single security, and

(b) a profit on the sale of any of the strips would be brought into account in calculating the profits of the trade.

(2) Each strip is treated as having been redeemed at the time of the exchange by payment to the trader of its market value.

(3) The trader is treated as having acquired the gilt-edged security for an amount equal to the total of the market values of the strips given in exchange.

(4) In this section references to market value are to market value at the time of the exchange.

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

(6) See also—

section 153 (meaning of “gilt-edged security” and “strip”), and

section 154 (regulations for determining market value of securities or strips).

Meaning of “gilt-edged security” and “strip”

153

(1) In this Act “gilt-edged security” means a security which—

(a) is a gilt-edged security for the purposes of TCGA 1992 (see Schedule 9 to that Act), or

(b) will be such a security on the making of an order under paragraph 1 of Schedule 9 to TCGA 1992, if the making of the order is anticipated in the prospectus under which the security is issued.

(2) For the purposes of sections 151 and 152 “strip”, in relation to a gilt-edged security, means a security issued under the National Loans Act 1968 (c. 13) which meets conditions A to C.

(3) Condition A is that the security is issued for the purpose of representing the right to or of securing—

(a) a payment corresponding to a payment of interest or principal remaining to be made under the gilt-edged security, or

(b) two or more payments each corresponding to a payment to be so made.

(4) Condition B is that the security is issued in conjunction with the issue of one or more other securities which, together with that security—

(a) represent the right to, or

(b) secure,

payments corresponding to every payment remaining to be made under the gilt-edged security.

(5) Condition C is that the security is not itself a security which—

(a) represents the right to, or

(b) secures,

payments corresponding to a part of every payment remaining to be made under the gilt-edged security.

Regulations for determining market value of securities or strips

154

(1) The Treasury may by regulations make provision for the purposes of sections 151 and 152 as to the manner of determining the market value at any time of a gilt-edged security (including any strip).

(2) The regulations may—

(a) make different provision for different cases, and

(b) contain such incidental, supplemental, consequential and transitional provision as the Treasury consider appropriate.

(3) The power in this section does not affect the power under section 202(5) of FA 1996 (gilt stripping).

Persons authorised for purposes of FISMA 2000

Levies and repayments under FISMA 2000

155

(1) This section applies for the purpose of calculating the profits of a trade ...

(2) A deduction is allowed for any sum—

(a) spent by the person carrying on the trade in paying a levy, or

(b) paid by that person as a result of an award of costs under costs rules,

so far as it is not otherwise allowable.

(3) A payment made to the person carrying on the trade as a result of a repayment provision is brought into account as a receipt.

(3A) For the purposes of this section “costs rules” means—

(a) rules made under section 230 of FISMA 2000, or

(b) provision relating to costs contained in standard terms fixed under paragraph 18 of Schedule 17 to FISMA 2000.

(4) For the purposes of this section “levy” means—

(a) a payment required under rules made under section 136(2) of FISMA 2000,

(b) a levy imposed under the Financial Services Compensation Scheme,

(d) a payment required under the rules referred to in paragraph 14(1) of Schedule 17 to FISMA 2000 (“scheme rules”) in accordance with paragraph 15(1) of that Schedule, or

(e) a payment required in accordance with the standard terms fixed under paragraph 18 of that Schedule (other than a sum paid as a result of an award of costs under costs rules).

(5) For the purposes of this section “repayment provision” means—

(a) any provision made by virtue of section 136(7) or 214(1)(e) of FISMA 2000, or

(b) any provision made by scheme rules for fees to be refunded in specified circumstances.

Reading this document does not replace reading the official text published on legislation.gov.uk. Contains public sector information licensed under the Open Government Licence v3.0. We assume no responsibility for any inaccuracies arising from the conversion of the original CLML XML to this format.

This text is published under legislation.gov.uk's own terms of reuse, not a Legalize or public-domain licence. legislation.gov.uk
Open Government Licence v3.0 (attribution required)
© Crown and database right. Derived from content available under the Open Government Licence v3.0 from legislation.gov.uk.