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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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(6) But see section 225(4) (extended time limit if profits adjusted for some other reason).

Adjustment of profits

223

(1) If a taxpayer makes an averaging claim, the amount taken to be the taxpayer's profits of each of the tax years for which the claim is made is adjusted in accordance with this section.

(2) But this is subject to paragraph 3 of Schedule 1B to TMA 1970 (claim given effect in the last of the two or five tax years).

(3) The amount of the adjusted profits of each of the tax years to which the claim relates is the average of the relevant profits of those tax years.

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

Effect of adjustment

224

(1) The adjusted profits are taken to be the relevant profits of the tax years to which the claim relates for all income tax purposes, including the further application of this Chapter.

(2) This is subject to—

(a) subsection (3) of this section and section 225(2), and

(b) paragraph 3 of Schedule 1B to TMA 1970.

(3) If the relevant profits of one of the tax years are nil, this Chapter does not prevent the taxpayer from obtaining relief under the Income Tax Acts for a loss made by the taxpayer in the tax year in question or any other tax year.

(4) A claim by the taxpayer for relief under any other provision of the Income Tax Acts for any of the tax years to which an averaging claim relates (“the other claim”)—

(a) is not out of time if made on or before the last date on which the averaging claim could have been made, and

(b) if already made, may be amended or revoked on or before that date.

(5) For this purpose—

(a) references to a claim include an election or notice, and

(b) if the other claim is made in a return, the reference to amending or revoking the other claim is to amending the return by amending or omitting the other claim.

(6) For provision determining in which tax year a claim, amendment or revocation made as a result of subsection (4) has effect, see paragraph 4 of Schedule 1B to TMA 1970 (claim, amendment or revocation given effect in the last of the two or five tax years).

Effect of later adjustment of profits

225

(1) This section applies if, after the taxpayer has made an averaging claim, the relevant profits in any one or more of the tax years to which the claim relates are adjusted for another reason.

(2) The averaging claim is ignored.

(3) But this does not prevent a further averaging claim from being made in relation to the taxpayer's profits as adjusted for the other reason.

(4) A further averaging claim is not out of time as long as it is made on or before the first anniversary of the normal self-assessment filing date for the tax year in which the adjustment for the other reason is made.

Chapter 17 — Adjustment income

Introduction

Professions and vocations

226

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

Adjustment on change of basis

Application of Chapter

227

(1) This Chapter applies if—

(a) a person carrying on a trade changes, from one period of account to the next, the basis on which profits of the trade are calculated for income tax purposes,

(b) the old basis accorded with the law or practice applicable in relation to the period of account before the change, and

but does not apply to income which is charged in accordance with section 832 (relevant foreign income charged on the remittance basis).

(2) The practice applicable in any case means the accepted practice in cases of that description as to how profits of a trade should be calculated for income tax purposes.

(3) A person changes the basis on which profits of a trade are calculated for income tax purposes if the person makes—

(a) a change of accounting policy (see subsection (4)), or

(b) a change in the tax adjustments applied (see subsections (5) and (6)).

(4) A “change of accounting policy” includes, in particular—

(a) a change from using UK generally accepted accounting practice to using generally accepted accounting practice with respect to accounts prepared in accordance with international accounting standards, and

(b) a change from using generally accepted accounting practice with respect to accounts prepared in accordance with international accounting standards to using UK generally accepted accounting practice.

(5) A “tax adjustment” means any adjustment required or authorised by law in calculating profits of a trade for income tax purposes.

(6) A “change in the tax adjustments applied”—

(a) does not include a change made in order to comply with amending legislation not applicable to the previous period of account, but

(b) includes a change resulting from a change of view as to what is required or authorised by law or as to whether any adjustment is so required or authorised.

Adjustment income and adjustment expense

228

(1) An amount by way of adjustment must be calculated in accordance with section 231.

(2) If the amount produced by the calculation is positive, it is treated as income and charged to income tax under this Chapter.

It is referred to in this Chapter as “adjustment income”.

(3) If the amount produced by the calculation is negative, a deduction is allowed for it in calculating the profits of the trade.

It is referred to in this Chapter as an “adjustment expense”.

(4) This section is subject to section 234 (no adjustment for certain expenses previously brought into account).

Income charged

229

(1) Tax is charged under this Chapter on the full amount of any adjustment income arising in the tax year.

(2) This is subject to—

(a) sections 237 to 239B (which provide for spreading of adjustment income), and

(b) Part 8 (foreign income: special rules).

Person liable

230

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

Calculation of the adjustment

231

The amount of the adjustment is calculated as follows. Step 1

Treatment of adjustment income and adjustment expense

Treatment of adjustment income

232

(1) Adjustment income is treated as arising on the last day of the first period of account for which the new basis is adopted.

(2) But this is subject to sections 235 (cases where adjustment not required until assets realised or written off) and 236 (change from realisation basis to mark to market).

(3) Adjustment income is treated for the purposes of Part 4 of ITA 2007(loss relief) as profits of the trade for the tax year in which tax is charged on it.

(4) In the case of an individual whose income from the trade is relevant UK earnings within section 189(2)(b) of FA 2004, adjustment income is similarly relevant UK earnings.

Treatment of adjustment expense

233

(1) An adjustment expense is treated as an expense of the trade arising on the last day of the first period of account for which the new basis is adopted.

(2) But this is subject to sections 235 (cases where adjustment not required until assets realised or written off) and 236 (change from realisation basis to mark to market).

Expenses previously brought into account

No adjustment for certain expenses previously brought into account

234

(1) This section applies if, as a result of a change of basis, expenses brought into account before the change on the old basis would on the new basis be brought into account over more than one period of account after the change.

(2) In such a case—

(a) no adjustment is made under this Chapter, and

(b) in calculating the profits of the trade no deduction is allowed for the expenses for any period of account after the change.

Realising or writing off assets

Cases where adjustment not required until assets realised or written off

235

(1) This section applies if there is a change of basis resulting from a tax adjustment affecting the calculation of any of the following amounts.

(2) The amounts are—

(a) any amount brought into account in respect of closing trading stock or closing work in progress in the last period of account before the change of basis,

(b) any amount brought into account in respect of opening trading stock or opening work in progress in the first period of account on the new basis, and

(3) Adjustment income or (as the case may be) an adjustment expense is treated as arising only when the asset to which it relates is realised or written off.

Mark to market

Change from realisation basis to mark to market

236

(1) This section applies if there is a change of basis from—

(a) not recognising a profit or loss on an asset until the asset is realised, to

(b) bringing assets into account in each period of account at a fair value.

(2) So far as—

(a) a receipt within item 1 of step 1 in section 231 represents the fair value of an asset that is trading stock, or

(b) an expense within item 2 of that step relates to such an asset,

adjustment income or (as the case may be) an adjustment expense is treated as not arising until the period of account in which the value of the asset is realised.

(3) In the case of adjustment income, this is subject to any election under section 237 (election for spreading).

(4) In this section “trading stock” has the same meaning as in section 174.

Election for spreading if section 236 applies

237

(1) If section 236 applies, the person who is liable to tax on any adjustment income may elect for the adjustment income to be spread over 6 periods of account.

(2) 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 change of basis occurs.

(3) If an election is made, an amount equal to one-sixth of the amount of the adjustment income—

(a) is treated as arising, and

(b) is charged to tax,

in each of the 6 periods of account beginning with the first period to which the new basis applies.

(4) But if, before the whole of the adjustment income has been charged to tax, the person permanently ceases to carry on the trade, the whole of the amount so far as not previously brought into charge to tax—

(a) is treated as arising, and

(b) is charged to tax,

immediately before the cessation.

Spreading of adjustment income: barristers and advocates

Spreading on ending of exemption for barristers and advocates

238

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

Election to accelerate charge under section 238

239

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

Supplementary

Liability of personal representatives if person liable dies

240

(1) This section applies in the case of the death of a person who would otherwise have been liable to tax under this Chapter on adjustment income.

(2) The tax under this Chapter for which the person would otherwise have been liable—

(a) is to be assessed and charged on the personal representatives, and

(b) is to be a debt due from and payable out of the deceased's estate.

(3) The personal representatives may make any election under this Chapter that the deceased might have made.

Chapter 18 — Post-cessation receipts

Introduction

Professions and vocations

241

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

Charge to tax on post-cessation receipts

242

Income tax is charged on post-cessation receipts arising from a trade.

Extent of charge to tax

243

(1) A post-cessation receipt is chargeable to tax under this Chapter only so far as it is not otherwise chargeable to income or corporation tax.

(2) Accordingly, a post-cessation receipt arising from a trade is not chargeable to tax under this Chapter so far as it is brought into account in calculating the profits of the trade for any period.

(3) A post-cessation receipt is not chargeable to tax under this Chapter if—

(a) it is received by or on behalf of a non-UK resident who is beneficially entitled to it, and

(b) it represents income arising outside the United Kingdom.

(4) A post-cessation receipt is not chargeable to tax under this Chapter if it arises from a trade carried on wholly outside the United Kingdom, other than a person's trade of dealing in or developing UK land.

(5) A post-cessation receipt is not chargeable to tax under this Chapter in the case of a partner in a firm if—

(a) it represents income arising outside the United Kingdom from a trade carried on by the firm, and

(b) the partner's share of the firm's income arising out of the United Kingdom is treated as relevant foreign income by section 857(3) (partners to whom the remittance basis applies).

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

Income charged

244

(1) Tax is charged under this Chapter on the full amount of the receipts received in the tax year.

(2) This is subject to—

(a) sections 254 and 255 (allowable deductions), and

(b) section 257 (election to carry back).

Person liable

245

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

Meaning of “post-cessation receipts”

Basic meaning of “post-cessation receipt”

246

(1) In this Part “post-cessation receipt” means a sum—

(a) which is received after a person permanently ceases to carry on a trade, and

(b) which arises from the carrying on of the trade before the cessation.

(2) For this purpose the reference to a person permanently ceasing to carry on a trade includes a reference to a company ceasing to be within the charge to corporation tax in respect of a trade.

(2A) If, immediately before a person permanently ceases to carry on a trade, the cash basis applies in relation to the trade, a sum is to be treated as a post-cessation receipt only if it would have been brought into account in calculating the profits of the trade on the cash basis had it been received at that time.

(3) Subsection (4) applies if—

(a) a firm carries on a trade, and

(b) a person ceases to be a partner in the firm, ...

(4) The partner is treated for the purposes of this Chapter as permanently ceasing to carry on the trade.

Sums treated as post-cessation receipts

Debts paid after cessation

248

(1) Subsection (2) applies if, in calculating the profits of a trade for income or corporation tax purposes, a deduction is made in respect of a debt under—

(a) section 35 (bad and doubtful debts), or

(b) section 74(1)(j) of ICTA (corresponding corporation tax provision),

and a person permanently ceases to carry on the trade.

(2) A sum received after the cessation is treated as a post-cessation receipt so far as the deduction is made.

(3) Subsection (4) applies if relief is given under section 96 of ITA 2007(relief for post-cessation expenditure) as a result of subsection (1)(b) of that section in respect of a debt owed to a person who has permanently ceased to carry on a trade.

(4) A sum received by the person in payment of the debt is treated as a post-cessation receipt so far as relief is given in respect of the sum.

Debts released after cessation

249

(1) This section applies if—

(a) in calculating the profits of a trade for any period for income or corporation tax purposes, a deduction is allowed for the expense giving rise to a debt owed by the person who carried on the trade,

(b) the person has permanently ceased to carry on the trade at or after the end of that period,

(d) the release is not part of a statutory insolvency arrangement.

(2) The amount released is treated as a post-cessation receipt.

(3) For the purposes of this section the reference to a person permanently ceasing to carry on a trade includes a reference to a company ceasing to be within the charge to corporation tax in respect of a trade.

Receipts relating to post-cessation expenditure

250

(1) This section applies if a person who has permanently ceased to carry on a trade makes a payment in circumstances where relief is available under section 96 of ITA 2007(relief for post-cessation expenditure).

(2) The following sums are treated as post-cessation receipts—

(a) in the case of a payment within section 97(2) or (3) of ITA 2007(payment to remedy defective work etc. or to defray expenses of a claim), the proceeds of insurance, or other sum received, for the purpose of enabling the payment to be made or by means of which it is reimbursed,

(b) in the case of a payment within section 97(4) of ITA 2007(payment to insure against claims for defective work etc.), a refund of the premium, or other sum received, in connection with the insurance, and

(c) in the case of a payment within section 97(5) of ITA 2007(payment for the purpose of collecting a debt), any sum received towards the cost of collecting the debt.

(3) If a sum mentioned in subsection (2) is received in a tax year earlier than the tax year in which the related payment is made, it is treated as having been received in the later tax year (and not the earlier tax year).

(4) Any adjustment required to give effect to subsection (3) is to be made by way of—

(a) amendment of an assessment, or

(b) discharge or repayment of tax.

Transfer of rights if transferee does not carry on trade

251

(1) This section applies if—

(a) a person (“the transferor”) permanently ceases to carry on a trade,

(b) the transferor transfers to another person (“the transferee”) for value the right to receive sums arising from the carrying on of the trade, and

(2) The transferor is treated as receiving a post-cessation receipt.

(3) The amount of the receipt is—

(a) the amount or value of the consideration for the transfer, if the transfer is at arm's length, or

(b) the value of the rights transferred as between parties at arm's length, if the transfer is not at arm's length.

(4) Any sums mentioned in subsection (1)(b) which are received after the cessation of the trade are not post-cessation receipts.

(5) This section is subject to—

(a) section 252 (transfer of trading stock or work in progress), and

(b) section 253 (lump sums paid to personal representatives for copyright etc.).

Sums that are not post-cessation receipts

Transfer of trading stock or work in progress

252

(1) When a person permanently ceases to carry on a trade, a sum realised by—

(a) the transfer of trading stock, or

(b) the transfer of work in progress,

is not a post-cessation receipt if a valuation of the stock or work is brought into account in accordance with Chapter 12 (valuation of stock and work in progress).

(2) This does not prevent a sum from being treated as a post-cessation receipt as a result of an election under section 185 (election for valuation of work in progress at cost).

(3) In this section—

(a) “trading stock” has the meaning given by section 174, and

(b) “work in progress” and “transfer of work in progress” have the meaning given by section 183.

Lump sums paid to personal representatives for copyright etc.

253

(1) A lump sum which is paid to the personal representatives of the author of a literary, dramatic, musical or artistic work as consideration for the assignment by them of—

(a) the copyright in the work, or

(b) the public lending right in the work,

is not a post-cessation receipt.

(2) A lump sum which is paid to the personal representatives of the designer of a design in which design right subsists as consideration for the assignment by them of that right is not a post-cessation receipt.

(3) For the purposes of this section it does not matter whether the whole or a part of the right is assigned.

Deductions

Allowable deductions

254

(1) In calculating the amount on which tax is charged under this Chapter, deductions are allowed in accordance with—

(a) this section, and

(b) section 255,

from the amount which would otherwise be chargeable to tax under this Chapter.

(2) A deduction is allowed for a loss, expense or debit which, if the person carrying on the trade had not permanently ceased to do so—

(a) would have been deducted in calculating the profits of the trade for income or corporation tax purposes, or

(b) would have been deducted from or set off against the profits of the trade for income or corporation tax purposes,

but no deduction is allowed if the loss, expense or debit arises directly or indirectly from the cessation itself.

(2A) If, immediately before the person permanently ceases to carry on the trade, the cash basis applies in relation to the trade, assume for the purposes of subsection (2) that the cash basis applies in relation to the trade.

(2B) If—

(a) the loss or expense is incurred, or the debit arises, in relation to a vehicle, and

(b) immediately before the person permanently ceases to carry on the trade, section 94D (deduction allowable at fixed rate for expenditure on vehicles) applies in relation to the vehicle,

assume for the purposes of subsection (2) that that section applies in relation to the vehicle.

(3) No deduction for an amount is allowed under this section if the amount has been allowed—

(a) under any other provision of the Tax Acts, or

(b) as a result of section 261D of TCGA 1992 (capital gains tax relief for post-cessation expenditure).

Further rules about allowable deductions

255

(1) An amount may not be deducted more than once under section 254.

(2) A deduction under that section of a loss must be made from post-cessation receipts charged for an earlier tax year in preference to those charged for a later tax year.

(3) But this does not authorise the deduction of a loss from post-cessation receipts charged for a tax year before the tax year in which the loss is made.

(4) No deduction may be made under section 254 from any amount that is treated as a post-cessation receipt under—

(a) section 248(4) (debts paid after cessation), or

(b) section 250 (receipts relating to post-cessation expenditure).

Reliefs

Treatment of post-cessation receipts

256

(1) This section applies if—

(a) an individual has permanently ceased to carry on a trade, and

(b) the income arising to the individual from the trade was . . . relevant UK earnings within section 189(2)(b) of FA 2004.

(2) Any post-cessation receipts arising to the individual from the trade are similarly . . . relevant UK earnings.

Election to carry back

257

(1) This section applies if a post-cessation receipt is received by a person (or a person's personal representatives) in a tax year beginning no later than 6 years after the person permanently ceased to carry on the trade.

(2) The person (or the person's personal representatives) may elect that the tax chargeable in respect of the receipt is to be charged as if the receipt had been received on the date of the cessation.

(3) But this is subject to paragraph 5 of Schedule 1B to TMA 1970 (election given effect in the tax year in which the receipt is actually received).

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

Chapter 19 — Supplementary

Changes in trustees and personal representatives

258

(1) This section applies if there is a change—

(a) in the trustees of a trust, or

(b) in the personal representatives of a person,

at a time when they are carrying on a trade, profession or vocation.

(2) For income tax purposes, the change does not result in—

(a) any of the trustees or personal representatives before the change permanently ceasing to carry on the trade, profession or vocation, or

(b) any of the trustees or personal representatives after the change starting to carry on the trade, profession or vocation.

Meaning of “statutory insolvency arrangement”

259

In this Part “statutory insolvency arrangement” means—

(a) a voluntary arrangement that has taken effect under or as a result of the Insolvency Act 1986, the Insolvency (Northern Ireland) Order 1989 or schedule 4 to the Bankruptcy (Scotland) Act 2016,

(b) a compromise or arrangement that has taken effect under Part 26 or 26A of the Companies Act 2006,

(c) any arrangement or compromise of a kind corresponding to any of those mentioned in paragraph (a) or (b) that has taken effect under or by virtue of the law of a country or territory outside the United Kingdom.

Part 3 — Property income

Chapter 1 — Introduction

Overview of Part 3

260

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

(a) Chapter 3 (the profits of a UK property business or an overseas property business),

(b) Chapter 7 (amounts treated as adjustment income under section 330),

(d) Chapter 9 (rent receivable for UK electric-line wayleaves), and

(e) Chapter 10 (post-cessation receipts arising from a UK property business)...

(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

(3) See, in particular, the exemptions under sections 769 (housing grants), 777 (VAT repayment supplements) and 778 (incentives to use electronic communications).

(4) The charges under Chapters 3, 7, 8, 9 and 10 apply to non-UK residents as well as UK residents but this is subject to section 269 (charges on non-UK residents only on UK source income).

(5) This section needs to be read with the relevant priority rules (see sections 2 and 261).

Provisions which must be given priority over Part 3

261

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

(a) Chapter 3 of this Part so far as it relates to an overseas property business or Chapter 8 or 9 of this Part (rent receivable in connection with a UK section 12(4) concern or for UK electric-line wayleaves), and

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

is dealt with under Part 2.

Priority between Chapters within Part 3

262

(1) Any receipt, so far as it falls within—

(a) Chapter 3 so far as it relates to a UK property business, and

(b) Chapter 8 (rent receivable in connection with a UK section 12(4) concern),

is dealt with under Chapter 8.

(2) Any receipt, so far as it falls within—

(a) Chapter 3 so far as it relates to a UK property business, and

(b) Chapter 9 (rent receivable for UK electric-line wayleaves),

is dealt with under Chapter 9.

(3) Any receipt, so far as it falls within Chapter 8 (rent receivable in connection with a UK section 12(4) concern) and Chapter 9 (rent receivable for UK electric-line wayleaves), is dealt with under Chapter 9.

Chapter 2 — Property businesses

Introduction

263

(1) This Chapter explains for the purposes of this Act what is meant by—

(a) a person's UK property business (see section 264), and

(b) a person's overseas property business (see section 265).

(2) Both those sections need to be read with—

(a) section 266 (which explains what is meant by generating income from land), and

(b) section 267 (which provides that certain activities do not count as activities for generating income from land).

(3) In the case of the property business of a firm, the basic rules in sections 264 and 265 are explained in section 859(2) and (3).

(4) References in this Act to an overseas property business are to an overseas property business so far as any profits of the business are chargeable to tax under Chapter 3 (as to which see, in particular, section 269).

(5) Accordingly, nothing in Chapter 4 or 5 is to be read as treating an amount as a receipt of an overseas property business if the profits concerned would not be chargeable to tax under Chapter 3.

(6) In this Act “property business” means a UK property business or an overseas property business.

Basic meaning of UK and overseas property business

UK property business

264

A person's UK property business consists of—

(a) every business which the person carries on for generating income from land in the United Kingdom, and

(b) every transaction which the person enters into for that purpose otherwise than in the course of such a business.

Overseas property business

265

A person's overseas property business consists of—

(a) every business which the person carries on for generating income from land outside the United Kingdom, and

(b) every transaction which the person enters into for that purpose otherwise than in the course of such a business.

Generating income from land

Meaning of “generating income from land”

266

(1) In this Chapter “generating income from land” means exploiting an estate, interest or right in or over land as a source of rents or other receipts.

(2) “Rents” includes payments by a tenant for work to maintain or repair leased premises which the lease does not require the tenant to carry out.

(3) “Other receipts” includes—

(a) payments in respect of a licence to occupy or otherwise use land,

(b) payments in respect of the exercise of any other right over land, and

(4) For the purposes of this section a right to use a caravan or houseboat at only one location is treated as a right deriving from an estate or interest in land.

Activities not for generating income from land

267

For the purposes of this Chapter the following activities are not carried on for generating income from land—

(a) farming or market gardening in the United Kingdom (but see section 9 (UK farming or market gardening treated as trade)),

(b) any other occupation of land (but see section 10 (certain commercial occupation of UK land treated as trade)), and

Chapter 3 — Profits of property businesses: basic rules

Charge to tax on profits of a property business

268

Income tax is charged on the profits of a property business.

Territorial scope of charge to tax

269

(1) Profits of a UK property business are chargeable to tax under this Chapter whether the business is carried on by a UK resident or a non-UK resident.

(2) Profits of an overseas property business are chargeable to tax under this Chapter only if the business is carried on by a UK resident.

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

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

Income charged

270

(1) Tax is charged under this Chapter on the full amount of the profits arising in the tax year.

(2) Subsection (1) is subject to Part 8 (foreign income: special rules).

(3) If, as respects an individual carrying on an overseas property business, the tax year is a split year—

(a) tax is charged under this Chapter on so much of the profits referred to in subsection (1) as arise in the UK part of the tax year, and

(b) the portion of the profits arising in the overseas part of the tax year is, accordingly, not chargeable to tax under this Chapter.

(4) In determining how much of the profits arise in the UK part of the tax year—

(a) determine first how much of the non-CAA profits arise in the UK part by apportioning the non-CAA profits between the UK part and the overseas part on a just and reasonable basis, and

(b) then adjust the portion of the non-CAA profits arising in the UK part by deducting any CAA allowances for the year and adding any CAA charges for the year.

(5) In subsection (4)—

“CAA allowances” means allowances treated under section 250 ... of CAA 2001 (capital allowances for overseas property businesses) as an expense of the business;

“CAA charges” means charges treated under that section as a receipt of the business;

“non-CAA profits” means profits before account is taken of any CAA allowances or CAA charges.

Person liable

271

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

Calculation of profits : application of trading income rules

Profits of a property business: application of trading income rules

272

(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2) In relation to a property business whose profits are calculated in accordance with GAAP, the provisions of Part 2 (trading income) which apply as a result of section 271E(1) are limited to the following—

In Chapter 3 (basic rules)—	In Chapter 3 (basic rules)—
. . .	. . .
section 26	losses calculated on same basis as profits
section 27	receipts and expenses
section 28	items treated under CAA 2001 as receipts and expenses
section 28A	money's worth
section 29	interest
In Chapter 4 (rules restricting deductions)—	In Chapter 4 (rules restricting deductions)—
section 33	capital expenditure
section 34	expenses not wholly and exclusively for trade and unconnected losses
section 35	bad and doubtful debts
sections 36 and 37	unpaid remuneration
sections 38 to 44	employee benefit contributions
sections 45 to 47	business entertainment and gifts
sections 48 to 50B	car ... hire
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
section 52	exclusion of double relief for interest
section 53	social security contributions
section 54	penalties , interest and VAT surcharges and interest
section 55	crime-related payments
section 55A	expenditure on integral features
In Chapter 5 (rules allowing deductions)—	In Chapter 5 (rules allowing deductions)—
section 57	pre-trading expenses
sections 58 and 59	incidental costs of obtaining finance
. . .	. . .
section 69	payments for restrictive undertakings
sections 70 and 71	seconded employees
section 72	payroll deduction schemes: contributions to agents' expenses
sections 73 to 75	counselling and retraining expenses
sections 76 to 80	redundancy payments etc.
section 81	personal security expenses
sections 82 to 86	contributions to local enterprise organisations or urban regeneration companies
sections 86A and 86B	contributions to flood and coastal erosion risk management projects
sections 87 and 88	scientific research
sections 89 and 90	expenses connected with patents, designs and trade marks
section 91	payments to Export Credits Guarantee Department
section 94A	costs of setting up SAYE option scheme or CSOP scheme
section 94AA	deductions in relation to salaried members of limited liability partnerships
In Chapter 5A (deductions allowable at a fixed rate)	In Chapter 5A (deductions allowable at a fixed rate)
section 94C	exclusion of provisions of Chapter 5A for firms with partner who is not an individual
sections 94D to 94G	expenditure on vehicles
In Chapter 6 (receipts)—	In Chapter 6 (receipts)—
section 96	capital receipts
section 97	debts incurred and later released
section 104	distribution of assets of mutual concerns
section 105	industrial development grants
section 106	sums recovered under insurance policies etc.
In Chapter 7 (gifts to charities etc.)—	In Chapter 7 (gifts to charities etc.)—
section 109	receipt by donor or connected person of benefit attributable to certain gifts
In Chapter 10A (long funding leases)—	In Chapter 10A (long funding leases)—
Sections 148A to 148J	Leases of plant or machinery: special rules for long funding leases
In Chapter 11 (other specific trades)—	In Chapter 11 (other specific trades)—
section 155	levies and repayments under FISMA 2000
In Chapter 13 (deductions from profits)—	In Chapter 13 (deductions from profits)—
sections 188 to 191	unremittable amounts

(3) In those provisions the expression “this Part” is to be read as a reference to those provisions as applied by subsection (2) and to the other provisions of Part 3.

Amounts not brought into account as part of a property business

273

(1) The rules for calculating the profits of a property business need to be read with the following provisions of Part 2 (trading income)—

(a) section 19 (tied premises),

(b) section 20 (caravan sites where trade carried on),

(d) section 22(3) (payments for wayleaves).

(2) Those provisions secure that amounts which would otherwise be brought into account in calculating the profits of the business are, or may be, brought into account instead in calculating the profits of a trade.

Relationship between rules prohibiting and allowing deductions

274

(1) Any relevant permissive rule in this Part—

(a) has priority over any relevant prohibitive rule in this Part, but

(b) is subject to—

(i) section 36 (unpaid remuneration), as applied by section 272,

(ii) section 38 (employee benefit contributions), as applied by sections 272 and 272ZA,

(iii) section 48 (car hire), as applied by section 272,

(iv) section 55 (crime-related payments), as applied by sections 272 and 272ZA,

(v) section 272A (finance costs), and

(vi) section 307D (cash basis: modification of deduction for costs of loans).

(1A) But, if the relevant permissive rule would allow a deduction in calculating the profits of a property business in respect of an amount which arises directly or indirectly in consequence of, or otherwise in connection with, relevant tax avoidance arrangements, that rule—

(a) does not have priority under subsection (1)(a), and

(b) is subject to any relevant prohibitive rule in this Part (and to the provisions mentioned in subsection (1)(b)).

(2) In this section “any relevant permissive rule in this Part” means any provision of this Part (apart from sections 291 to 294) which allows a deduction in calculating the profits of a property business.

(3) In this section “any relevant prohibitive rule in this Part”, in relation to any deduction, means any provision of this Part (apart from sections 36, 38, 48 and 55, as applied by section 272 , or sections 38 and 55 as applied by section 272ZA , and apart also from sections 272A and 307D) which might otherwise be read as—

(a) prohibiting the deduction, or

(b) restricting the amount of the deduction.

(3A) In this section “relevant tax avoidance arrangements” means arrangements—

(a) to which the person carrying on the property business is a party, and

(b) the main purpose, or one of the main purposes, of which is the obtaining of a tax advantage (within the meaning of section 1139 of CTA 2010).

“Arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

(4) In this section any reference to any provision of this Part includes any provision applied by section 272 or 272ZA.

Apportionment of profits

Apportionment etc. of profits to tax year

275

(1) This section and sections 275A to 275C apply if a period of account of a property business does not coincide with a tax year.

(2) 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).

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

(4) But the person carrying on the business 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 purposes of the business.

(5) Sections 275A and 275B contain rules for the purpose of avoiding the need to apportion profits or losses under this section (and section 275C makes provision for the person carrying on the business to elect for those rules not to apply).

Chapter 4 — Profits of property businesses: lease premiums etc.

Introduction

276

(1) This Chapter provides for certain amounts (which would otherwise generally be amounts of a capital nature) to be brought into account as receipts in calculating the profits of a property business.

(2) The amounts relate to short-term leases in the case of—

section 277 (lease premiums),

section 278 (amount treated as lease premium where work required),

section 280 (sums payable for surrender of lease), and

section 282 (assignments for profit of lease granted at undervalue).

(3) The amounts relate to any lease in the case of—

section 279 (sums payable instead of rent), and

section 281 (sums payable for variation or waiver of terms of lease).

(4) The amounts relate to the sale of any estate or interest in land in the case of—

section 284 (sales with right to reconveyance), and

section 285 (sale and leaseback transactions).

(5) This Chapter also permits certain deductions in calculating the profits of property businesses carried on by tenants under certain leases (see sections 291 and 292 ; but see also section 276A).

(6) In this Chapter “short-term lease” means a lease whose effective duration is 50 years or less.

Amounts treated as receipts: leases

Lease premiums

277

(1) This section applies if a premium is required to be paid—

(a) under a short-term lease, or

(b) otherwise under the terms subject to which a short-term lease is granted.

(2) The person to whom the premium is due is treated as—

(a) entering into a transaction mentioned in section 264 (if the land to which the lease relates is in the United Kingdom) or section 265 (if that land is outside the United Kingdom), and

(b) receiving the amount calculated under subsections (4) and (5) as a result of that transaction.

(3) That amount is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction for the tax year in which the lease is granted.

(4) The amount of the receipt is given by the formula—

$$P×(50-Y50)$where—P is the premium, andY is the number of complete periods of 12 months (other than the first) comprised in the effective duration of the lease.$

(5) But, if the rule in section 288 (the additional calculation rule) applies, the amount given by the formula in subsection (4) is reduced by the amount calculated in accordance with section 288.

Amount treated as lease premium where work required

278

(1) This section applies if the terms subject to which a lease is granted impose on the tenant an obligation to carry out work on the premises.

(2) The lease is treated for the purposes of section 277 (lease premiums) as requiring the payment of a premium to the landlord (in addition to any other premium).

(3) The amount of the premium is the amount by which the value of the landlord's estate or interest immediately after the commencement of the lease exceeds what its value would have been at that time if the terms of the lease did not impose the obligation on the tenant.

(4) An obligation, or part of an obligation, that requires the carrying out of excepted work is ignored for the purposes of this section.

(5) Work is “excepted work” if the payment for carrying it out would, if the landlord and not the tenant were obliged to carry it out, be deductible as an expense in calculating the profits of the landlord's property business.

Sums payable instead of rent

279

(1) This section applies if—

(a) under the terms subject to which a lease is granted a sum becomes payable by the tenant instead of the whole or a part of the rent for a period, and

(b) the period is 50 years or less.

(2) The person to whom the sum is due is treated as—

(a) entering into a transaction mentioned in section 264 (if the land to which the lease relates is in the United Kingdom) or section 265 (if that land is outside the United Kingdom), and

(b) receiving the amount calculated under subsections (4) and (5) as a result of that transaction.

(3) That amount is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction for the tax year in which the sum becomes payable.

(4) The amount of the receipt is given by the formula—

$$S×(50-Y50)$where—S is the sum payable instead of rent, andY is the number of complete periods of 12 months (other than the first) comprised in the period in relation to which the sum is payable.$

(5) But, if the rule in section 288 (the additional calculation rule) applies, the amount given by the formula in subsection (4) is reduced by the amount calculated in accordance with section 288.

(6) In determining for the purposes of this Chapter the duration of the period in relation to which the sum is payable, any part of the period that falls after the expiry of the effective duration of the lease is excluded.

Sums payable for surrender of lease

280

(1) This section applies if, under the terms subject to which a short-term lease is granted, a sum becomes payable by the tenant as consideration for the surrender of the lease.

(2) The person to whom the sum is due is treated as—

(a) entering into a transaction mentioned in section 264 (if the land to which the lease relates is in the United Kingdom) or section 265 (if that land is outside the United Kingdom), and

(b) receiving the amount calculated under subsections (4) and (5) as a result of that transaction.

(3) That amount is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction for the tax year in which the sum becomes payable.

(4) The amount of the receipt is given by the formula—

$$S×(50-Y50)$where—S is the sum payable as consideration for the surrender of the lease, andY is the number of complete periods of 12 months (other than the first) comprised in the effective duration of the lease.$

(5) But, if the rule in section 288 (the additional calculation rule) applies, the amount given by the formula in subsection (4) is reduced by the amount calculated in accordance with section 288.

Sums payable for variation or waiver of term of lease

281

(1) This section applies if—

(a) a sum becomes payable by the tenant (otherwise than by way of rent) as consideration for the variation or waiver of a term of a lease,

(b) the sum is due to the landlord or a person who is connected with the landlord, and

(2) The person to whom the sum is due is treated as—

(a) entering into a transaction mentioned in section 264 (if the land to which the lease relates is in the United Kingdom) or section 265 (if that land is outside the United Kingdom), and

(b) receiving the amount calculated under subsections (4) and (5) as a result of that transaction.

(3) That amount is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction for the tax year in which the contract providing for the variation or waiver is entered into.

(4) The amount of the receipt is given by the formula—

$$S×(50-Y50)$where—S is the sum payable as consideration for the variation or waiver, andY is the number of complete periods of 12 months (other than the first) comprised in the period for which the variation or waiver has effect.$

(5) But, if the rule in section 288 (the additional calculation rule) applies, the amount given by the formula in subsection (4) is reduced by the amount calculated in accordance with section 288.

(6) In determining for the purposes of this Chapter the duration of the period for which the variation or waiver has effect, any part of the period that falls after the expiry of the effective duration of the lease is excluded.

Assignments for profit of lease granted at undervalue

282

(1) This section applies to an assignment of a short-term lease if—

(a) the lease was granted at an undervalue, and

(b) a profit is made on the assignment.

(2) The person who assigns the lease is treated as—

(a) entering into a transaction mentioned in section 264 (if the land to which the lease relates is in the United Kingdom) or section 265 (if that land is outside the United Kingdom), and

(b) receiving the amount calculated under subsections (4) and (5) as a result of that transaction.

(3) That amount is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction for the tax year in which the consideration for the assignment becomes payable.

(4) The amount of the receipt is given by the formula—

$$P×(50-Y50)$where—P is the lesser of—(a) the profit on the assignment, and(b) the amount by which the undervalue exceeds the total of the profits (if any) made on previous assignments of the lease, andY is the number of complete periods of 12 months (other than the first) comprised in the effective duration of the lease.$

(5) But, if the rule in section 288 (the additional calculation rule) applies, the amount given by the formula in subsection (4) is reduced by the amount calculated in accordance with section 288.

(6) Section 283 explains references in this section to the grant of a lease at an undervalue and the making of a profit on an assignment of a lease.

Provisions supplementary to section 282

283

(1) This section operates for the purposes of section 282.

(2) A lease is granted at an undervalue if the terms subject to which it was granted are such that the landlord who granted it could have required the payment of an additional sum by way of premium, or additional premium, for its grant.

(3) The additional sum is the undervalue.

(4) The test in subsection (2) must be applied—

(a) having regard to values prevailing at the time the lease was granted, and

(b) on the assumption that the negotiations for the lease were at arm's length.

(5) A profit is made on an assignment of a lease if the consideration for the assignment exceeds—

(a) if the lease has not previously been assigned, any premium for which it was granted, or

(b) in any other case, any consideration for which it was last assigned.

(6) The amount of the excess is the profit.

Other amounts treated as receipts

Sales with right to reconveyance

284

(1) This section applies if—

(a) an estate or interest in land is sold subject to terms which provide that it is to be, or may be required to be, reconveyed on a future date to the seller or a person connected with the seller,

(b) the period beginning with the sale and ending with the earliest date on which under the terms of the sale the estate or interest would fall to be reconveyed is 50 years or less, and

(2) The seller is treated as—

(a) entering into a transaction mentioned in section 264 (if the land is in the United Kingdom) or section 265 (if the land is outside the United Kingdom), and

(b) receiving the amount calculated under subsection (4) as a result of that transaction.

(3) That amount is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction for the tax year in which the estate or interest is sold.

(4) The amount of the receipt is given by the formula—

$$E×(50-Y50)$where—E is the amount by which the price at which the estate or interest is sold exceeds the price at which it is to be reconveyed, andY is the number of complete periods of 12 months (other than the first) comprised in the period beginning with the sale and ending with the earliest date on which under the terms of the sale the estate or interest would fall to be reconveyed.$

(5) See section 286 for some provisions which are supplementary to this section.

Sale and leaseback transactions

285

(1) This section applies if—

(a) an estate or interest in land is sold subject to terms which provide for the grant of a lease directly or indirectly out of the estate or interest to the seller or a person connected with the seller,

(b) the period beginning with the sale and ending with the earliest date on which under the terms of the sale the lease would fall to be granted is 50 years or less, and

(i) the amount of any premium for the lease, and

(ii) the value on the date of the sale of the right to receive a conveyance of the reversion immediately after the lease begins to run.

(2) This section does not apply if the lease is granted and begins to run within one month after the sale.

(3) The seller is treated as—

(a) entering into a transaction mentioned in section 264 (if the land is in the United Kingdom) or section 265 (if the land is outside the United Kingdom), and

(b) receiving the amount calculated under subsection (5) as a result of that transaction.

(4) That amount is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction for the tax year in which the estate or interest is sold.

(5) The amount of the receipt is given by the formula—

$$E×(50-Y50)$where—E is the amount by which the price at which the estate or interest is sold exceeds the total of—(a) the amount of any premium for the lease, and(b) the value on the date of the sale of the right to receive a conveyance of the reversion immediately after the lease begins to run, andY is the number of complete periods of 12 months (other than the first) comprised in the period beginning with the sale and ending with the earliest date on which under the terms of the sale the lease would fall to be granted.$

(6) See section 286 for some provisions which are supplementary to this section.

Provisions supplementary to sections 284 and 285

286

(1) This section operates for the purposes of sections 284 (sales with right to reconveyance) and 285 (sale and leaseback transactions).

(2) Subsection (3) explains how to determine for the purposes of section 284 the price at which an estate or interest is to be reconveyed when—

(a) the date on which the estate or interest would fall to be reconveyed is not fixed under the terms of the sale, and

(b) the price at which it is to be reconveyed varies with the date.

(3) The price is taken to be the lowest possible under the terms of the sale.

(4) Subsection (5) explains how to determine for the purposes of section 285 the total of—

(a) the amount of any premium for the lease, and

(b) the value on the date of the sale of the right to receive a conveyance of the reversion immediately after the lease begins to run,

when the date for the grant of the lease is not fixed under the terms of the sale and the total varies with the date.

(5) The total is taken to be the lowest possible under the terms of the sale.

(6) For the purposes of sections 284(3) and 285(4) (receipts of property business for tax year in which estate or interest sold) an estate or interest in land is sold when any of the following occurs—

(a) an unconditional contract for its sale is entered into,

(b) a conditional contract for its sale becomes unconditional, or

(c) an option or right of pre-emption is exercised requiring the seller to enter into an unconditional contract for its sale.

Additional calculation rule for reducing certain receipts

Circumstances in which additional calculation rule applies

287

(1) The rule in section 288 (the additional calculation rule) applies in relation to the calculation of receipts under—

section 277 (lease premiums),

section 279 (sums payable instead of rent),

section 280 (sums payable for surrender of lease),

section 281 (sums payable for variation or waiver of terms of lease), or

section 282 (assignments for profit of lease granted at undervalue).

(2) It applies if conditions A and B are met.

(3) Condition A is that—

(a) in the case of a receipt under section 277, 279 or 280, the lease is granted out of a taxed lease,

(b) in the case of a receipt under section 281, the lease was granted out of a taxed lease, and

(4) A lease is a “taxed lease” for the purposes of this Chapter if—

(a) there is a receipt under any of sections 277 to 282 in respect of the lease, ...

(b) there would be such a receipt, but for the operation of the rule in section 288 (the additional calculation rule) in the calculation of its amount.

(c) there is a receipt under any of sections 217 to 222 of CTA 2009 (receipts in respect of lease premiums, sums payable instead of rent, for surrender of lease and for variation or waiver of terms of lease and assignments) in respect of the lease, or

(d) there would be such a receipt, but for the operation of the rule in section 228 of that Act (the additional calculation rule) in the calculation of its amount.

In this Chapter a receipt falling within paragraph (a), (b), (c) or (d) is referred to as a “taxed receipt”.

(5) Condition B is that the taxed receipt, or if there is more than one, at least one of them, has an unused amount.

(6) See section 290 for an explanation of when a taxed receipt has an “unused amount”.

The additional calculation rule

288

(1) The rule in this section applies if the conditions mentioned in section 287 are met.

(2) The additional calculation rule is that the amount given by the formula in section 277, 279, 280, 281 or 282 must be reduced by the amount calculated in accordance with this section in order to give the amount of the receipt under calculation.

(3) The amount of the reduction is—

(a) if there is one taxed receipt which has an unused amount, the basic relieving amount by reference to that receipt, and

(b) if there is more than one taxed receipt which has an unused amount, the total of the basic relieving amounts by reference to each receipt,

adjusted, if necessary, in the light of section 289(5) (reduction not to exceed amount being reduced).

(4) The basic relieving amount by reference to a taxed receipt is given by the formula—

$$A×LRPTRP$where—A is the unreduced amount of the taxed receipt (which is, generally, the amount given by the formula in section 277, 279, 280, 281 or 282 above, or in section 217, 219, 220, 221 or 222 of CTA 2009, but see section 290(2) to (4) above),LRP is the receipt period of the receipt under calculation, andTRP is the receipt period of the taxed receipt.$

(5) But the basic relieving amount is different if section 289(2) or (4) applies (certain special cases).

(6) For the purposes of this Chapter, the “receipt period” of a receipt is—

(a) in the case of a receipt under section 277 or 280, the effective duration of the lease,

(b) in the case of a receipt under section 279, the period in relation to which the sum payable instead of rent is payable,

(d) in the case of a receipt under section 282, the effective duration of the lease remaining at the date of the assignment, and

(e) in the case of a receipt under Chapter 4 of Part 4 of CTA 2009 (profits of property businesses: lease premiums etc), its receipt period within the meaning of that Chapter (see section 228(6) of that Act).

The additional calculation rule: special cases

289

(1) This section explains how section 288 operates in some special cases.

(2) If—

(a) the receipt under calculation is under any of sections 277 to 281, and

(b) the lease does not extend to the whole of the premises subject to the taxed lease,

the basic relieving amount by reference to a taxed receipt is calculated by multiplying the amount given by the formula in subsection (4) of section 288 by the fraction of those premises which is subject to the lease.

(3) This fraction is calculated on a just and reasonable basis.

(4) If the basic relieving amount given by section 288(4) or subsection (2) above by reference to a taxed receipt would otherwise exceed the unused amount of the taxed receipt, the basic relieving amount is the unused amount.

(5) If the amount of the reduction under section 288 would otherwise exceed the amount given, in respect of the receipt under calculation, by the formula in section 277, 279, 280, 281 or 282, the amount of the reduction is equal to the amount given by the formula.

Meaning of “unused amount” and “unreduced amount”

290

(1) For the purposes of this Chapter, a taxed receipt has an “unused amount” if the unreduced amount exceeds the total of the reductions and deductions referred to in subsection (5).

(2) In this Chapter the “unreduced amount” of a taxed receipt is the amount given, in respect of the taxed receipt, by the formula in—

(a) section 277, 279, 280, 281 or 282 above, or

(b) section 217, 219, 220, 221 or 222 of CTA 2009 (corporation tax provisions corresponding to those listed in paragraph (a)).

(3) Subsection (4) applies—

(a) to a taxed receipt under section 277 (lease premiums) as a result of section 278 (amount treated as lease premium where work required), and

(b) to a taxed receipt under section 217 of CTA 2009 (lease premiums) as a result of section 218 of that Act (amount treated as lease premium where work required).

(4) If the obligation to carry out work included the carrying out of work which gives, or will give, rise to qualifying expenditure under CAA 2001, the unreduced amount of the taxed receipt is calculated as if the obligation had not included the carrying out of that work.

(5) The reductions and deductions mentioned in subsection (1) are—

(a) the reductions under section 288 above or section 228 of CTA 2009 (the additional calculation rule) by reference to the taxed receipt,

(b) the deductions allowed in calculating the profits of a trade, profession or vocation for expenses under section 61 above or section 63 of CTA 2009 (tenant under taxed lease who uses land in connection with trade treated as incurring expenses) by reference to the taxed receipt, and

(c) the deductions allowed in calculating the profits of a property business for expenses under section 292 below or section 232 of CTA 2009 (tenant under taxed lease who uses premises for purposes of property business treated as incurring expenses) by reference to the taxed receipt.

(6) For the purposes of this Chapter references to a reduction under section 288 above or section 228 of CTA 2009 by reference to a taxed receipt are to a reduction under the section concerned so far as attributable to the taxed receipt.

Deductions in relation to certain receipts

Deductions for expenses under section 292

291

(1) Section 292 (tenants under taxed leases treated as incurring expenses) applies in calculating the profits of a property business carried on by the tenant under a taxed lease for the purpose of making deductions for the expenses of the property business.

(2) A deduction is allowed for an expense under section 292 for a qualifying day on which the whole or part of the premises subject to the taxed lease is—

(a) occupied by the tenant for the purpose of carrying on the property business, or

(b) sublet.

(3) But any deduction for an expense under section 292 is subject to the application of any provision of Chapter 4 of Part 2 (as applied to property businesses by section 272).

(4) The amount of the deduction for an expense under section 292 for a qualifying day by reference to a taxed receipt may be reduced in order to comply with section 295 (limit on reductions and deductions).

(5) For the meaning of expressions used in this section, see in particular—

section 287(4) (“taxed lease”), and

section 287(4) (“taxed receipt”).

Tenants under taxed leases treated as incurring expenses

292

(1) The tenant under a taxed lease is treated as incurring an expense of a revenue nature in respect of the premises subject to the taxed lease for each qualifying day.

(2) If there is more than one taxed receipt, this section applies separately in relation to each of them.

(3) A day is a “qualifying day”, in relation to a taxed receipt, if it falls within the receipt period of the taxed receipt.

(4) The amount of the expense for the qualifying day by reference to the taxed receipt is given by the formula—

$$ATRP$where—A is the unreduced amount of the taxed receipt, andTRP is the number of days in the receipt period of the taxed receipt.$

(4A) No expense is to be determined under this section by reference to the taxed receipt if subsection (4B) or (4C) applies.

(4B) This subsection applies if there would have been no taxed receipt but for the application of Rule 1 in section 303 in determining the effective duration of the lease.

(4C) This subsection applies if there would have been no taxed receipt but for the application of Rule 1 in section 243 of CTA 2009 in determining the effective duration of the lease for the purposes of Chapter 4 of Part 4 of that Act.

(5) This section is subject to sections 293 and 294 (restrictions on expenses where the additional calculation rule is relevant).

(6) For the meaning of expressions used in this section, see in particular—

section 288(6) (“receipt period”), and

section 290(2) to (4) (“unreduced amount”).

Restrictions on section 292 expenses: the additional calculation rule

293

(1) This section applies if—

(a) in calculating the amount of a receipt under this Chapter there is a reduction under section 288 (the additional calculation rule) by reference to a taxed receipt, or

(b) in calculating the amount of a receipt under Chapter 4 of Part 4 of CTA 2009 (profits of a property business: lease premiums etc) there is a reduction under section 228 of that Act (the additional calculation rule) by reference to a taxed receipt.

The receipt that is so reduced is referred to in this section as the “lease premium receipt”.

(2) Subsections (3) to (5) provide for the application of section 292 for a qualifying day that falls within the receipt period of the lease premium receipt.

(3) The tenant under the taxed lease is treated as incurring an expense under section 292 for the qualifying day by reference to the taxed receipt only if the daily amount of the taxed receipt exceeds the daily reduction of the lease premium receipt.

(4) If the condition in subsection (3) is met, the amount of the expense under section 292 for the qualifying day by reference to the taxed receipt is equal to that excess.

(5) If the qualifying day falls within the receipt periods of more than one lease premium receipt, the reference in subsection (3) to the daily reduction of the lease premium receipt is to be read as a reference to the total of the daily reductions of each of the lease premium receipts whose receipt period includes the qualifying day.

(6) In this section—

the “daily amount” of the taxed receipt is given by the formula—$ATRP$where—A is the unreduced amount of the taxed receipt (see section 290(2) to (4)), andTRP is the number of days in the receipt period of the taxed receipt, and

the “daily reduction” of a lease premium receipt is given by the formula—$ARRRP$where—AR is the reduction under section 288 above or section 228 of CTA 2009 by reference to the taxed receipt (see section 290(6)), andRRP is the number of days in the receipt period of the lease premium receipt.

(7) Section 294 explains how this section operates if the lease premium receipt is in respect of a lease that has been granted out of the taxed lease and does not extend to the whole of the premises subject to the taxed lease.

Restrictions on section 292 expenses: lease of part of premises

294

(1) This section applies if—

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Income Tax (Trading and Other Income) Act 2005

Adjustment of profits

223

Effect of adjustment

224

Effect of later adjustment of profits

225

Chapter 17 — Adjustment income

Introduction

Professions and vocations

226

Adjustment on change of basis

Application of Chapter

227

Adjustment income and adjustment expense

228

Income charged

229

Person liable

230

Calculation of the adjustment

231

Treatment of adjustment income and adjustment expense

Treatment of adjustment income

232

Treatment of adjustment expense

233

Expenses previously brought into account

No adjustment for certain expenses previously brought into account

234

Realising or writing off assets

Cases where adjustment not required until assets realised or written off

235

Mark to market

Change from realisation basis to mark to market

236

Election for spreading if section 236 applies

237

Spreading of adjustment income: barristers and advocates

Spreading on ending of exemption for barristers and advocates

238

Election to accelerate charge under section 238

239

Supplementary

Liability of personal representatives if person liable dies

240

Chapter 18 — Post-cessation receipts

Introduction

Professions and vocations

241

Charge to tax on post-cessation receipts

Charge to tax on post-cessation receipts

242

Extent of charge to tax

243

Income charged

244

Person liable

245

Meaning of “post-cessation receipts”

Basic meaning of “post-cessation receipt”

246

Other rules about what counts as post-cessation receipts

247

Sums treated as post-cessation receipts

Debts paid after cessation

248

Debts released after cessation

249

Receipts relating to post-cessation expenditure

250

Transfer of rights if transferee does not carry on trade

251

Sums that are not post-cessation receipts

Transfer of trading stock or work in progress

252

Lump sums paid to personal representatives for copyright etc.

253

Deductions

Allowable deductions