Finance (No. 2) Act 2017

• (2) After section 69B (penalty for breach of record-keeping requirements imposed by directions) insert—

(69C) (1) A person (T) is liable to a penalty where— (a) T has entered into a transaction involving the making of a supply by or to T (“the transaction”), and (b) conditions A to C are satisfied. (2) Condition A is that the transaction was connected with the fraudulent evasion of VAT by another person (whether occurring before or after T entered into the transaction). (3) Condition B is that T knew or should have known that the transaction was connected with the fraudulent evasion of VAT by another person. (4) Condition C is that HMRC have issued a decision (“the denial decision”) in relation to the supply which— (a) prevents T from exercising or relying on a VAT right in relation to the supply, (b) is based on the facts which satisfy conditions A and B in relation to the transaction, and (c) applies a relevant principle of EU case law (whether or not in circumstances that are the same as the circumstances in which any relevant case was decided by the European Court of Justice). (5) In this section “VAT right” includes the right to deduct input tax, the right to apply a zero rate to international supplies and any other right connected with VAT in relation to a supply. (6) The relevant principles of EU case law for the purposes of this section are the principles established by the European Court of Justice in the following cases— (a) joined Cases C-439/04 and C-440/04 Axel Kittel v. Belgian State; Belgium v. Recolta Recycling (denial of right to deduct input tax), and (b) Case C-273/11 (b)Mecsek-Gabona Kft v Nemzeti Adó- és Vámhivatal Dél-dunántúli Regionális Adó Főigazgatósága (denial of right to zero rate), as developed or extended by that Court (whether before or after the coming into force of this section) in other cases relating to the denial or refusal of a VAT right in order to prevent abuses of the VAT system. (7) The penalty payable under this section is 30% of the potential lost VAT. (8) The potential lost VAT is— (a) the additional VAT which becomes payable by T as a result of the denial decision, (b) the VAT which is not repaid to T as a result of that decision, or (c) in a case where as a result of that decision VAT is not repaid to T and additional VAT becomes payable by T, the aggregate of the VAT that is not repaid and the additional VAT. (9) Where T is liable to a penalty under this section the Commissioners may assess the amount of the penalty and notify it to T accordingly. (10) No assessment of a penalty under this section may be made more than two years after the denial decision is issued. (11) The assessment of a penalty under this section may be made immediately after the denial decision is made (and notice of the assessment may be given to T in the same document as the notice of the decision). (12) Where by reason of actions involved in making a claim to exercise or rely on a VAT right in relation to a supply T— (a) is liable to a penalty for an inaccuracy under paragraph 1 of Schedule 24 to the Finance Act 2007 for which T has been assessed (and the assessment has not been successfully appealed against by T or withdrawn), or (b) is convicted of an offence (whether under this Act or otherwise), those actions do not give rise to liability to a penalty under this section. (69D) (1) Where— (a) a company is liable to a penalty under section 69C, and (b) the actions of the company which give rise to that liability were attributable to an officer of the company (“the officer”), the officer is liable to pay such portion of the penalty (which may be equal to or less than 100%) as HMRC may specify in a notice given to the officer (a “decision notice”). (2) Before giving the officer a decision notice HMRC must— (a) inform the officer that they are considering doing so, and (b) afford the officer the opportunity to make representations about whether a decision notice should be given or the portion that should be specified. (3) A decision notice— (a) may not be given before the amount of the penalty due from the company has been assessed (but it may be given immediately after that has happened), and (b) may not be given more than two years after the denial decision relevant to that penalty was issued. (4) Where the Commissioners have specified a portion of the penalty in a decision notice given to the officer— (a) section 70 applies to the specified portion as to a penalty under section 69C, (b) the officer must pay the specified portion before the end of the period of 30 days beginning with the day on which the notice is given, (c) section 76(9) applies as if the decision notice were an assessment notified under section 76, and (d) a further decision notice may be given in respect of a portion of any additional amount assessed in an additional assessment. (5) HMRC may not recover more than 100% of the penalty through issuing decision notices in relation to two or more persons. (6) A person is not liable to pay an amount by virtue of this section if the actions of the company concerned are attributable to the person by reference to conduct for which the person has been convicted of an offence. In this subsection “conduct” includes omissions. (7) In this section “company” means a body corporate or unincorporated association but does not include a partnership, a local authority or a local authority association. (8) In its application to a body corporate other than a limited liability partnership “officer” means— (a) a director (including a shadow director within the meaning of section 251 of the Companies Act 2006), (b) a manager, or (c) a secretary. (9) In in its application to a limited liability partnership “officer” means a member. (10) In its application in any other case, “officer” means— (a) a director, (b) a manager, (c) a secretary, or (d) any other person managing or purporting to manage any of the company's affairs. (69E) (1) The Commissioners may publish information about a person if— (a) in consequence of an investigation the person has been found liable to one or more penalties under section 69C (the amount of which has been assessed), and (b) the potential lost VAT in relation to the penalty (or the aggregate of the potential lost VAT in relation to each of the penalties) exceeds £50,000. (2) The information that may be published under subsection (1) is— (a) the person's name (including any trading name, previous name or pseudonym), (b) the person's address (or registered office), (c) the nature of any business carried on by the person, (d) the amount of the penalty or penalties in question, (e) the periods or times to which the actions giving rise to the penalty or penalties relate, (f) any other information that the Commissioners consider it appropriate to publish in order to make clear the person's identity. (3) In a case where— (a) the requirements in subsection (1)(a) and (b) are met in relation to a penalty or penalties for which a company is liable, (b) information about the company is published by virtue of this section, (c) a person (“the officer”) has been given a decision notice under section 69D specifying a portion of the penalty (or, if there is more than one penalty, of any of the penalties) payable by the company as a portion which the officer is liable to pay, and (d) the amount (or, if the decision notice specifies portions of more than one penalty, the aggregate amount) which the officer is liable to pay under the decision notice exceeds £25, 000, the Commissioners may publish information about the officer. (4) The information that may be published under subsection (3) is— (a) the officer's name, (b) the officer's address, (c) the officer's position (or former position) in the company, (d) the amount of any penalty imposed on the company of which a portion is payable by the officer under the decision notice and the portion so payable, (e) the periods or times to which the actions giving rise to any such penalty relate, (f) any other information that the Commissioners consider it appropriate to publish in order to make clear the officer's identity. (5) Information published under this section may be published in any manner that the Commissioners consider appropriate. (6) Before publishing any information under this section the Commissioners must— (a) inform the person or officer to which it relates that they are considering doing so (in the case of an officer, on the assumption that they publish information about the company), and (b) afford the person or officer the opportunity to make representations about whether it should be published. (7) No information may be published under subsection (1) before the day on which the penalty becomes final or, where more than one penalty is involved, the latest day on which any of the penalties becomes final. (8) No information may be published under subsection (1) for the first time after the end of the period of one year beginning with that day. (9) No information may be published under subsection (3) before whichever is the later of— (a) the day mentioned in subsection (7), and (b) the day on which the decision notice given to the officer becomes final. (10) No information may be published under subsection (3) for the first time after the end of the period of one year beginning with the later of the two days mentioned in subsection (9). (11) No information may be published (or continue to be published) under subsection (1) or (3) after the end of the period of three years beginning with the day mentioned in subsection (7). (12) For the purposes of this section a penalty or a decision notice becomes final when the time for any appeal or further appeal relating to it expires or, if later, any appeal or final appeal relating to it is finally determined. (13) The Treasury may by regulations made by statutory instrument— (a) amend subsection (1) to vary the amount for the time being specified in paragraph (b), or (b) amend subsection (3) to vary the amount for the time being specified in paragraph (d). (14) A statutory instrument containing regulations under subsection (13) is subject to annulment in pursuance of a resolution of the House of Commons.

• (3) In section 70 (mitigation of penalties)—

• (a) in the heading, for “and 67” substitute “ , 67, 69A and 69C ”,

• (b) in subsection (1) for “or 69A” substitute “ , 69A or 69C ”, and

• (c) after subsection (4) insert—

(5) In the application of subsections (3) and (4) in relation to a penalty under section 69C, subsection (4) has effect with the omission of paragraphs (b) and (c).

• (4) In section 76 (assessment of amounts due by way of penalty etc), in subsection (1)(b) for “to 69B” (in both places) substitute “ to 69C ”.

• (5) In section 83(1) (appeals), after paragraph (n) insert—

(na) any liability to a penalty under section 69C, any assessment of a penalty under that section or the amount of such an assessment; (nb) the giving of a decision notice under section 69D or the portion of a penalty assessed under section 69C which is specified in such a notice;

.

• (6) After paragraph 21 of Schedule 24 to FA 2007 (penalties for errors: double jeopardy) insert—

(21ZA) (1) A person is not liable to a penalty under paragraph 1 in respect of an inaccuracy if— (a) the inaccuracy involves a claim by the person to exercise or rely on a VAT right (in relation to a supply) that has been denied or refused by HMRC as mentioned in subsection (4) of section 69C of VATA 1994, and (b) the person has been assessed to a penalty under that section (and the assessment has not been successfully appealed against or withdrawn). (2) In sub-paragraph (1)(a) “VAT right” has the same meaning as in section 69C of VATA 1994.

• (7) Section 69C does not apply in relation to transactions entered into before this section comes into force.

Information

Data-gathering from money service businesses

69

• (1) In Part 2 of Schedule 23 to FA 2011 (data-gathering powers: relevant data-holders), after paragraph 13C insert—

(13D) (1) A person is a relevant data-holder if the person— (a) carries on any of the activities in sub-paragraph (2) by way of business, (b) is a relevant person within the meaning of regulation 8(1) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 2017/692), and (c) is not an excluded credit institution. (2) The activities referred to in sub-paragraph (1)(a) are— (a) operating a currency exchange office; (b) transmitting money (or any representation of monetary value) by any means; (c) cashing cheques which are made payable to customers. (3) An excluded credit institution is a credit institution which has permission to carry on the regulated activity of accepting deposits— (a) under Part 4A of the Financial Services and Markets Act 2000 (permission to carry on regulated activities), or (b) resulting from Part 2 of Schedule 3 to that Act (exercise of passport rights by EEA firms). (4) Sub-paragraph (3) is to be read with section 22 of and Schedule 2 to the Financial Services and Markets Act 2000, and any order under that section (classes of regulated activities). (5) In this paragraph “credit institution” has the meaning given by Article 4.1(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms.

• (2) This section applies in relation to relevant data with a bearing on any period (whether before, on or after the day on which this Act is passed).

PART 5 — Final

Northern Ireland welfare payments: updating statutory reference

70

In section 44(2) of FA 2016 (tax treatment of supplementary welfare payments: Northern Ireland) for “the Housing Benefit (Amendment) Regulations (Northern Ireland) 2016 (S.R. (N.I.) 2016 No. 258)” substitute “ the Housing Benefit (Amendment No. 2) Regulations (Northern Ireland) 2016 (S.R. (N.I.) 2016 No. 326) ”.

Interpretation

71

In this Act the following abbreviations are references to the following Acts.

Short title

72

This Act may be cited as the Finance (No. 2) Act 2017.

SCHEDULE 1

PART 1 — Amendments of Part 5B of ITA 2007

Introductory

1

ITA 2007 is amended as follows.

Date by which investment must be made to qualify for SI relief

2

In section 257K(1)(a)(iii) (date by which investment must be made to qualify for SI relief) for “6 April 2019” substitute “ 6 April 2021 ”.

The existing investments requirement

3

After section 257LD insert—

(257LDA) (1) If at the time immediately before the investment is made the investor holds any shares in or debentures of— (a) the social enterprise, or (b) a company which at that time is a qualifying subsidiary of the social enterprise, those shares or debentures must be risk finance investments or (in the case of shares) permitted subscriber shares. (2) A share or debenture is a “risk finance investment” for the purposes of this section if— (a) it is a share that was issued to the investor, or a debenture of which the investor is the holder in return for advancing an amount, and (b) at any time, a compliance statement under section 205, 257ED or 257PB is provided in respect of it or of shares or investments including it. (3) Subscriber shares are “permitted subscriber shares” for the purposes of this section if— (a) they were issued to the investor and have been continuously held by the investor since they were issued, or (b) they were acquired by the investor at a time when the company which issued them— (i) had issued no shares other than subscriber shares, and (ii) had not begun to carry on or make preparations for carrying on any trade or business. (4) In this section “debenture” is to be read in accordance with section 257L(6).

The no disqualifying arrangements requirement

4

After section 257LE insert—

(257LEA) (1) The investment must not be made, and money raised by the social enterprise from the making of the investment must not be employed,— (a) in consequence or anticipation of disqualifying arrangements, or (b) otherwise in connection with disqualifying arrangements. (2) Arrangements are “disqualifying arrangements” if— (a) the main purpose, or one of the main purposes, of the arrangements is to secure both that an activity is or will be carried on by the social enterprise or a 90% social subsidiary of the social enterprise and that— (i) one or more persons (whether or not including any party to the arrangements) may obtain relevant tax relief in respect of a qualifying investment which raises money for the purposes of that activity, or (ii) shares issued by the social enterprise which raise money for the purposes of that activity may comprise part of the qualifying holdings of a VCT, (b) that activity is the relevant qualifying activity, and (c) one or both of conditions A and B are met. (3) Condition A is that, as a (direct or indirect) result of the money raised by the investment being employed as required by section 257MM, an amount representing the whole or the majority of the amount raised is, in the course of the arrangements, paid to or for the benefit of a relevant person or relevant persons. (4) Condition B is that, in the absence of the arrangements, it would have been reasonable to expect that the whole or greater part of the component activities of the relevant qualifying activity would have been carried on as part of another business by a relevant person or relevant persons. (5) For the purposes of this section it is immaterial whether the social enterprise is a party to the arrangements. (6) In this section— - “90% social subsidiary” is to be read in accordance with section 257MV; - “component activities” means the carrying on of a qualifying trade or preparing to carry on such a trade, which constitutes the relevant qualifying activity; - a “qualifying investment” means— 1. shares in the social enterprise, or 2. a qualifying debt investment in the social enterprise (see section 257L); - “qualifying holdings”, in relation to the social enterprise, is to be construed in accordance with section 286 (VCTs: qualifying holdings); - “relevant person” means a person who is a party to the arrangements or a person connected with such a party; - “relevant qualifying activity” means the qualifying trade or activity mentioned in section 257ML(1) for the purposes of which the investment raised money; - “relevant tax relief” has the meaning given by subsection (7). (7) “Relevant tax relief”— (a) in relation to a qualifying debt investment, means SI relief in respect of that investment; (b) in relation to shares, means one or more of the following— (i) SI relief in respect of the shares; (ii) EIS relief (within the meaning of Part 5) in respect of the shares; (iii) SEIS relief (within the meaning of Part 5A) in respect of the shares; (iv) relief under Chapter 6 of Part 4 (losses on disposal of shares) in respect of the shares; (v) relief under section 150A or 150E of TCGA 1992 (EIS and SEIS) in respect of the shares; (vi) relief under Schedule 5B to that Act (EIS: reinvestment) in consequence of which deferral relief is attributable to the shares (see paragraph 19(2) of that Schedule); (vii) relief under Schedule 5BB to that Act (SEIS: re-investment) in consequence of which SEIS re-investment relief is attributable to the shares (see paragraph 4 of that Schedule).

5

• (1) Section 257SH (power to require information where reason to believe SI relief may not be due because of certain kinds of arrangements, etc) is amended as follows.

• (2) In subsection (1) after “257LE,” insert “ 257LEA, ”.

• (3) In subsection (4) at the appropriate place insert—

Section 257LEA	The investor, the social enterprise, any person controlling the social enterprise and any person whom an officer of Revenue and Customs has reason to believe may be a party to the arrangements in question

Limits on amounts that may be invested

6

• (1) In the italic heading before section 257M, after “enterprise” insert “ : general ”.

• (2) Omit sections 257MA and 257MB (which are superseded by the provision inserted by sub-paragraph (3) below).

• (3) After section 257MN insert—

(257MNA) (1) This section applies where— (a) the investment is made before the end of the period of 7 years beginning with the relevant first commercial sale, or (b) the investment is made after that period but— (i) a relevant investment was made in the social enterprise before the end of that period, and (ii) some or all of the money raised by that relevant investment was employed for the purposes of (or of part of) the qualifying activity for which the money raised by the investment is employed. (2) Where this section applies, the total amount of relevant investments made in the social enterprise on or before the date when the investment is made must not exceed £1.5 million. (3) The reference in subsection (2) to relevant investments “made in the social enterprise” is to be read with section 257MNB. (4) In this section— - “qualifying activity” means— 1. a qualifying trade within paragraph (a) of section 257ML(1) carried on by the social enterprise or a 90% social subsidiary of the social enterprise, or 2. an activity within paragraph (b) of section 257ML(1) so carried on; - “the relevant first commercial sale” has the meaning given by section 175A(6), reading— 1. references to the issuing company as references to the social enterprise, 2. references to the issue date as references to the investment date, and 3. references to money raised by the issue of the relevant shares as references to money raised by the investment; - “relevant investment” has the meaning given by section 173A(3) (reading references in section 173A(3) to a company as including any social enterprise). (5) Section 173A(4) and (5) apply to determine for the purposes of this section when a relevant investment is made. (6) Where the social enterprise is an accredited social impact contractor— (a) the reference in subsection (1)(a) to the relevant first commercial sale is to be read as a reference to the date on which the social enterprise first entered into a social impact contract; (b) the reference in subsection (1)(b) to the qualifying activity mentioned there is to be read as a reference to the carrying out of the social impact contract for which the money raised by the investment is employed. (7) For provision about maximum amounts where this section does not apply, see section 257MNC. (257MNB) (1) In section 257MNA(2) the reference to relevant investments “made in the social enterprise” includes— (a) relevant investments made in a company which, at the material date, is or has been a 51% subsidiary of the social enterprise, (b) any other relevant investment made in a company to the extent that the money raised by that relevant investment has been employed for the purposes of a trade carried on by another company (“company X”) which, at the material date, is or has been a 51% subsidiary of the social enterprise, and (c) any other relevant investment made in a company if— (i) the money raised by that relevant investment has been employed for the purposes of a trade carried on by that company or another person, and (ii) after that relevant investment was made, but on or before the material date, that trade became a transferred trade (see subsection (5)). (2) The investments within paragraph (a) of subsection (1)— (a) include investments made in a company mentioned in that paragraph before it became a 51% subsidiary of the social enterprise, but (b) where a company mentioned in that paragraph is not a 51% subsidiary of the social enterprise at the material date, do not include any investments made in that company after it last ceased to be such a subsidiary. (3) For the purposes of subsection (1)(b), where company X is not a 51% subsidiary of the social enterprise at the material date, any money employed after company X last ceased to be such a subsidiary is to be ignored. (4) Where only a proportion of the money raised by a relevant investment is employed for the purposes of a trade which becomes a transferred trade, only the corresponding proportion of that relevant investment is to be treated as falling within subsection (1)(c). (5) For the purposes of this section, if— (a) on or before the material date a trade is transferred— (i) to the social enterprise, (ii) to a company which, at the material date, is or has been a 51% subsidiary of the social enterprise, or (iii) to a partnership of which the social enterprise, or a company within sub-paragraph (ii), is a member, and (b) the trade or part of it was at any time before the transfer carried on by another person, the trade or part mentioned in paragraph (b) becomes a “ transferred trade ” when it is transferred as mentioned in paragraph (a). (6) The cases within subsection (5)(a)— (a) include the case where the trade is transferred to a company within subsection (5)(a)(ii), or a partnership of which such a company is a member, before the company became a 51% subsidiary of the social enterprise, but (b) where a company within subsection (5)(a)(ii) is not a 51% subsidiary of the social enterprise at the material date, do not include the case where the trade is transferred to that company, or a partnership of which that company is a member, after that company last ceased to be such a subsidiary. (7) In this section— - “the material date” means the date on which the investment is made; - “relevant investment” has the meaning given by section 173A(3) (reading references in section 173A(3) to a company as including any social enterprise). (8) Section 173A(4) and (5) apply to determine for the purposes of this section when a relevant investment is made. (9) Section 173A(6) and (7) (meaning of “trade” etc) apply also for the purposes of this section. (257MNC) (1) This section applies where— (a) the investment is made at any time after the period mentioned in section 257MNA(1)(a), and (b) it is not the case that the conditions in section 257MNA(1)(b)(i) and (ii) are met. (2) Where this section applies— (a) the total amount of relevant investments made in the social enterprise on or before the date when the investment is made must not exceed £1.5 million, and (b) the amount invested must not be more than the amount mentioned in subsection (3). (3) That amount is the amount given by the formula— $$( [euro] 200,000 − M RCG + RSI ) − T$where—T is the total of any relevant investments made in the social enterprise in the aid period,M is the total of any de minimis aid, other than relevant investments, that is granted during the aid period—to the social enterprise, orto a qualifying subsidiary of the social enterprise at a time when it is such a subsidiary,RCG is the highest rate at which capital gains tax is charged in the aid period, andRSI is the highest SI rate in the aid period.$ (4) In subsection (3) “the aid period” means the 3 years— (a) ending with the day on which the investment is made, but (b) in the case of that day, including only the part of the day before the investment is made. (5) In this section “de minimis aid” means de minimis aid which fulfils the conditions laid down— (a) in Commission Regulation (EU) No. 1407/2013 (de minimis aid) as amended from time to time, or (b) in any EU instrument from time to time replacing the whole or any part of that Regulation. (6) For the purposes of subsection (3), the amount of any de minimis aid is the amount of the grant or, if the aid is not in the form of a grant, the gross grant equivalent amount within the meaning of that Regulation as amended from time to time. (7) For the purposes of subsection (3), if— (a) the investment or any relevant investment is made, or (b) any aid is granted, in sterling or any other currency that is not the euro, its amount is to be converted into euros at an appropriate spot rate of exchange for the date on which the investment is made or the aid is paid. (8) In this section “relevant investment” has the meaning given by section 173A(3) (reading references in section 173A(3) to a company as including any social enterprise). (9) Section 173A(4) and (5) apply to determine for the purposes of this section when a relevant investment is made. (10) Section 257MNB (which expands the meaning of “relevant investments made in the social enterprise”) applies for the purposes of each of subsections (2) and (3) above as it applies for the purposes of section 257MNA(2). (257MND) (1) This section applies where condition A or condition B is met. (2) Condition A is that— (a) a company becomes a 51% subsidiary of the social enterprise at any time during the shorter applicable period, (b) all or part of the money raised by the investment is employed for the purposes of a qualifying activity which consists wholly or partly of a trade carried on by that company, and (c) that trade (or part of it) was carried on by that company before it became a 51% subsidiary as mentioned in paragraph (a). (3) Condition B is that all or part of the money raised by the investment is employed for the purposes of a qualifying activity which consists wholly or partly of a trade which, during the shorter applicable period, becomes a transferred trade (see subsection (9)). (4) Where this section applies, at each time in the shorter applicable period (“the relevant time”) the total of the relevant investments made in the social enterprise before that time must not exceed £1.5 million. (5) In subsection (4) the reference to relevant investments “made in the social enterprise” includes— (a) relevant investments made in a company which at any time before the relevant time has been a 51% subsidiary of the social enterprise, (b) any other relevant investment made in a company to the extent that the money raised by that relevant investment has been employed for the purposes of a trade carried on by another company (“company X”) which at any time before the relevant time has been a 51% subsidiary of the social enterprise, and (c) any other relevant investment made in a company if— (i) the money raised by that relevant investment has been employed for the purposes of a trade carried on by that company or another person, and (ii) after that relevant investment was made, but before the relevant time, that trade (or part of it) became a transferred trade. (6) The investments within paragraph (a) of subsection (5)— (a) include investments made in a company mentioned in that paragraph before it became a 51% subsidiary of the social enterprise, but (b) where a company mentioned in that paragraph is not a 51% subsidiary of the social enterprise at the relevant time, do not include any investments made in that company after it last ceased to be such a subsidiary. (7) For the purposes of subsection (5)(b), where company X is not a 51% subsidiary of the social enterprise at the relevant time, any money employed after company X last ceased to be such a subsidiary is to be ignored. (8) Where only a proportion of the money raised by a relevant investment is employed for the purposes of a trade which becomes a transferred trade, only the corresponding proportion of that relevant investment is to be treated as falling within subsection (5)(c). (9) For the purposes of this section, if— (a) before the relevant time, a trade is transferred— (i) to the social enterprise, (ii) to a company which, at the relevant time, is or has been a 51% subsidiary of the social enterprise, or (iii) to a partnership of which the social enterprise, or a company within sub-paragraph (ii), is a member, and (b) the trade or part of it was at any time before the transfer carried on by another person, the trade or part mentioned in paragraph (b) becomes a “ transferred trade ” when it is transferred as mentioned in paragraph (a). (10) The cases within subsection (9)(a)— (a) include the case where the trade is transferred to a company within subsection (9)(a)(ii), or a partnership of which such a company is a member, before the company became a 51% subsidiary of the social enterprise, but (b) where a company within subsection (9)(a)(ii) is not a 51% subsidiary of the social enterprise at the relevant time, do not include the case where the trade is transferred to that company, or a partnership of which that company is a member, after that company last ceased to be such a subsidiary. (11) In this section— - “qualifying activity” has the same meaning as in section 257MNA (see subsection (4) of that section); - “relevant investment” has the meaning given by section 173A(3) (reading references in section 173A(3) to a company as including any social enterprise). (12) Section 173A(4) and (5) apply to determine for the purposes of this section when a relevant investment is made. (13) Section 173A(6) and (7) (meaning of “trade” etc) apply also for the purposes of this section. (257MNE) (1) The Treasury may by regulations substitute a different figure for the figure for the time being specified in section 257MNA(2), 257MNC(2) or (3) or 257MND(4). (2) Regulations under this section may make incidental, supplemental, consequential, transitional or saving provision. (3) Regulations under this section may not be made unless a draft of the instrument containing them has been laid before, and approved by a resolution of, the House of Commons.

• (4) In section 1014 (orders and regulations), in subsection (5)(b) (orders and regulations excluded from subsection (4)) for sub-paragraph (iiia) substitute—

(iiia) section 257MNE (social investment relief: amendment of limits on investments),

.

Number of employees limit

7

In section 257MH (the number of employees requirement), in each of subsections (1) and (2) for “500” substitute “ 250 ”.

Financial health requirement

8

After section 257MI insert—

(257MIA) (1) The social enterprise must meet the financial health requirement at the beginning of the shorter applicable period. (2) The financial health requirement is that the social enterprise is not in difficulty. (3) The social enterprise is “in difficulty” if it is reasonable to assume that it would be regarded as a firm in difficulty for the purposes of the Community Guidelines on State Aid for Rescuing and Restructuring Firms in Difficulty (2004/C 244/02).

Purposes for which money raised can be used

9

• (1) Section 257MM (requirement to use money raised and to trade for minimum period) is amended as follows.

• (2) After subsection (3) insert—

(3A) Employing money on the repayment of a loan does not amount to employing the money for the funded purpose.

• (3) In subsection (7)(c) after “(3),” insert “ (3A), ”.

Excluded activities

10

• (1) Section 257MQ (meaning of “excluded activity”) is amended as set out in sub-paragraphs (2) to (4).

• (2) In subsection (1)—

• (a) in paragraph (b) omit “(but see subsection (2))”;

• (b) after paragraph (b) insert—

(ba) leasing (including letting ships on charter or other assets on hire), (bb) receiving royalties or licence fees, (bc) operating or managing nursing homes or residential care homes or managing property used as a nursing home or residential care home (see section 257MQA), (bd) generating electricity, exporting electricity (see subsection (3)) or making electricity generating capacity available, (be) generating heat, (bf) generating any form of energy not within paragraph (bd) or (be), (bg) producing gas or fuel,

;

• (c) omit paragraph (f) (subsidised generation or export of electricity).

• (3) Omit subsection (2).

• (4) After subsection (2) insert—

(3) For the purposes of subsection (1)(bd) electricity is exported if it is exported onto a distribution system or transmission system (within the meaning of section 4 of the Electricity Act 1989).

• (5) After section 257MQ insert—

(257MQA) (1) This section supplements section 257MQ(1)(bc). (2) “Nursing home” means any establishment which exists wholly or mainly for the provision of nursing care— (a) for persons suffering from sickness, injury or infirmity, or (b) for women who are pregnant or have given birth. (3) “Residential care home” means any establishment which exists wholly or mainly for the provision of residential accommodation, together with board and personal care, for persons in need of personal care because of— (a) old age, (b) mental or physical disability, (c) past or present dependence on alcohol or drugs, (d) any past illnesses, or (e) past or present mental disorder. (4) The activities of a person are not to be taken to fall within section 257MQ(1)(bc) unless that person has an estate or interest in, or is in occupation of, the nursing home or residential care home in question.

• (6) Omit section 257MS (subsidised generation or export of electricity).

PART 2 — Consequential amendments

11

• (1) ITA 2007 is amended as follows.

• (2) In section 178A (EIS: the no disqualifying arrangements requirement), in subsection (6), in the definition of “relevant tax relief” after paragraph (b) insert—

(ba) SI relief under Part 5B in respect of the shares;

.

• (3) In section 257CF (SEIS: the no disqualifying arrangements requirement), in subsection (6), in the definition of “relevant tax relief” after paragraph (b) insert—

(ba) SI relief under Part 5B in respect of the shares;

.

• (4) In section 299A (VCTs: the no disqualifying arrangements requirement), in subsection (6), in the definition of “relevant tax relief” after paragraph (c) insert—

(ca) SI relief (within the meaning of Part 5B) in respect of the shares;

.

12

In Schedule 6 to FA 2015 (investment reliefs: excluded activities) omit paragraph 13 (which is superseded by paragraph 10 of this Schedule).

13

In Part 2 of Schedule 24 to FA 2016 (tax advantages about which information may be obtained from certain persons), after the entry relating to relief granted to investors in a company under the enterprise investment scheme insert—

Relief granted to investors in a social enterprise	Part 5B of ITA 2007	The social enterprise

PART 3 — Commencement

14

• (1) The amendments made by paragraphs 3 and 6 to 9 have effect in relation to investments made on or after 6 April 2017.

• (2) Nothing in sub-paragraph (1) prevents investments made before 6 April 2017 from constituting “relevant investments” for any purpose of section 257MNA, 257MNB, 257MNC or 257MND of ITA 2007.

• (3) Subject to sub-paragraph (4), the amendments made by paragraphs 4 and 5 have effect in relation to investments made on or after 6 April 2017.

• (4) Arrangements which include any transaction entered into before 6 April 2017 are not “disqualifying arrangements” for the purposes of section 257LEA of ITA 2007.

15

The amendments made by paragraph 10—

• (a) so far as they apply for the purposes of section 257JD of ITA 2007, come into force on 6 April 2017;

• (b) so far as they apply for the purposes of sections 257MJ and 257MP of ITA 2007, have effect in relation to investments made on or after 6 April 2017.

16

• (1) Subject to sub-paragraph (3), the amendments made by paragraph 11(2) and (3) have effect in relation to shares issued on or after 6 April 2017.

• (2) Subject to sub-paragraph (3), the amendment made by paragraph 11(4) has effect for the purpose of determining whether shares or securities issued on or after 6 April 2017 are to be regarded as comprised in a company's qualifying holdings.

• (3) The amendments made by paragraph 11 do not have effect for the purposes of determining any question whether particular arrangements which include any transaction entered into before 6 April 2017 are “disqualifying arrangements” for the purposes of section 178A, 257CF or 299A of ITA 2007.

SCHEDULE 2

PART 1 — Trades etc: amendments of ITTOIA 2005

1

ITTOIA 2005 is amended as follows.

2

For section 33A (cash basis: capital expenditure) substitute—

(33A) (1) This section applies in relation to the calculation of the profits of a trade on the cash basis. (2) No deduction is allowed for an item of a capital nature incurred on, or in connection with, the acquisition or disposal of a business or part of a business. (3) No deduction is allowed for an item of a capital nature incurred on, or in connection with, education or training. (4) No deduction is allowed for an item of a capital nature incurred on, or in connection with, the provision, alteration or disposal of— (a) any asset that is not a depreciating asset (see subsections (6) and (7)), (b) any asset not acquired or created for use on a continuing basis in the trade, (c) a car (see subsection (14)), (d) land, (e) a non-qualifying intangible asset (see subsections (8) to (11)), or (f) a financial asset (see subsection (12)). (5) But subsection (4)(d) does not prevent a deduction being made for expenditure that— (a) is incurred on the provision of a depreciating asset which, in being provided, is installed or otherwise fixed to land so as to become, in law, part of the land, but (b) is not incurred on, or in connection with, the provision of— (i) a building, (ii) a wall, floor, ceiling, door, gate, shutter or window or stairs, (iii) a waste disposal system, (iv) a sewerage or drainage system, or (v) a shaft or other structure in which a lift, hoist, escalator or moving walkway may be installed. (6) An asset is a “depreciating” asset if, on the date the item of a capital nature is incurred, it is reasonable to expect that before the end of 20 years beginning with that date— (a) the useful life of the asset will end, or (b) the asset will decline in value by 90% or more. (7) The useful life of an asset ends when it could no longer be of use to any person for any purpose as an asset of a business. (8) “Intangible asset” means anything that is capable of being an intangible asset within the meaning of FRS 105 and, in particular, includes— (a) an internally-generated intangible asset, and (b) intellectual property. (9) An intangible asset is “non-qualifying” unless, by virtue of having a fixed maximum duration, it must cease to exist before the end of 20 years beginning with the date on which the item of a capital nature is incurred. (10) An intangible asset is “non-qualifying” if it consists of a right, whether conditional or not, to obtain an intangible asset without a fixed maximum duration by virtue of which that asset must, assuming the right is exercised at the last possible time, cease to exist before the end of 20 years beginning with the date on which the item of a capital nature is incurred. (11) Where— (a) the trader has an intangible asset, and (b) the trader grants a licence or any other right in respect of that asset to another person, any intangible asset that consists of a licence or other right granted to the trader in respect of the intangible asset mentioned in paragraph (a) is “non-qualifying”. (12) A “financial asset” means any right under or in connection with— (a) a financial instrument, or (b) an arrangement that is capable of producing a return that is economically equivalent to a return produced under any financial instrument. (13) A reference to acquisition, provision, alteration or disposal includes potential acquisition, provision, alteration or (as the case may be) disposal. (14) In this section— - “arrangement” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable); - “building” includes any fixed structure; - “car” has the same meaning as in Part 2 of CAA 2001 (see section 268A of that Act); - “financial instrument” has the same meaning as in FRS 105; - “FRS 105” means Financial Reporting Standard 105 (the Financial Reporting Standard applicable to the Micro-entities Regime), issued by the Financial Reporting Council in July 2015; - “intellectual property” means— 1. any patent, trade mark, registered design, copyright or design right, plant breeders' rights or rights under section 7 of the Plant Varieties Act 1997, 2. any right under the law of a country or territory outside the United Kingdom corresponding or similar to a right within paragraph (a), 3. any information or technique not protected by a right within paragraph (a) or (b) but having industrial, commercial or other economic value, or 4. any licence or other right in respect of anything within paragraph (a), (b) or (c); - “provision” includes creation, construction or acquisition; - “the trader” means the person carrying on the trade.

3

In section 95A (application of Chapter 6 of Part 2 (trade profits: receipts) to the cash basis)—

• (a) the existing text becomes subsection (1),

• (b) in that subsection, omit the entry relating to section 96A, and

• (c) after that subsection insert—

(2) Section 96A makes provision about capital receipts in certain cases where the profits of a trade are calculated on the cash basis or have previously been calculated on the cash basis (and see also section 96B).

4

• (1) Section 96A (cash basis: capital receipts) is amended as follows.

• (2) For the heading substitute “ Capital receipts under, or after leaving, cash basis ”.

• (3) For subsections (1) to (3) substitute—

(1) This section applies in relation to a trade carried on by a person in two cases— (a) Case 1 (see subsections (2) to (3A)), and (b) Case 2 (see subsections (3B) to (3E)). (2) Case 1 is a case in which conditions A and B are met. (3) Condition A is that the person receives disposal proceeds or a capital refund in relation to an asset at a time when an election under section 25A (cash basis for trades) has effect in relation to the trade. For the meaning of “disposal proceeds” and “capital refund” see subsections (3F) and (3G). (3A) Condition B is that— (a) an amount of capital expenditure (see subsection (3H)) relating to the asset has been brought into account in calculating the profits of the trade on the cash basis, or (b) an amount of capital expenditure relating to the asset which— (i) has been incurred (or treated as incurred) by the person before the tax year for which the person last entered the cash basis, and (ii) is cash basis deductible in relation to that tax year (see section 96B(4)), has been brought into account in calculating the profits of the trade for a tax year for which no election under section 25A had effect in relation to the trade. (3B) Case 2 is a case in which— (a) condition C is met, and (b) condition D or E is met. (3C) Condition C is that disposal proceeds or a capital refund arise to the person in relation to an asset at a time— (a) when no election under section 25A has effect in relation to the trade, and (b) which is after a time when such an election had had effect in relation to the trade. (3D) Condition D is that an amount of capital expenditure relating to the asset— (a) has been paid at a time when an election under section 25A had effect in relation to the trade, (b) has been brought into account in calculating the profits of the trade on the cash basis, and (c) on the assumption that an election under section 25A had not had effect at the time the expenditure was paid, would not have been qualifying expenditure. (3E) Condition E is that an amount of capital expenditure relating to the asset has been brought into account in calculating the profits of the trade for a tax year— (a) for which no election under section 25A had effect in relation to the trade, and (b) which is before the tax year for which the person last entered the cash basis. The reference in this subsection to expenditure brought into account does not include a reference to expenditure brought into account under CAA 2001 (see section 96B(5)). (3F) “Disposal proceeds” means— (a) any proceeds arising from the disposal of an asset or any part of it, (b) any proceeds arising from the grant of any right in respect of, or any interest in, the asset, or (c) any amount of damages, proceeds of insurance or other compensation received in respect of the asset. See also subsections (4) and (5) for circumstances in which a person is to be regarded as disposing of an asset. (3G) “Capital refund” means an amount that is (in substance) a refund of capital expenditure relating to an asset. (3H) “Capital expenditure” means expenditure of a capital nature incurred, or treated as incurred, on or in connection with— (a) the provision, alteration or disposal of an asset, or (b) the potential provision, alteration or disposal of an asset. (3I) The disposal proceeds or capital refund mentioned in condition A or (as the case may be) condition C are to be brought into account as a receipt in calculating the profits of the trade. (3J) In a case where only part of the total capital expenditure incurred, or treated as incurred, by the person in relation to the asset has been brought into account in calculating the profits of the trade (whether or not on the cash basis), the amount brought into account under subsection (3I) is proportionately reduced. The reference in this subsection to expenditure brought into account includes a reference to expenditure brought into account under CAA 2001 (see section 96B(5)). (3K) Subsection (3I) does not apply if the whole of the amount which would otherwise be brought into account under that subsection— (a) has already been brought into account as a receipt in calculating the profits of the trade under this section, (b) is brought into account as a receipt in calculating the profits of the trade under any other provision of this Part (except section 240D(3) (assets not fully paid for)), or (c) is brought into account under any Part of CAA 2001 as a disposal value. (3L) If part of the amount which would otherwise be brought into account under subsection (3I) has already been or is brought into account as mentioned in subsection (3K), subsection (3I) applies in relation to the remainder of that amount.

• (4) Omit subsection (7).

5

After section 96A insert—

(96B) (1) This section has effect for the purposes of section 96A. (2) Any question as to whether or to what extent expenditure is brought into account in calculating the profits of a trade is to be determined on such basis as is just and reasonable in all the circumstances. (3) A person carrying on a trade “enters the cash basis” for a tax year if— (a) an election under section 25A has effect in relation to the trade for the tax year, and (b) no such election had effect in relation to the trade for the previous tax year. (4) Expenditure is “cash basis deductible” in relation to a tax year if, on the assumption that the expenditure was paid in that tax year, a deduction would be allowed in respect of the expenditure in calculating the profits of the trade on the cash basis for that tax year. (5) Expenditure is “brought into account under CAA 2001” in calculating the profits of a trade if and to the extent that— (a) a capital allowance made under Part 2, 5, 6, 7 or 8 of that Act in respect of the expenditure is treated as an expense in calculating those profits (see, for example, section 247 of that Act), or (b) qualifying expenditure (within the meaning of Part 2, 7 or 8 of CAA 2001) is allocated to a pool for the trade and is set-off against different disposal receipts. (6) An amount of qualifying expenditure is “set-off against different disposal receipts” if— (a) the amount would have been unrelieved qualifying expenditure carried forward in the pool for the trade, but (b) the amount is not so carried forward because (and only because) one or more disposal values in respect of one or more assets, other than the asset in respect of which the qualifying expenditure was incurred (or treated as incurred), have at any time been brought into account in that pool. (7) For the purposes of subsection (6), an amount of qualifying expenditure incurred (or treated as incurred) by a person is not to be regarded as not carried forward because the person enters the cash basis. (8) In this section and in section 96A— - “disposal value” means— 1. in section 96A(3K)(c)— 1. a disposal value for the purposes of Part 2, 4A, 5, 6, 7 8 or 10 of CAA 2001 (for example, in relation to Part 2 of that Act, see (in particular) section 61 of that Act), or 2. proceeds from a balancing event for the purposes of Part 3 or 3A of that Act (see sections 316 and 360O of that Act), and 2. in subsection (6), a disposal value for the purposes of— 1. Part 2 of that Act (see, in particular, section 61 of that Act), 2. Part 7 of that Act (see section 462 of that Act), or 3. Part 8 of that Act (see sections 476 and 477 of that Act); - “market value amount” means the amount that would be regarded as normal and reasonable— 1. in the market conditions then prevailing, and 2. between persons dealing with each other at arm's length in the open market; - “pool” means— 1. the main pool or a class pool to which qualifying expenditure is allocated under Part 2 of CAA 2001 (see section 54 of that Act), 2. a pool to which qualifying expenditure is allocated under Part 7 of that Act (see section 456 of that Act), or 3. a pool to which qualifying expenditure is allocated under Part 8 of that Act (see section 470 of that Act); - “provision” includes creation, construction or acquisition; - “qualifying expenditure” means— 1. qualifying expenditure within the meaning of Part 2 of CAA 2001 (see section 11(4) of that Act for the general rule), 2. qualifying expenditure within the meaning of Part 5 of that Act (see section 395 of that Act), 3. qualifying expenditure within the meaning of Part 6 of that Act (see section 439 of that Act), 4. qualifying expenditure within the meaning of Part 7 of that Act (see section 454 of that Act), or 5. qualifying trade expenditure within the meaning of Part 8 of that Act (see section 468 of that Act); - “unrelieved qualifying expenditure” means unrelieved qualifying expenditure for the purposes of— 1. Part 2 of CAA 2001 (see section 59(1) and (2) of that Act), 2. Part 7 of that Act (see section 461 of that Act), or 3. Part 8 of that Act (see section 475 of that Act).

6

In section 106D (capital receipts), for “(cash basis: capital receipts)” substitute “ (capital receipts under, or after leaving, cash basis) ”.

7

• (1) Section 240C (unrelieved qualifying expenditure) is amended as follows.

• (2) For the heading substitute “ Unrelieved qualifying expenditure: Parts 2, 7 and 8 of CAA 2001 ”.

• (3) In subsection (1)(b), after “unrelieved qualifying expenditure” insert “ relating to the trade ”.

• (4) In subsection (3), for “the relevant portion of the expenditure” substitute “ any cash basis deductible amount of the expenditure ”.

• (5) For subsection (4) substitute—

(4) A “cash basis deductible amount” of the expenditure means any amount of the expenditure for which a deduction would be allowed in calculating the profits of the trade on the cash basis on the assumption that the expenditure was paid in the current tax year.

• (6) In subsection (5), for “The relevant portion” substitute “ Any cash basis deductible amount ”.

• (7) After subsection (5) insert—

(5A) For the purposes of subsection (1)(b), in determining the unrelieved qualifying expenditure the person has to carry forward, disregard sections 59(4), 461A(1) and 475A(1) of CAA 2001 (which provide that an amount is not to be carried forward as unrelieved qualifying expenditure when a person enters the cash basis).

• (8) For subsection (6) substitute—

(6) In this section “unrelieved qualifying expenditure” means unrelieved qualifying expenditure for the purposes of— (a) Part 2 of CAA 2001 (see section 59(1) and (2) of that Act), (b) Part 7 of that Act (see section 461 of that Act), or (c) Part 8 of that Act (see section 475 of that Act).

8

After section 240C insert—

(240CA) (1) This section applies if a person carrying on a mineral extraction trade enters the cash basis for a tax year (“the current tax year”). (2) But this section does not apply if section 240D applies. (3) In calculating the profits of the trade for the current tax year, a deduction is allowed for any amount of expenditure— (a) which would, apart from section 419A(1) of CAA 2001, have been unrelieved qualifying expenditure for the current tax year, and (b) for which a deduction would be allowed in calculating the profits of the trade on the cash basis on the assumption that the expenditure was paid in the current tax year. (4) In this section— - “mineral extraction trade” has the meaning given in section 394 of CAA 2001; - “unrelieved qualifying expenditure” means unrelieved qualifying expenditure for the purposes of Part 5 of CAA 2001 (see section 419 of that Act).

9

• (1) Section 240D (assets not fully paid for) is amended as follows.

• (2) In subsection (1)(b), for “obtained” to the end substitute “ incurred relevant expenditure, and ”.

• (3) After subsection (1) insert—

(1A) “Relevant expenditure” means expenditure— (a) for which a deduction would be allowed in calculating the profits of the trade on the cash basis on the assumption that the expenditure was paid in the tax year, and (b) in respect of which the person has obtained capital allowances under Part 2, 5, 6, 7 or 8 of CAA 2001.

• (4) In subsection (4), for “The amount of any capital allowance obtained in respect of expenditure on the provision of any plant or machinery” substitute “ Any question as to whether or to what extent expenditure is relevant expenditure, or as to whether or to what extent any capital allowance obtained is in respect of relevant expenditure, ”.

• (5) In subsection (5), after “given” insert “ under Part 2 of CAA 2001 ”.

• (6) Omit subsection (6).

10

In section 786(6) (meaning of “rent-a-room receipts”), for “(capital receipts)” substitute “ (capital receipts under, or after leaving, cash basis) ”.

11

In section 805(5) (meaning of “qualifying care receipts”), for “(capital receipts)” substitute “ (capital receipts under, or after leaving, cash basis) ”.

PART 2 — Property businesses: amendments of ITTOIA 2005

12

ITTOIA 2005 is amended as follows.

13

In Chapter 3 of Part 3 (profits of property businesses: basic rules), after section 271 insert—

(271A) (1) The profits of a property business for a tax year must be calculated in accordance with GAAP if condition A, B, C, D or E is met. (2) Condition A is that the business is carried on at any time in the tax year by— (a) a company, (b) a limited liability partnership, (c) a corporate firm, or (d) the trustees of a trust. (3) For the purposes of subsection (2) a firm is a “corporate firm” if a partner in the firm is not an individual. (4) Condition B is that the cash basis receipts for the tax year exceed £150,000. (5) In subsection (4) “the cash basis receipts for the tax year” means the total of the amounts that would be brought into account as receipts in calculating the profits of the property business for the tax year on the cash basis (see section 271D). (6) If the property business is carried on for only part of the tax year, the sum given in subsection (4) is proportionately reduced. (7) Condition C is that— (a) the property business is carried on by an individual (“P”), (b) a share of joint property income is brought into account in calculating the profits of the business for the tax year, (c) a share of that joint property income is brought into account in calculating the profits for the tax year of a property business carried on by another individual (“Q's property business”), and (d) the profits of Q's property business for the tax year are calculated in accordance with GAAP. (8) In subsection (7) “joint property income” means income to which P and Q are treated for income tax purposes as beneficially entitled in equal shares by virtue of section 836 of ITA 2007. (9) Condition D is that— (a) an allowance under Part 3A of CAA 2001 (business premises renovation allowances) is made at any time in calculating the profits of the property business, and (b) if the profits of the business were to be calculated in accordance with GAAP for the tax year, there would be a day in the tax year on which the occurrence of a balancing event (within the meaning of that Part) would give rise to a balancing adjustment for the tax year (see section 360M of that Act). (10) Condition E is that an election under this subsection made by the person who is or has been carrying on the property business has effect in relation to the business for the tax year. (11) An election under subsection (10) must be made on or before the first anniversary of the normal self-assessment filing date for the tax year for which the election is made. (12) The Treasury may by regulations— (a) amend subsection (2); (b) amend subsection (4) so as to substitute another sum for the sum for the time being specified in that subsection. (13) A statutory instrument containing regulations under subsection (12) may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons. (14) Subsection (13) does not apply if the regulations omit one or more paragraphs of subsection (2) and make no other provision. (271B) (1) In this Part, references to calculating the profits of a property business in accordance with GAAP are to calculating the profits in accordance with generally accepted accounting practice, subject to any adjustment required or authorised by law in calculating profits for income tax purposes. (2) A requirement under this Part to calculate profits in accordance with GAAP does not— (a) require a person to comply with the requirements of the Companies Act 2006 or subordinate legislation made under that Act except as to the basis of calculation, or (b) impose any requirements as to audit or disclosure. (3) See section 272 (application of trading income rules: GAAP) which applies only where profits are calculated in accordance with GAAP. (271C) The profits of a property business for a tax year must be calculated on the cash basis if none of conditions A, B, C, D or E in section 271A is met. (271D) (1) In this Part, references to calculating the profits of a property business on the cash basis are to calculating the profits in accordance with subsections (2) and (3). (2) In calculating the profits, receipts of the business are brought into account at the time they are received, and expenses of the business are brought into account at the time they are paid. (3) Subsection (2) is subject to any adjustment required or authorised by law in calculating profits for income tax purposes. (4) For provision about the application of Chapter 4 (profits of property businesses: lease premiums etc) in relation to profits calculated on the cash basis, see section 276A. (5) For provision about the application of Chapter 5 (rules about deductions and receipts) in relation to profits calculated on the cash basis, see section 307A. (6) The following provisions apply only where profits are calculated on the cash basis— (a) section 272ZA (application of trading income rules: cash basis), and (b) Chapter 7A (cash basis: adjustments for capital allowances).

14

In the italic heading before section 272, at the end insert “ : application of trading income rules ”.

15

After that italic heading insert—

(271E) (1) The profits of a property business are calculated in the same way as the profits of a trade. (2) But this is subject to— (a) section 272, which limits the rule in subsection (1) in relation to a property business whose profits are calculated in accordance with GAAP, and (b) section 272ZA, which limits that rule in relation to a property business whose profits are calculated on the cash basis.

16

• (1) Section 272 (profits of a property business: application of trading income rules) is amended as follows.

• (2) For the heading substitute “ Application of trading income rules: GAAP ”.

• (3) Omit subsection (1).

• (4) In subsection (2), for the words before the table substitute “ 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— ”.

• (5) In the table in subsection (2), omit the entry relating to section 25 (generally accepted accounting practice).

17

After section 272 insert—

(272ZA) (1) In relation to a property business whose profits are calculated on the cash basis, 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 28A	money's worth
section 29	interest
In Chapter 4 (rules restricting deductions)—	In Chapter 4 (rules restricting deductions)—
section 34	expenses not wholly and exclusively for trade and unconnected losses
sections 38 to 42 and 44	employee benefit contributions
sections 45 to 47	business entertainment and gifts
section 52	exclusion of double relief for interest
section 53	social security contributions
section 54	penalties, interest and VAT surcharges
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
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(1) and (2)(b) and (c)	industrial development grants
section 106	sums recovered under insurance policies etc
In Chapter 6A (amounts not reflecting commercial transactions)—	In Chapter 6A (amounts not reflecting commercial transactions)—
section 106C	amounts not reflecting commercial transactions
section 106D	capital receipts
section 106E	gifts to charities 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