Part 1 U.K.Overview

1Overview of ActU.K.

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

(a)Part 2 (trading income),

(b)Part 3 (property income),

(c)Part 4 (savings and investment income), and

(d)Part 5 (certain miscellaneous income).

(2)F1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

(5)This Act also contains—

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

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

(c)special rules for partnerships (see Part 9), and

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

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

2Overview of priority rulesU.K.

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

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

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

(2)See, in particular—

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

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

• section 262 (priority between Chapters within Part 3),

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

• section 367 (priority between Chapters within Part 4),

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

• section 576 (priority between Chapters within Part 5).

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

(4)Section 171(2) of FA 1993 (profits of Lloyd's underwriters charged only under Chapter 2 of Part 2 of this Act) is one example of another rule of law.

Part 2 U.K.Trading income

Chapter 1U.K.Introduction

3Overview of Part 2U.K.

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

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

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

(c)Chapter 18 (post-cessation receipts that are chargeable under this Part).

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

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

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

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

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

4Provisions which must be given priority over Part 2U.K.

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

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

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

is dealt with under Part 3.

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

(a)this Part, and

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

is dealt with under the relevant Part of ITEPA 2003.

Chapter 2U.K.Income taxed as trade profits

Charge to tax on trade profitsU.K.

5Charge to tax on trade profitsU.K.

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

6Territorial scope of charge to taxU.K.

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

(2)Profits of a trade arising to a non-UK resident are chargeable to tax under this Chapter only if they arise—

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

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

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

7Income chargedU.K.

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

(2)For this purpose the profits of a tax year are the profits of the basis period for the tax year.

(3)For the rules identifying the basis period for a tax year, see Chapter 15.

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

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

8Person liableU.K.

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

Trades and trade profitsU.K.

9Farming and market gardeningU.K.

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

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

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

10Commercial occupation of land other than woodlandsU.K.

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

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

(a)on a commercial basis, and

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

(3)This section does not apply—

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

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

(c)if the land comprises woodlands (which is dealt with by section 11).

11Commercial occupation of woodlandsU.K.

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

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

(a)on a commercial basis, and

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

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

12Profits of mines, quarries and other concernsU.K.

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

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

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

(3)Any losses arising out of the land are treated for the purposes of [F2Part 4 of ITA 2007](loss relief) as losses of a trade carried on in the United Kingdom.

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

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

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

(c)canals, inland navigation, docks and drains or levels,

(d)rights of fishing,

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

(f)railways and other kinds of way, and

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

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

13Visiting performersU.K.

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

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

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

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

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

(4)Subsection (2) does not apply—

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

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

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

(a)a person other than the performer, and

(b)that person is of a prescribed description,

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

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

(7)If—

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

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

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

(8)In this section and section 14—

• F3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• “prescribed” means prescribed by regulations,

• “regulations” means regulations made by the Treasury,

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

• F3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

[F4(9)In this section and section 14—

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

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

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

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

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

14Visiting performers: supplementaryU.K.

(1)Regulations may provide—

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

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

(2)Regulations may provide—

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

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

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

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

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

(4)Regulations may—

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

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

15Divers and diving supervisorsU.K.

(1)This section applies if—

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

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

(c)any employment income from the employment would otherwise be chargeable to tax under Part 2 of ITEPA 2003.

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

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

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

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

16Oil extraction and related activitiesU.K.

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

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

(a)oil extraction activities, and

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

(3)“Oil extraction activities” and “oil rights” have the meaning given by section 502(1) of ICTA.

Starting and ceasing to tradeU.K.

17Effect of becoming or ceasing to be a UK residentU.K.

(1)This section applies if—

(a)an individual carries on a trade wholly or partly outside the United Kingdom otherwise than in partnership, and

(b)the individual becomes or ceases to be UK resident.

(2)The individual is treated for income tax purposes—

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

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

(3)But subsection (2) does not prevent a loss made before the change of residence from being [F5deducted under section 83 of ITA 2007 from] profits arising after the change.

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

(5)In the case of a trade carried on by a firm, see sections 852(6) and (7) and 854(5).

18Effect of company starting or ceasing to be within charge to income taxU.K.

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

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

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

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

Trading income and property incomeU.K.

19Tied premisesU.K.

(1)This section applies if —

(a)in the course of carrying on a trade a person (“the trader”) supplies, or is concerned in the supply of, goods sold or used on premises occupied by another person,

(b)the trader has an estate or interest in the premises,

(c)the estate or interest is dealt with as property employed for the purposes of the trade, and

(d)receipts and expenses in connection with the premises would otherwise be brought into account in calculating the profits of a property business of the trader.

(2)Both the receipts and expenses are instead brought into account in calculating the profits of the trade.

(3)Any apportionment of receipts or expenses that is necessary because—

(a)the receipts or expenses do not relate only to the premises, or

(b)the above conditions are met only in relation to part of the premises,

is to be made on a just and reasonable basis.

20Caravan sites where trade carried onU.K.

(1)This section applies if—

(a)a person (“the trader”) carries on material activities connected with the operation of a caravan site,

(b)the activities are, or are part of, a trade, and

(c)receipts from, and expenses of, lettings of caravans or pitches for caravans on the site would otherwise be brought into account in calculating the profits of a property business of the trader.

(2)The trader may instead bring both the receipts and expenses into account in calculating the profits of the trade.

(3)But if the conditions in subsection (1)(a) and (b) are met for only part of a tax year, subsection (2) applies only to the receipts and expenses that would otherwise be brought into account in calculating the profits of the property business for that part of the tax year.

(4)In this section—

• “caravan site” means—

  (a)

  land on which a caravan is stationed for the purposes of human habitation, and

  (b)

  land which is used in conjunction with land on which a caravan is so stationed, and

• “letting” includes a licence to occupy.

21Surplus business accommodationU.K.

(1)This section applies if—

(a)a person (“the trader”) carrying on a trade obtains receipts from a letting of business accommodation that is temporarily surplus to requirements (see subsections (3) and (4)),

(b)the accommodation is not held as trading stock,

(c)the receipts are in respect of part of a building of which another part is used to carry on the trade,

(d)the receipts are relatively small, and

(e)the receipts, and the expenses of the letting, would otherwise be brought into account in calculating the profits of a property business of the trader.

(2)The trader may instead bring both the receipts and expenses into account in calculating the profits of the trade.

(3)Accommodation is temporarily surplus to requirements only if—

(a)it has been used within the last 3 years to carry on the trade or acquired within the last 3 years,

(b)the trader intends to use it to carry on the trade at a later date, and

(c)the letting is for a term of not more than 3 years.

(4)If accommodation is temporarily surplus to requirements at the beginning of a period of account, it continues to be temporarily surplus to requirements until the end of that period.

(5)If under this section any of the receipts from and expenses of a letting are brought into account in calculating the profits of the trade, all subsequent receipts from and expenses of the letting must be dealt with in the same way (but only so long as this section continues to apply).

(6)In this section “letting” includes a licence to occupy.

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

22Payments for wayleavesU.K.

(1)This section applies if—

(a)a person (“the trader”) carries on a trade on some or all of the land to which a wayleave relates,

(b)rent is receivable, or expenses are incurred, by the trader in respect of the wayleave, and

(c)apart from any rent or expenses in respect of a wayleave, no other receipts or expenses in respect of any of the land are brought into account in calculating the profits of any property business of the trader.

(2)If—

(a)the trader would otherwise be liable to tax under Chapter 9 of Part 3 in respect of the rent for the wayleave (rent receivable for UK electric-line wayleaves), or

(b)expenses would otherwise be brought into account in calculating the profits charged under that Chapter,

the trader may instead bring both the rent and expenses into account in calculating the profits of the trade.

(3)If—

(a)rent for the wayleave would otherwise be brought into account in calculating the profits of a property business of the trader, or

(b)expenses incurred by the trader in respect of the wayleave would otherwise be so brought into account,

the trader may instead bring both the rent and expenses into account in calculating the profits of the trade.

(4)In this section “rent” includes—

(a)a receipt mentioned in section 266(3), and

(b)any other receipt in the nature of rent.

(5)In this section “wayleave” means an easement, servitude or right in or over land which is enjoyed in connection with—

(a)an electric, telegraph or telephone wire or cable,

(b)a pipe for the conveyance of any thing, or

(c)any apparatus used in connection with such a pipe.

(6)The reference to the enjoyment of an easement, servitude or right in connection with an electric, telegraph or telephone wire or cable includes (in particular) its enjoyment in connection with—

(a)a pole or pylon supporting such a wire or cable, or

(b)apparatus used in connection with such a wire or cable.

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

Rent-a-room and foster-care reliefU.K.

23Rent-a-room and foster-care reliefU.K.

(1)The rules for calculating the profits of a trade carried on by an individual are subject to Chapter 1 of Part 7 (rent-a-room relief).

(2)That Chapter provides relief on income from the use of furnished accommodation in the individual's only or main residence (see, in particular, sections 792 and 796).

(3)The rules for calculating the profits of a trade, profession or vocation carried on by an individual are subject to Chapter 2 of Part 7 (foster-care relief).

(4)That Chapter provides relief on income from the provision by the individual of foster care (see, in particular, sections 813, 816, 822 and 823).

Chapter 3U.K.Trade profits: basic rules

24Professions and vocationsU.K.

Apart from section 30 (animals kept for trade purposes), the provisions of this Chapter apply to professions and vocations as they apply to trades.

25Generally accepted accounting practiceU.K.

(1)The profits of a trade must be calculated in accordance with generally accepted accounting practice, subject to any adjustment required or authorised by law in calculating profits for income tax purposes.

(2)This does not—

(a)require a person to comply with the requirements of the Companies Act 1985 (c. 6) or the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)) except as to the basis of calculation, or

(b)impose any requirements as to audit or disclosure.

(3)This section is subject to section 160 (barristers and advocates in early years of practice).

(4)This section does not affect provisions of the Income Tax Acts relating to the calculation of the profits of Lloyd's underwriters.

26Losses calculated on same basis as profitsU.K.

(1)The same rules apply for income tax purposes in calculating losses of a trade as apply in calculating profits.

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

27Receipts and expensesU.K.

(1)In the Income Tax Acts, in the context of the calculation of the profits of a trade, references to receipts and expenses are to any items brought into account as credits or debits in calculating the profits.

(2)There is no implication that an amount has been actually received or paid.

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

28Items treated under CAA 2001 as receipts and expensesU.K.

The rules for calculating the profits of a trade need to be read with—

(a)the provisions of CAA 2001 which treat charges as receipts of a trade, and

(b)the provisions of CAA 2001 which treat allowances as expenses of a trade.

29InterestU.K.

For the purpose of calculating the profits of a trade, interest is an item of a revenue nature, whatever the nature of the loan.

30Animals kept for trade purposesU.K.

(1)Animals or other living creatures kept for the purposes of a trade are treated as trading stock if they are not kept wholly or mainly—

(a)for the work they do in connection with the carrying on of the trade,

(b)for public exhibition, or

(c)for racing or other competitive purposes.

(2)But they are not treated as trading stock if they are part of a herd in relation to which a herd basis election has effect (see Chapter 8).

(3)This section applies to shares in animals or other living creatures as it applies to the creatures themselves.

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

31Relationship between rules prohibiting and allowing deductionsU.K.

(1)Any relevant permissive rule in this Part—

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

(b)is subject to sections 48 (car or motor cycle hire) and 55 (crime-related payments).

(2)In this section “any relevant permissive rule in this Part” means any provision of—

(a)Chapter 5 (apart from sections 60 to 67),

(b)Chapter 11, or

(c)Chapter 13,

which allows a deduction in calculating the profits of a trade.

(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 48 and 55) which might otherwise be read as—

(a)prohibiting the deduction, or

(b)restricting the amount of the deduction.

Chapter 4U.K.Trade profits: rules restricting deductions

IntroductionU.K.

32Professions and vocationsU.K.

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

Capital expenditureU.K.

33Capital expenditureU.K.

In calculating the profits of a trade, no deduction is allowed for items of a capital nature.

Wholly and exclusively and losses rulesU.K.

34Expenses not wholly and exclusively for trade and unconnected lossesU.K.

(1)In calculating the profits of a trade, no deduction is allowed for—

(a)expenses not incurred wholly and exclusively for the purposes of the trade, or

(b)losses not connected with or arising out of the trade.

(2)If an expense is incurred for more than one purpose, this section does not prohibit a deduction for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purposes of the trade.

Bad and doubtful debtsU.K.

35Bad and doubtful debtsU.K.

(1)In calculating the profits of a trade, no deduction is allowed for a debt owed to the person carrying on the trade, except so far as—

(a)the debt is bad,

(b)the debt is estimated to be bad, or

(c)the debt is released wholly and exclusively for the purposes of the trade as part of a statutory insolvency arrangement.

(2)If the debtor is bankrupt or insolvent, the whole of the debt is estimated to be bad for the purposes of subsection (1)(b), except so far as any amount may reasonably be expected to be received on the debt.

Unpaid remunerationU.K.

36Unpaid remunerationU.K.

(1)This section applies if, in calculating the profits of a trade of a period of account—

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

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

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

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

37Unpaid remuneration: supplementaryU.K.

(1)For the purposes of section 36 an amount charged in the accounts in respect of employees' remuneration includes an amount for which provision is made in the accounts with a view to its becoming employees' remuneration.

(2)For the purposes of section 36 it does not matter whether an amount is charged for—

(a)particular employments, or

(b)employments generally.

(3)If the profits of the trade are calculated before the end of the 9 month period mentioned in section 36(2)—

(a)it must be assumed, in making the calculation, that any remuneration which is unpaid when the calculation is made will not be paid before the end of that period, but

(b)if the remuneration is subsequently paid before the end of that period, nothing in this subsection prevents the calculation being revised and any tax return being amended accordingly.

(4)For the purposes of this section and section 36 remuneration is paid when it—

(a)is treated as received by an employee for the purposes of ITEPA 2003 by section 18, 19, 31 or 32 of that Act (receipt of money and non-money earnings), or

(b)would be so treated if it were not exempt income.

(5)In this section and section 36—

• “employee” includes an office-holder and “employment” therefore includes an office, and

• “remuneration” means an amount which is or is treated as earnings for the purposes of ITEPA 2003.

Employee benefit contributionsU.K.

38Restriction of deductionsU.K.

(1)This section applies if, in calculating the profits of a person's trade of a period—

(a)the profits of the trade of the period are required to be calculated for income tax purposes, and

(b)a deduction would otherwise be allowable for the period for any employee benefit contributions made or to be made by the person (“the employer”) (but see subsection (4)).

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

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

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

(3)An amount disallowed under subsection (2) is allowed as a deduction for a subsequent period so far as—

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

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

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

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

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

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

(d)contributions under an accident benefit scheme.

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

(5)See also—

• section 39 (making of “employee benefit contributions”),

• section 40 (provision of qualifying benefits),

• section 41 (timing and amount of certain qualifying benefits),

• section 42 (provision or payment out of employee benefit contributions),

• section 43 (profits calculated before end of 9 month period), and

• section 44 (interpretation of sections 38 to 44).

39Making of “employee benefit contributions”U.K.

(1)For the purposes of section 38 the employer makes an “employee benefit contribution” if—

(a)the employer pays money or transfers an asset to another person (“the third party”), and

(b)the third party is entitled or required, under the terms of an employee benefit scheme, to hold or use the money or asset for or in connection with the provision of benefits to, or in respect of, present or former employees of the employer.

(2)For this purpose “employee benefit scheme” means a trust, scheme or other arrangement for the benefit of persons who are, or include, present or former employees of the employer.

40Provision of qualifying benefitsU.K.

(1)For the purposes of section 38 qualifying benefits are provided if there is—

(a)a payment of money, or

(b)a transfer of assets,

which meets condition A, B, C or D.

(2)Condition A is that the payment or transfer gives rise both to an employment income tax charge and to an NIC charge.

(3)Condition B is that the payment or transfer would give rise to both charges if—

(a)the duties of the employment in respect of which the payment or transfer was made were performed in the United Kingdom, and

(b)the person in respect of whose employment the payment or transfer was made met at all relevant times the conditions as to residence or presence in Great Britain or Northern Ireland prescribed under section 1(6) of the Contributions and Benefits Act.

(4)Condition C is that the payment or transfer is made in connection with the termination of the recipient's employment with the employer.

(5)Condition D is that the payment or transfer is made under an employer-financed retirement benefits scheme.

(6)None of the conditions is met if the payment or transfer is by way of loan.

(7)In this section—

• “the Contributions and Benefits Act” means—

  (a)

  the Social Security Contributions and Benefits Act 1992 (c. 4), or

  (b)

  the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7),

• “employment income tax charge” means a charge to tax under ITEPA 2003 (whether on the recipient or on someone else), and

• “NIC charge” means a liability to pay national insurance contributions under section 6 (Class 1 contributions), section 10 (Class 1A contributions) or section 10A (Class 1B contributions) of the Contributions and Benefits Act.

41Timing and amount of certain qualifying benefitsU.K.

(1)If the provision of a qualifying benefit—

(a)takes the form of a payment of money, and

(b)is not made under an employer-financed retirement benefits scheme,

the benefit is provided for the purposes of section 38 when the money is treated as received for the purposes of Chapter 4 of Part 2 of ITEPA 2003 (applying the rules in section 18 of that Act (receipt of money earnings)).

(2)If the provision of a qualifying benefit takes the form of a transfer of an asset, the amount provided for the purposes of section 38 is the total of—

(a)the amount (if any) spent on the asset by the third party, and

(b)in a case where the asset was transferred to the third party by the employer, the amount of the deduction that would be allowable as mentioned in subsection (1) of that section in respect of the transfer.

(3)But if the amount given by subsection (2) is more than the amount that—

(a)is charged to tax under ITEPA 2003 in respect of the transfer, or

(b)would be so charged if condition B in section 40 were met,

the deduction allowable under section 38(2) or (3) is limited to that lower amount.

42Provision or payment out of employee benefit contributionsU.K.

(1)For the purposes of section 38(2)(a)—

(a)any qualifying benefits provided, or

(b)any qualifying expenses paid,

by the third party after the receipt by the third party of employee benefit contributions are treated as being provided or paid out of the contributions.

(2)This operates up to the total amount of the contributions reduced by the amount of any benefits or expenses previously provided or paid as mentioned in section 38(2)(a).

(3)For the purposes of section 38(3)(a) any qualifying benefits provided by the third party after the receipt by the third party of employee benefit contributions are treated as being provided out of the contributions.

(4)This operates up to the total amount of the contributions reduced by the amount of any benefits or expenses previously provided or paid as mentioned in section 38(2)(a) or (3)(a).

(5)For the purposes of this section no account is taken of any other amount received or paid by the third party.

43Profits calculated before end of 9 month periodU.K.

(1)This section applies if the profits of the trade are calculated before the end of the 9 month period mentioned in section 38(2).

(2)It must be assumed, in making the calculation, that any benefits, expenses or contributions which are not provided, paid or made when the calculation is made will not be provided, paid or made before the end of that period.

(3)But if the benefits, expenses or contributions are subsequently provided, paid or made before the end of that period, nothing in this section prevents the calculation being revised and any tax return being amended accordingly.

44Interpretation of sections 38 to 44U.K.

(1)In this section and sections 38 to 43—

• “accident benefit scheme” means an employee benefit scheme under which benefits may be provided only by reason of a person's disablement, or death, caused by an accident occurring during the person's service as an employee of the employer,

• “employee benefit contribution” is to be read in accordance with section 39(1),

• “employee benefit scheme” has the meaning given by section 39(2),

• “the employer” is to be read in accordance with section 38(1),

• “employer-financed retirement benefits scheme” has the same meaning as in Chapter 2 of Part 6 of ITEPA 2003 (see section 393A of that Act),

• “qualifying benefits” is to be read in accordance with section 40,

• “qualifying expenses” includes any expenses of the third party (other than the provision of benefits to employees of the employer)—

  (a)

  which are incurred in operating the employee benefit scheme, and

  (b)

  which, if incurred by the employer, would be deductible in calculating for income tax purposes the employer's profits for any period, and

• “the third party” is to be read in accordance with section 39(1).

(2)A reference in this section and sections 38 to 43 to a person's employee includes the holder of an office under that person, and “employment” is to be read accordingly.

Business entertainment and giftsU.K.

45Business entertainment and gifts: general ruleU.K.

(1)The general rule is that no deduction is allowed in calculating the profits of a trade for expenses incurred in providing entertainment or gifts in connection with the trade.

(2)A deduction for expenses which are incurred—

(a)in paying sums to or on behalf of an employee of the person carrying on the trade (“the trader”), or

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

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

(3)The general rule is subject to exceptions—

• for entertainment (see section 46), and

• for gifts (see section 47).

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

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

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

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

46Business entertainment: exceptionsU.K.

(1)The prohibition in section 45 on deducting expenses incurred in providing entertainment does not apply in either of cases A and B.

(2)Case A is where—

(a)the entertainment is of a kind which it is the trader's trade to provide, and

(b)the entertainment is provided in the ordinary course of the trade either for payment or free of charge in order to advertise to the public generally.

(3)Case B is where the entertainment is provided for employees of the trader unless—

(a)the entertainment is also provided for others, and

(b)the provision of the entertainment for the employees is incidental to its provision for the others.

47Business gifts: exceptionsU.K.

(1)The prohibition in section 45 on deducting expenses incurred in providing gifts does not apply in any of cases A, B, C and D.

(2)Case A is where—

(a)the gift is of an item which it is the trader's trade to provide, and

(b)the item is given away in the ordinary course of the trade in order to advertise to the public generally.

(3)Case B is where the gift incorporates a conspicuous advertisement for the trader unless—

(a)the gift is food, drink, tobacco or a token or voucher exchangeable for goods, or

(b)the cost of the gift to the trader, together with any other gifts (except food, drink, tobacco or a token or voucher exchangeable for goods) given to the same person in the same basis period, exceeds £50.

The Treasury may by order amend the sum for the time being specified in paragraph (b) so as to increase it.

(4)Case C is where gifts are provided for employees of the trader unless—

(a)gifts are also provided for others, and

(b)the provision of the gifts for the employees is incidental to the provision of gifts for the others.

(5)Case D is where the gift is given to—

(a)a charity,

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

(c)the Trustees of the National Heritage Memorial Fund.

Car or motor cycle hireU.K.

48Car or motor cycle hireU.K.

(1)This section applies if, in calculating the profits of a trade, a deduction is allowed for expenses incurred on the hiring of a car or motor cycle—

(a)which is not a qualifying hire car or motor cycle (see section 49(2)), and

(b)the retail price of which when new exceeds £12,000.

(2)The amount of the deduction which would otherwise be allowable is reduced by multiplying the amount by the fraction—

(3)Subsection (4) applies if the deduction is reduced as a result of subsection (2) and subsequently—

(a)there is a rebate (however described) of the hire charges, or

(b)a debt in respect of any of the hire charges is released otherwise than as part of a statutory insolvency arrangement.

(4)The amount that, as a result of the rebate or release—

(a)is brought into account as a receipt of the trade under section 97 (debts incurred and later released), or

(b)is treated as a post-cessation receipt under section 249 (debts released after cessation),

is reduced by multiplying it by the fraction in subsection (2).

(5)The power under section 74(4) of CAA 2001 to increase or further increase the sums of money specified in Chapter 8 of Part 2 of CAA 2001 includes the power to increase or further increase the sum of money specified in subsection (1)(b) or (2).

49Car or motor cycle hire: supplementaryU.K.

(1)In section 48 “car or motor cycle” means a mechanically propelled road vehicle other than one—

(a)of a construction primarily suited for the conveyance of goods or burden of any description, or

(b)of a type not commonly used as a private vehicle and unsuitable for such use.

(2)In section 48 “a qualifying hire car or motor cycle” means a car or motor cycle which—

(a)is hired under a hire-purchase agreement (see subsection (3)) under which there is no option to purchase,

(b)is hired under a hire-purchase agreement under which there is an option to purchase exercisable on the payment of a sum equal to not more than 1% of the retail price of the car when new, or

(c)is a qualifying hire car for the purposes of Part 2 of CAA 2001 (under section 82 of CAA 2001).

(3)For this purpose “hire-purchase agreement” means an agreement under which—

(a)goods are bailed or (in Scotland) hired in return for periodical payments by the person to whom they are bailed or hired, and

(b)the property in the goods will pass to that person if the terms of the agreement are complied with and one or more of the following events occurs,

but does not include a conditional sale agreement (see subsection (5)).

(4)The events are—

(a)the exercise of an option to purchase by that person,

(b)the doing of any other specified act by any party to the agreement, and

(c)the happening of any other specified event.

(5)A “conditional sale agreement” means an agreement for the sale of goods under which—

(a)the purchase price or part of it is payable by instalments, and

(b)the goods are to remain the property of the seller (even though they are to be in the possession of the buyer) until specified conditions as to the payment of instalments or otherwise are met.

(6)In this section and section 48 “new” means unused and not second-hand.

50Hiring cars (but not motor cycles) with low carbon dioxide emissionsU.K.

(1)Section 48 does not apply to expenses incurred on the hiring of—

(a)a car with low CO2 emissions, or

(b)an electrically-propelled car.

(2)For this purpose—

• “car with low CO2 emissions” has the meaning given by section 45D of CAA 2001, and

• “electrically-propelled car” has the meaning given by that section.

(3)This section does not apply to expenses incurred on the hiring of any such car—

(a)under a contract entered into after 31st March 2008, or

(b)for a period of hire which begins after that date.

Patent royaltiesU.K.

51Patent royaltiesU.K.

F6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interest paymentsU.K.

52Exclusion of double relief for interestU.K.

(1)In calculating the profits of a trade, no deduction is allowed—

(a)for any tax year for the interest paid on a debt or liability in respect of which relief is given under [F7section 383 of ITA 2007](see subsection (5) below), or

(b)for any relevant tax year for other interest on the same debt or liability.

(2)A tax year is a relevant one if the interest in respect of which the relief is given could, but for the relief, have been brought into account in calculating the profits of a trade of the tax year.

(3)For the purposes of subsection (1)(b) all interest which—

(a)is capable of being brought into account in calculating the profits of a trade, and

(b)is payable by any person on money advanced to the person on current account,

is treated as interest on the same debt.

(4)It does not matter if the money is advanced—

(a)on one or more accounts, or

(b)by the same or separate banks or other persons.

(5)For the purposes of this section relief under [F7section 383 of ITA 2007] is to be treated as given only when the claim for the relief can no longer be varied (whether on appeal or otherwise).

(6)For a rule excluding relief under [F7section 383 of ITA 2007] if interest on a debt or liability is brought into account in calculating the profits of a trade, see [F8section 387(2) and (3) of that Act] .

Social security contributionsU.K.

53Social security contributionsU.K.

(1)In calculating the profits of a trade, no deduction is allowed for any contribution paid by any person under—

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

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

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

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

(a)a secondary Class 1 contribution,

(b)a Class 1A contribution, or

(c)a Class 1B contribution,

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

Penalties, interest and VAT surchargesU.K.

54Penalties, interest and VAT surchargesU.K.

(1)In calculating the profits of a trade, no deduction is allowed for any penalty or interest mentioned in the first column of the following table.

(2)This is the table—

(3)In calculating the profits of a trade, no deduction is allowed for any surcharge under section 59 of VATA 1994.

Crime-related paymentsU.K.

55Crime-related paymentsU.K.

(1)In calculating the profits of a trade, no deduction is allowed for expenses incurred—

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

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

(2)In calculating the profits of a trade, no deduction is allowed for expenses incurred in making a payment induced by a demand which constitutes—

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

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

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

Chapter 5U.K.Trade profits: rules allowing deductions

IntroductionU.K.

56Professions and vocationsU.K.

Apart from sections 87 to 90 (scientific research and expenses connected with patents, designs and trade marks), the provisions of this Chapter apply to professions and vocations as they apply to trades.

Pre-trading expensesU.K.

57Pre-trading expensesU.K.

(1)This section applies if a person incurs expenses for the purposes of a trade before (but not more than 7 years before) the date on which the person starts to carry on the trade (“the start date”).

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

(a)no deduction would otherwise be allowed for the expenses, but

(b)a deduction would be allowed for them if they were incurred on the start date,

the expenses are treated as if they were incurred on the start date (and therefore a deduction is allowed for them).

Incidental costs of obtaining financeU.K.

58Incidental costs of obtaining financeU.K.

(1)In calculating the profits of a trade, a deduction is allowed for incidental costs of obtaining finance by means of—

(a)a loan, or

(b)the issue of loan stock,

if the interest on the loan or stock is deductible in calculating the profits of the trade.

(2)“Incidental costs of obtaining finance” means expenses—

(a)which are incurred on fees, commissions, advertising, printing and other incidental matters, and

(b)which are incurred wholly and exclusively for the purpose of obtaining the finance, providing security for it or repaying it.

(3)Expenses incurred wholly and exclusively for the purpose of—

(a)obtaining finance, or

(b)providing security for it,

are incidental costs of obtaining the finance even if it is not in fact obtained.

(4)But the following are not incidental costs of obtaining finance—

(a)sums paid because of losses resulting from movements in the rate of exchange between different currencies,

(b)sums paid for the purpose of protecting against such losses,

(c)the cost of repaying a loan or loan stock so far as attributable to its being repayable at a premium or having been obtained or issued at a discount, and

(d)stamp duty.

(5)This section needs to be read with section 59 (which provides for restrictions in relation to convertible loans and loan stock etc.).

59Convertible loans and loan stock etc.U.K.

(1)No deduction is allowed under section 58 in respect of a loan or loan stock if—

(a)it carries the right of conversion into, or to the acquisition of, shares or other securities, and

(b)the right is exercisable before the end of the period of 3 years from the date when the loan was obtained or the stock issued (“the 3 year period”).

(2)“Other securities” does not include a loan or loan stock—

(a)the interest on which is deductible in calculating the profits of the person's trade, and

(b)which does not carry such a right as is mentioned in subsection (1).

(3)But the restriction imposed by subsection (1) does not apply if the right is not, or is not wholly, exercised before the end of the 3 year period.

(4)In such a case any incidental costs of obtaining finance incurred before the end of the 3 year period are treated as incurred immediately after the end of it.

(5)If the right is exercised within the 3 year period as to part of the loan or loan stock, only the following incidental costs of obtaining finance are treated as incurred.

(6)The costs are those corresponding to the proportion of the loan or loan stock in respect of which the right is not exercised within that period.

Tenants under taxed leasesU.K.

60Tenants under taxed leases: introductionU.K.

(1)Sections 61 to 67 apply if land used in connection with a trade is subject to a taxed lease.

(2)Section 61 (tenants occupying land for purposes of trade treated as incurring expenses) applies in calculating the profits of a trade carried on by the tenant under the taxed lease for the purpose of making deductions for the expenses of the trade.

(3)But any deduction for an expense under section 61 is subject to the application of any provision of Chapter 4 of this Part.

(4)In this section and sections 61 to 67 the following expressions have the same meaning as in Chapter 4 of Part 3 (profits of property businesses: lease premiums etc.)—

• “receipt period” (see section 288(6)),

• “taxed lease” (see section 287(4)),

• “taxed receipt” (see section 287(4)), and

• “unreduced amount” (see section 290(2)).

(5)Section 290(3) and (4) (unreduced amount of taxed receipt under section 277 as a result of section 278) applies for the purposes of sections 61 to 65.

(6)In sections 64 to 67 references to a reduction under section 288 by reference to a taxed receipt have the same meaning as in Chapter 4 of Part 3 (see section 290(6)).

(7)In the application of sections 64 to 67 to Scotland—

(a)references to a lease being granted out of a taxed lease are to the grant of a sublease of land subject to the taxed lease, and

(b)references to the lease so granted are to be read as references to the sublease.

61Tenants occupying land for purposes of trade treated as incurring expensesU.K.

(1)The tenant under the taxed lease is treated as incurring an expense of a revenue nature in respect of the land 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 is a day—

(a)that falls within the receipt period of the taxed receipt, and

(b)on which the tenant occupies the whole or part of the land subject to the taxed lease for the purposes of carrying on a trade.

(4)If on the qualifying day the tenant occupies the whole of the land subject to the taxed lease for the purposes of the trade, the amount of the expense for the qualifying day by reference to the taxed receipt is given by the formula—

(5)If on the qualifying day the tenant occupies part of the land subject to the taxed lease for the purposes of the trade, the amount of the expense for the qualifying day by reference to the taxed receipt is given by the formula—

(6)This section is subject to section 62 (limit on deductions if tenant entitled to mineral extraction allowance).

62Limit on deductions if tenant entitled to mineral extraction allowanceU.K.

(1)This section applies if the tenant under the taxed lease has become entitled, in respect of expenditure on the acquisition of an interest in the land subject to the taxed lease, to an allowance for a tax year under Part 5 of CAA 2001 (mineral extraction allowances) in respect of expenditure falling within section 403 of that Act (qualifying expenditure on acquiring a mineral asset).

(2)If the allowance is in respect of the whole of the expenditure, no deduction is allowed for expenses under section 61 for a qualifying day falling within that or a later tax year.

(3)If the allowance is in respect of only part of the expenditure (“the allowable part”) the amount of the deduction for expenses under section 61 for a qualifying day falling within that or a later tax year is calculated by multiplying the amount that, apart from this section, would be the amount of the deduction for the qualifying day by—

63Tenants dealing with land as property employed for purposes of tradeU.K.

(1)This section applies if the tenant under the taxed lease—

(a)does not occupy the land subject to the taxed lease, or a part of it, but

(b)deals with the tenant's interest in the land, or the part of it, as property employed for the purposes of carrying on a trade.

(2)Section 61 applies as if the land or the part of it were occupied by the tenant for the purposes of the trade.

(3)But the tenant is not treated as incurring an expense in respect of the land for a qualifying day as a result of this section so far as the tenant is treated as incurring an expense under section 292 (tenants under taxed leases treated as incurring expenses) in respect of the land for the day in calculating the profits of the tenant's property business.

(4)This section is subject to sections 64 and 65 (restrictions on section 61 expenses where the additional calculation rule is relevant).

64Restrictions on section 61 expenses: lease premium receiptsU.K.

(1)This section applies if—

(a)a lease has been granted out of the taxed lease, and

(b)in calculating the amount of a receipt of a property business under Chapter 4 of Part 3 (profits of property businesses: lease premiums etc.) in respect of the lease, there is a reduction under section 288 (the additional calculation rule) by reference to the taxed receipt.

In this section and sections 65 and 67 such a receipt is referred to as a “lease premium receipt”.

(2)Subsections (3) to (5) provide for the application of section 61 as a result of section 63 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 61 as a result of section 63 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 that expense for the qualifying day by reference to the taxed receipt is equal to that excess.

(5)If the qualifying day falls within the receipt period 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—

  

  where—

  A is the unreduced amount of the taxed receipt, and

  TRP 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—

  

  where—

  AR is the reduction under section 288 by reference to the taxed receipt, and

  RRP is the number of days in the receipt period of the lease premium receipt.

(7)Section 65 explains how this section operates if the lease does not extend to the whole of the premises subject to the taxed lease.

65Restrictions on section 61 expenses: lease of part of premisesU.K.

(1)This section applies if—

(a)the conditions in section 64(1)(a) and (b) are met, and

(b)the lease granted out of the taxed lease does not extend to the whole of the premises subject to the taxed lease.

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

(3)Sections 61, 63 and 64 apply separately in relation to the part of the premises subject to the lease and to the remainder of the premises.

(4)If—

(a)more than one lease that does not extend to the whole of the premises subject to the taxed lease has been granted out of the taxed lease, and

(b)the qualifying day falls within the receipt period of two or more lease premium receipts that relate to different leases,

sections 61, 63 and 64 apply separately in relation to each part of the premises subject to a lease to which such a lease premium receipt relates and to the remainder of the premises.

(5)Where sections 61, 63 and 64 apply in relation to a part of the premises, A becomes the amount calculated by multiplying the unreduced amount of the taxed receipt by the fraction of the premises constituted by the part.

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

66Corporation tax receipts treated as taxed receiptsU.K.

Section 296 (corporation tax receipts treated as taxed receipts) applies for the purposes of sections 60 to 67.

67Restrictions on section 61 expenses: corporation tax receiptsU.K.

(1)This section provides for the application of section 61 as a result of section 63 if—

(a)a lease has been granted out of the taxed lease,

(b)in calculating the amount of a corporation tax receipt in respect of the lease, there is a reduction under section 37(2) or (3) of ICTA by reference to the amount chargeable on the superior interest for the purposes of that section, and

(c)the amount chargeable on the superior interest is the taxed receipt for the purposes of section 61.

(2)Sections 61 and 63 to 65 apply as follows—

(a)the corporation tax receipt is treated as if it were a lease premium receipt for the purposes of sections 64 and 65,

(b)references in those sections to the reduction under section 288 by reference to the taxed receipt are, in relation to the corporation tax receipt, to the reduction under section 37(2) or (3) of ICTA by reference to the amount chargeable on the superior interest, and

(c)for the purposes of those sections the receipt period of the corporation tax receipt is—

(i)in the case of a corporation tax receipt as a result of section 34 of ICTA, the period treated in calculating the amount of the receipt as being the duration of the lease, and

(ii)in the case of a corporation tax receipt as a result of section 35 of ICTA, the period treated in calculating the amount of the receipt as being the duration of the lease remaining at the date of the assignment.

(3)There is a corporation tax receipt in respect of a lease if—

(a)there is a receipt of a Schedule A business or an overseas property business (within the meaning of section 70A(4) of ICTA) as a result of section 34 or 35 of ICTA (treatment of premiums etc. as rent and assignments for profit of lease granted at an undervalue) in respect of the lease for an accounting period ending after 5th April 2005, or

(b)there would be such a receipt, but for the operation of section 37(2) or (3) of ICTA (reductions in certain receipts under section 34 or 35 of ICTA).

(4)References to a reduction under section 37(2) or (3) of ICTA in a corporation tax receipt by reference to the amount chargeable on the superior interest are to the difference between—

(a)the amount of the corporation tax receipt before the operation of section 37(2) or (3) of ICTA, and

(b)the amount of the corporation tax receipt after the operation of that subsection,

so far as attributable to the amount chargeable on the superior interest for the purposes of section 37 of ICTA.

RenewalsU.K.

68Replacement and alteration of trade toolsU.K.

(1)This section applies if—

(a)expenses are incurred on replacing or altering any tool used for the purposes of a trade, and

(b)a deduction for the expenses would not otherwise be allowable in calculating the profits of the trade because (and only because) they are items of a capital nature.

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

(3)In this section “tool” means any implement, utensil or article.

Payments for restrictive undertakingsU.K.

69Payments for restrictive undertakingsU.K.

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

(a)which is treated as earnings of an employee by virtue of section 225 of ITEPA 2003 (payments for restrictive undertakings), and

(b)which is made, or treated as made for the purposes of section 226 of that Act (valuable consideration given for restrictive undertakings), by the person carrying on the trade.

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

(a)is made, or

(b)is treated as made for the purposes of section 226 of ITEPA 2003.

Seconded employeesU.K.

70Employees seconded to charities and educational establishmentsU.K.

(1)This section applies if a person carrying on a trade (“the employer”) makes the services of a person employed for the purposes of the trade available to—

(a)a charity, or

(b)an educational establishment,

on a basis that is stated and intended to be temporary.

(2)In calculating the profits of the trade, a deduction is allowed for expenses of the employer that are attributable to the employee's employment during the period of the secondment.

(3)In this section—

• “educational establishment” means—

  (a)

  in England and Wales, any of the bodies mentioned in section 71(1),

  (b)

  in Scotland, any of the bodies mentioned in section 71(2),

  (c)

  in Northern Ireland, any of the bodies mentioned in section 71(3), and

  (d)

  any other educational body which is for the time being approved for the purposes of this section by the Secretary of State or, in Northern Ireland, the Department of Education, and

• “the period of the secondment” means the period for which the employee's services are made available to the charity or educational establishment.

71Educational establishmentsU.K.

(1)A body in England and Wales is an educational establishment for the purposes of section 70 if it is—

(a)a local education authority,

(b)an educational institution maintained or otherwise supported by a local education authority,

(c)an independent school within the meaning of the Education Act 1996 (c. 56) registered under section 161 of the Education Act 2002 (c. 32), or

(d)an institution within the further education sector, or the higher education sector, within the meaning of the Further and Higher Education Act 1992 (c. 13).

(2)A body in Scotland is an educational establishment for the purposes of section 70 if it is—

(a)an education authority within the meaning of the Education (Scotland) Act 1980 (c. 44),

(b)an educational establishment within the meaning of the Education (Scotland) Act 1980 managed by an education authority within the meaning of that Act,

(c)a public or grant-aided school within the meaning of the Education (Scotland) Act 1980,

(d)an independent school within the meaning of the Education (Scotland) Act 1980,

(e)a central institution within the meaning of the Education (Scotland) Act 1980,

(f)an institution within the higher education sector within the meaning of section 56(2) of the Further and Higher Education (Scotland) Act 1992 (c. 37), or

(g)a college of further education within the meaning of section 36(1) of the Further and Higher Education (Scotland) Act 1992.

(3)A body in Northern Ireland is an educational establishment for the purposes of section 70 if it is—

(a)an education or library board within the meaning of the Education and Libraries (Northern Ireland) Order 1986 (S.I. 1986/594 (N.I. 3)),

(b)a college of education or a controlled, maintained, grant-maintained integrated, controlled integrated, voluntary or independent school within the meaning of the Education and Libraries (Northern Ireland) Order 1986, or

(c)an institution of further education within the meaning of the Further Education (Northern Ireland) Order 1997 (S.I. 1997/1772 (N.I. 15)).

Contributions to agents' expensesU.K.

72Payroll deduction schemes: contributions to agents' expensesU.K.

(1)This section applies if—

(a)a person carrying on a trade (“the employer”) is liable to make payments to an individual,

(b)income tax falls to be deducted from those payments as a result of PAYE regulations, and

(c)the employer withholds sums from those payments in accordance with an approved scheme and pays the sums to an approved agent.

(2)In calculating the profits of the employer's trade, a deduction is allowed for expenses incurred by the employer in making a payment to the agent for expenses which—

(a)have been incurred, or

(b)are to be incurred,

by the agent in connection with the agent's functions under the scheme.

(3)In this section “approved agent” and “approved scheme” have the same meaning as in section 714 of ITEPA 2003.

Counselling and retraining expensesU.K.

73Counselling and other outplacement servicesU.K.

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

(a)the person carrying on the trade (“the employer”) incurs the expenses,

(b)the expenses are incurred in relation to a person (“the employee”) who holds or has held an office or employment under the employer for the purposes of the trade, and

(c)the relevant conditions are met.

(2)In this section “counselling expenses” means expenses incurred—

(a)in the provision of services to the employee in connection with the cessation of the office or employment,

(b)in the payment or reimbursement of fees for such provision, or

(c)in the payment or reimbursement of travelling expenses in connection with such provision.

(3)In this section “the relevant conditions” means—

(a)conditions A to D for the purposes of section 310 of ITEPA 2003 (employment income exemptions: counselling and other outplacement services), and

(b)in the case of travel expenses, condition E for those purposes.

74Retraining coursesU.K.

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

(a)the person carrying on the trade (“the employer”) incurs the expenses,

(b)they are incurred in relation to a person (“the employee”) who holds or has held an office or employment under the employer for the purposes of the trade, and

(c)the relevant conditions are met.

(2)In this section—

• “retraining course expenses” means expenses incurred in the payment or reimbursement of retraining course expenses within the meaning given by section 311(2) of ITEPA 2003, and

• “the relevant conditions” means—

  (a)

  the conditions in subsections (3) and (4) of section 311 of ITEPA 2003 (employment income exemptions: retraining courses), and

  (b)

  in the case of travel expenses, the conditions in subsection (5) of that section.

75Retraining courses: recovery of taxU.K.

(1)This section applies if—

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

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

(2)If, subsequently—

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

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

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

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

(4)If subsection (2) applies, the employer must give [F9an officer of Revenue and Customs] a notice containing particulars of—

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

(b)the employee's continued employment, or

(c)the employee's re-employment,

within 60 days of coming to know of it.

(5)If [F9an officer of Revenue and Customs][F10has] reason to believe that the employer has failed to give such a notice, [F11the officer] may by notice require the employer to provide such information as [F11the officer] may reasonably require for the purposes of this section about—

(a)the failure to begin the course,

(b)the continued employment, or

(c)the re-employment.

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

Redundancy payments etc.U.K.

76Redundancy payments and approved contractual paymentsU.K.

(1)Sections 77 to 79 apply if—

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

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

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

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

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

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

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

• a contractual payment is “approved” if, in respect of that agreement, an order is in force under—

  (a)

  section 157 of the Employment Rights Act 1996, or

  (b)

  Article 192 of the Employment Rights (Northern Ireland) Order 1996.

77Payments in respect of employment wholly in employer's tradeU.K.

(1)This section applies if—

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

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

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

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

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

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

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

78Payments in respect of employment in more than one capacityU.K.

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

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

(b)partly in one or more other capacities.

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

(a)the employment in the trade, and

(b)the employment in the other capacities.

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

79Additional paymentsU.K.

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

(a)the redundancy payment, or

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

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

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

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

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

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

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

(a)the redundancy payment, or

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

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

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

80Payments made by the GovernmentU.K.

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

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

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

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

(a)a redundancy payment, or

(b)an approved contractual payment,

made by the employer.

Personal security expensesU.K.

81Personal security expensesU.K.

(1)This section applies if—

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

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

(c)a service or asset which improves personal security is used by or provided for the trader to meet the threat,

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

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

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

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

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

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

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

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

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

(a)the asset becomes fixed to land, or

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

(7)In this section—

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

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

Contributions to local enterprise organisations or urban regeneration companiesU.K.

82Contributions to local enterprise organisations or urban regeneration companiesU.K.

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

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

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

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

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

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

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

(b)is entitled to receive such a benefit,

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

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

(a)from the organisation or company concerned, or

(b)from anyone else.

(5)Subsection (6) applies if—

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

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

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

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

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

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

83Meaning of “local enterprise organisation”U.K.

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

(a)a local enterprise agency,

(b)a training and enterprise council,

(c)a Scottish local enterprise company, or

(d)a business link organisation.

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

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

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

(c)the National Assembly for Wales (in relation to Wales).

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

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

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

(a)Scottish Enterprise, or

(b)Highlands and Islands Enterprise,

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

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

84Approval of local enterprise agenciesU.K.

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

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

(a)whatever its status or structure, and

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

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

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

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

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

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

(a)to any of its members, or

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

(6)The payment of—

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

(b)reasonable interest on money lent, or

(c)reasonable rent for premises,

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

85Supplementary provisions with respect to approvalsU.K.

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

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

(a)accounts,

(b)provision of information, and

(c)other matters,

as the relevant national authority considers appropriate

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

(a)the approval must specify the fund, and

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

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

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

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

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

86Meaning of “urban regeneration company”U.K.

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

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

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

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

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

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

Scientific researchU.K.

87Expenses of research and developmentU.K.

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

(a)related to the trade, and

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

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

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

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

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

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

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

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

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

(5)In this section “research and development” has the meaning given by [F12section 1006 of ITA 2007] and includes oil and gas exploration and appraisal.

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

88Payments to research associations, universities etc.U.K.

(1)If a person carrying on a trade—

[F13(a)pays any sum to an Association in the case of which exemption may be claimed under section 508 of ICTA and which has as its object the undertaking of research and development which may lead to or facilitate an extension of the class of trade to which the trade carried on by the person belongs, or

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

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

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

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

(4)For the purposes of this section—

(a)F14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

(5)The [F15reference in subsection (1)(b)] to scientific research related to a class of trade include—

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

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

(6)If a question arises as to—

(a)whether, or

(b)what extent,

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

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

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

Expenses connected with patents, designs and trade marksU.K.

89Expenses connected with patentsU.K.

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

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

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

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

90Expenses connected with designs or trade marksU.K.

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

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

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

(c)the renewal of registration of a trade mark.

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

Export Credits Guarantee DepartmentU.K.

91Payments to Export Credits Guarantee DepartmentU.K.

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

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

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

Expenses connected with foreign tradesU.K.

92Expenses connected with foreign tradesU.K.

(1)This section applies if—

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

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

(c)qualifying expenses are incurred in connection with the foreign trade, and

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

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

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

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

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

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

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

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

93Allocation of expensesU.K.

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

(2)If—

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

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

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

(3)If—

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

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

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

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

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

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

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

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

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

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

94Family expensesU.K.

(1)In section 92(3)(c) “family expenses” means expenses of a journey made by the trader's spouse [F16or civil partner] or child if the journey—

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

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

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

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

Chapter 6U.K.Trade profits: receipts

IntroductionU.K.

95Professions and vocationsU.K.

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

Capital receiptsU.K.

96Capital receiptsU.K.

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

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

Debts releasedU.K.

97Debts incurred and later releasedU.K.

(1)This section applies if—

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

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

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

(2)The amount released—

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

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

Amounts received following earlier cessationU.K.

98Acquisition of trade: receipts from transferor's tradeU.K.

(1)This section applies if —

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

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

(c)the transferee subsequently carries on the transferor's trade.

(2)Sums—

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

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

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

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

Reverse premiumsU.K.

99Reverse premiumsU.K.

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

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

(b)it is not excluded by section 100.

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

(a)the recipient, or

(b)a person connected with the recipient.

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

(a)the recipient, or

(b)the person connected with the recipient,

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

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

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

(b)a person connected with the grantor, or

(c)a nominee of, or a person acting on the directions of, the grantor or a person connected with the grantor.

100Excluded casesU.K.

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

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

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

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

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

(4)A “sale and lease-back arrangement” means any such arrangement as is described in section 779(1) or (2) or 780(1) of ICTA.

101Tax treatment of reverse premiumsU.K.

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

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

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

102Arrangements not at arm's lengthU.K.

(1)This section applies if—

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

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

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

(a)in the market conditions then prevailing, and

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

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

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

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

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

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

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

103Connected persons and property arrangementsU.K.

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

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

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

Assets of mutual concernsU.K.

104Distribution of assets of mutual concernsU.K.

(1)This section applies if—

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

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

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

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

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

(3)If the recipient—

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

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

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

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

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

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

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

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

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

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

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

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

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

Industrial development grantsU.K.

105Industrial development grantsU.K.

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

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

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

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

(a)the grant is designated as made towards the cost of specified capital expenditure,

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

(c)the grant is for all or part of a corporation tax liability (including one that has already been met).

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

Proceeds of insurance etc.U.K.

106Sums recovered under insurance policies etc.U.K.

(1)This section applies if—

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

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

(c)the sum is not of a revenue nature.

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

Chapter 7U.K.Trade profits: gifts to charities etc.

107Professions and vocationsU.K.

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

108Gifts of trading stock to charities etc.U.K.

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

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

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

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

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

(3)In this section “registered club” has the meaning given by paragraph 1 of Schedule 18 to FA 2002 (relief for community amateur sports clubs).

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

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

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

(c)F17. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(d)F17. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(e)the National Endowment for Science, Technology and the Arts.

(5)This section needs to be read with section 109 (receipt by donor or connected person of benefit attributable to certain gifts).

109Receipt by donor or connected person of benefit attributable to certain giftsU.K.

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

(a)section 108 applies, or

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

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

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

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

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

110Meaning of “designated educational establishment”U.K.

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

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

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

(c)for Northern Ireland, by the Department of Education.

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

(3)If any question arises as to whether an educational establishment is within a category designated in the regulations, [F18an officer of Revenue and Customs] must refer the question for decision—

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

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

(c)in the case of an establishment in Northern Ireland, to the Department of Education.

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

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

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

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

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

Chapter 8U.K.Trade profits: herd basis rules

IntroductionU.K.

111Election for application of herd basis rulesU.K.

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

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

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

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

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

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

112Meaning of “animal”, “herd”, “production herd” etc.U.K.

(1)In this Chapter—

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

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

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

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

(a)the young of the animal, or

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

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

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

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

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

(c)it is necessary to maintain the immature animals for that purpose.

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

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

(7)This Chapter applies—

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

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

113Other interpretative provisionsU.K.

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

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

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

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

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

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

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

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

(c)the sale proceeds of the animal's carcass or any part of its carcass.

(5)Female animals become mature—

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

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

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

The herd basis rulesU.K.

114Initial cost of herd and value of herdU.K.

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

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

115Addition of animals to herdU.K.

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

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

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

(4)“The balancing amount” means—

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

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

116Replacement of animals in herdU.K.

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

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

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

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

(3)But this needs to be read with—

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

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

(c)section 122 (replacement of part sold begun within 5 years of sale).

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

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

117Amount of receipt if old animal slaughtered under disease control orderU.K.

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

(2)If—

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

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

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

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

(a)central government,

(b)a devolved authority,

(c)a local authority, or

(d)another public authority.

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

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

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

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

118Sale of animals from herdU.K.

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

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

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

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

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

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

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

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

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

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

119Sale of whole or substantial part of herdU.K.

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

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

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

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

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

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

120Acquisition of new herd begun within 5 years of saleU.K.

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

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

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

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

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

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

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

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

(a)sold from the old herd, and

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

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

(4)If—

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

(b)the difference is not substantial,

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

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

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

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

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

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

(7)For the purposes of this section—

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

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

121Section 120: sale for reasons outside farmer's controlU.K.

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

(2)If—

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

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

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

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

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

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

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

122Replacement of part sold begun within 5 years of saleU.K.

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

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

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

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

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

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

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

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

123Section 122: sale for reasons outside farmer's controlU.K.

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

(2)If—

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

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

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

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

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

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

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

ElectionsU.K.

124Herd basis electionsU.K.

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

(2)A herd basis election must be made—

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

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

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

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

(5)A herd basis election is irrevocable.

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

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

(b)first keeps after making the election.

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

(a)carries on the trade, and

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

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

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

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

125Five year gap in which no production herd keptU.K.

(1)This section applies if a farmer—

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

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

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

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

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

126Slaughter under disease control orderU.K.

(1)This section applies if—

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

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

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

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

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

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

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

(a)carries on the trade, and

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

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

(a)central government,

(b)a devolved authority,

(c)a local authority, or

(d)another public authority.

Preventing abuse of the herd basis rulesU.K.

127Preventing abuse of the herd basis rulesU.K.

(1)This section applies if—

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

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

(c)the control condition or herd basis benefit condition is met.

(2)The control condition is met if—

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

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

(c)both the transferor and transferee are bodies of persons and another person has control over both of them.

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

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

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

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

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

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

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

(c)the herd basis rules having a greater or lesser effect.

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

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

(b)any trade carried on by the transferee,

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

SupplementaryU.K.

128Information if election madeU.K.

(1)[F19an officer of Revenue and Customs] may by notice require the person carrying on a trade in relation to which a herd basis election is made to deliver a return of such information about—

(a)the animals kept for the purposes of the trade, and

(b)the products of those animals,

as may be required by the notice.

(2)The return must be delivered [F19an officer of Revenue and Customs]within the time specified in the notice.

129Further assessment etc. if herd basis rules applyU.K.

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

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

Chapter 9U.K.Trade profits: F20. . . sound recordings

IntroductionU.K.

130Expenditure to which this Chapter appliesU.K.

(1)This Chapter makes provision about—

(a)expenditure incurred on the production or acquisition of the original master version of a F21. . . sound recording, F22. . .

(b)F22. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2)In this Chapter references to production expenditure are to expenditure incurred on the production of the original master version of a F23. . . sound recording.

(3)In this Chapter references to acquisition expenditure are to expenditure incurred on the acquisition of the original master version of a F24. . . sound recording.

(4)In this Chapter references to the original master version of a film or sound recording include any rights in the original master version of a F25. . . sound recording that are held or acquired with it.

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

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

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

(6)F26. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

(a)prohibits a deduction from being made, or

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

in calculating the profits of a trade.

131Meaning of “film” and related expressionsU.K.

F27. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

132Meaning of “original master version” and “certified master version”U.K.

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

(a)F28. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

(2)F29. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3)F29. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

133Meaning of “relevant period”U.K.

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

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

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

Expenditure treated as revenue in natureU.K.

134Expenditure treated as revenue in natureU.K.

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

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

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

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

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

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

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

(4)F30. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F31Rules for allocating expenditure]U.K.

135[F32Allocation of production or acquisition expenditure to relevant periods]U.K.

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

(a)the trade consists of or includes the exploitation of the original master versions of F33. . . sound recordings,

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

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

(d)F34. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

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

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

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

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

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

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

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

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

(b)F35. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c)F35. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(d)F35. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7)F36. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Certified master versions: special rules for allocating expenditureU.K.

136Application of provisions about certified master versionsU.K.

F37. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

137Certified master versions: preliminary expenditureU.K.

F38. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

138Certified master versions: production expenditureU.K.

F39. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F40138ACertified master versions: acquisition expenditureU.K.

F41. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

Certified master versions: limited-budget filmsU.K.

139Certified master versions: production expenditure on limited-budget filmsU.K.

F42. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

140Certified master versions: acquisition expenditure on limited-budget filmsU.K.

F43. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F44Interpretation of sections 138 to 140U.K.

140A“Disqualifying deduction”U.K.

F45. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

141“Total production expenditure in respect of the original master version”U.K.

F46. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

142When expenditure is incurredU.K.

F47. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F48Deferred income agreementsU.K.

142ADeferred income agreements which exist when deduction madeU.K.

F49. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

142BMeaning of “deferred income agreement in respect of a film”U.K.

F50. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

142CDeferred income agreements entered into after deduction madeU.K.

F51. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

142DMeaning of the “net excess relief”U.K.

F52. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

142ESections 142A to 142D: time of entry into an agreementU.K.

F53. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

Election for sections 134 to 140 not to applyU.K.

143Election for sections 134 to 140 not to applyU.K.

F54. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SupplementaryU.K.

144Meaning of “genuinely intended for theatrical release”U.K.

F55. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 10U.K.Trade profits: certain telecommunication rights

145Professions and vocationsU.K.

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

146Meaning of “relevant telecommunication right”U.K.

In this Chapter a “relevant telecommunication right” means—

(a)a licence [F56granted under section 8 of the Wireless Telegraphy Act 2006 in accordance with regulations made under section 14 of that Act (bidding for licences),]

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

(c)a right derived (directly or indirectly) from such a licence or indefeasible right.

147Expenditure and receipts treated as revenue in natureU.K.

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

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

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

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

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

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

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

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

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

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

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

148Credits or debits arising from revaluationU.K.

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