Income and Corporation Taxes Act 1988 (c. 1)

PART IV U.K. PROVISIONS RELATING TO THE SCHEDULE D CHARGE

CHAPTER VI U.K. DISCONTINUANCE F1 . . .

Textual Amendments

F1 Words in Pt. 4 Ch. 6 heading repealed (with application in accordance with Sch. 27 Pt. 3(6) Note of the repealing Act) by Finance Act 1998 (c. 36), Sch. 27 Pt. 3(6)

Valuation of trading stock etc. U.K.

100 Valuation of trading stock at discontinuance of trade. U.K.

(1) M1 In computing for [F2 any corporation tax purpose] the [F3 profits] of a trade which has been discontinued, any trading stock belonging to the trade at the discontinuance shall be valued as follows—

(a) if—

(i) the stock is sold or transferred for valuable consideration to a person who carries on, or intends to carry on, a trade in the United Kingdom, and

(ii) the cost of the stock may be deducted by the purchaser as an expense in computing for any tax purpose the [F3 profits] of that trade,

the value of the stock shall be taken to be the amount [F4 determined in accordance with subsections (1A) to (1C) below; and]

(b) if the stock does not fall to be valued under paragraph (a) above, its value shall be taken to be the amount which it would have realised if it had been sold in the open market at the discontinuance of the trade.

[F5 (1ZA) This section does not apply in relation to any trading stock if paragraph 1(2) of Schedule 28AA (provision not at arm’s length) has effect in relation to any provision made or imposed in relation to that stock and having effect in connection with the discontinuance of the trade.]

[F6 (1A) Subject to subsections (1B) and (1C) below and to paragraph 2 of Schedule 12 to the M2 Finance Act 1988 (gilt-edged securities and other financial trading stock), the value of any trading stock falling to be valued under paragraph (a) of subsection (1) above shall be taken—

(a) except where the person to whom it is sold or transferred is connected with [F7 the company which] makes the sale or transfer, to be the amount (“the price actually received for it”) which is in fact realised on the sale or, as the case may be, which is in fact the value of the consideration given for the transfer; and

(b) if [F8 that person and that company] are connected with each other, to be what would have been the price actually received for it had the sale or transfer been a transaction between independent persons dealing at arm’s length.

(1B) In a case falling within subsection (1)(a) above—

(a) F9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) stock sold in circumstances in which the amount realised on the sale would be taken to be an amount determined in accordance with paragraph 5 of Schedule 5 shall be taken to have the value so determined, instead of the value for which subsection (1A)(a) or (b) above provides.

(1C) If—

(a) trading stock is sold or transferred to a person in circumstances where paragraph (b) of subsection (1A) above would apply (apart from this subsection) for determining the value of the stock so sold or transferred,

(b) the amount which would be taken in accordance with that paragraph to be the value of all of the stock sold or transferred to that person is more than the acquisition value of that stock and also more than the price actually received for it, and

(c) both parties to the sale or transfer, by notice signed by them and sent to the inspector no later than two years after the end of the [F10 accounting period] in which the trade is discontinued, elect that this subsection shall apply,

then the stock sold or transferred to that person shall be taken to have a value equal to whichever is the greater (taking all the stock so sold or transferred together) of its acquisition value and the price actually received for it or, in a case where they are the same, to either of them.

(1D) In subsection (1C) above “acquisition value”, in relation to any trading stock, means the amount which, in computing for any [F11 corporation] tax purposes the [F3 profits] of the discontinued trade, would have been deductible as representing the acquisition value of that stock if—

(a) the stock had, immediately before the discontinuance, been sold in the course of the trade for a price equal to whatever would be its value in accordance with subsection (1A)(b) above; and

(b) the period for which those [F3 profits] were to be computed began immediately before the sale.

(1E) [F12 Where the value of the trading stock is determined in accordance with subsections (1A) to (1C) above, or sections 176 to 178 of ITTOIA 2005 or section 127 of that Act (by virtue of section 175(3)) (corresponding provisions for income tax purposes),] the amount to be brought into account as the value of that stock in computing [F3 profits] of the discontinued trade shall also be taken, for the purpose of making [F13 for corporation tax purposes] any deduction in computing the [F3 profits] of any trade carried on by the purchaser, to be the cost of that stock to the purchaser.

(1F) For the purposes of this section two persons are connected with each other if—

(a) they are connected with each other within the meaning of section 839;

(b) one of them is a partnership and the other has a right to a share in the partnership;

(c) one of them is a body corporate and the other has control over that body;

(d) both of them are partnerships and some other person has a right to a share in each of them; or

(e) both of them are bodies corporate or one of them is a partnership and the other is a body corporate and, in either case, some other person has control over both of them;

and in this subsection the references to a right to a share in a partnership are references to a right to a share of the assets or income of the partnership and “control” has the meaning given by section 840.

(1G) In this section “purchaser”, in relation to a transfer otherwise than by sale, means the person to whom the transfer is made.]

(2) M3 For the purposes of this section “trading stock”, in relation to any trade—

(a) means property of any description, whether real or personal, being either—

(i) property such as is sold in the ordinary course of the trade, or would be so sold if it were mature or if its manufacture, preparation or construction were complete; or

(ii) materials such as are used in the manufacture, preparation or construction of any such property as is referred to in sub-paragraph (i) above; and

(b) includes also any services, article or material which would, if the trade were a profession F14 . . . , be treated, for the purposes of section 101, as work in progress of the profession F14 . . . , and references to the sale or transfer of trading stock shall be construed accordingly.

[F15 (3) Where trading stock falling to be valued under paragraph (a) of subsection (1) above is sold or transferred together with other assets, so much of the amount realised on the sale or, as the case may be, of the value of the consideration given for the transfer as on a just and reasonable apportionment is properly attributable to each asset shall be treated for the purposes of this section as the amount realised on the sale or, as the case may be, the value of the consideration given for the transfer, of that asset.]

Textual Amendments

F2 Words in s. 100(1) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 79(2) (with Sch. 2)

F3 Words in s. 100(1)(1D)(1E) substituted (31.7.1998) by Finance Act 1998 (c. 36), s. 46(3)(a)(b), Sch. 7 para. 1

F4 Words in s. 100(1)(a) substituted (with application in accordance with s. 140(2) of the amending Act) by Finance Act 1995 (c. 4), s. 140(1)

F5 S. 100(1ZA) inserted (with effect in accordance with s. 37 of the amending Act) by Finance Act 2004 (c. 12), Sch. 5 para. 2(2)

F6 S. 100(1A)-(1G) inserted (with application in accordance with s. 140(2) of the amending Act) by Finance Act 1995 (c. 4), by {s. 140(1)}

F7 Words in s. 100(1A)(a) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 79(3)(a) (with Sch. 2)

F8 Words in s. 100(1A)(b) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 79(3)(b) (with Sch. 2)

F9 S. 100(1B)(a) repealed (24.7.2002) by Finance Act 2002 (c. 23), s. 105(1), Sch. 40 Pt. 3(17)

F10 Words in s. 100(1C)(c) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 79(4) (with Sch. 2)

F11 Word in s. 100(1D) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 79(5) (with Sch. 2)

F12 Words in s. 100(1E) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 79(6)(a) (with Sch. 2)

F13 Words in s. 100(1E) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 79(6)(b) (with Sch. 2)

F14 Words in s. 100(2)(b) repealed (6.4.2005 with effect in accordance with s. 883(1) of the repealing Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 79(7), Sch. 3 (with Sch. 2)

F15 S. 100(3) inserted (with application in accordance with s. 106(2) of the amending Act) by Finance Act 2002 (c. 23), s. 106(1)

Modifications etc. (not altering text)

C1 S. 100 excluded (24.2.2003) by Proceeds of Crime Act 2002 (c. 29), s. 458(1), Sch. 10 para. 11(3); S.I. 2003/120, art. 2, Sch. (with arts. 3-7 (as amended by S.I. 2003/333, art. 14))

C2 See—1988(F) Sch.12 para.2—building societies converting to companies.Trustee Savings Bank Act 1985 (c.58) s.5and Sch.2 para.6(1)—this provision not to apply to the discontinuance of an existing bank under the TSB Act 1985.

Marginal Citations

M1 Source—1970 s.137(1)

M2 1988 c. 39.

M3 Source—1970 s.137(4)

101 Valuation of work in progress at discontinuance of profession or vocation. U.K.

(1) M4 Where, in computing for [F16 any corporation tax purpose] the [F17 profits] of a profession F18 . . . which has been discontinued, a valuation is taken of the work of the profession F18 . . . in progress at the discontinuance, that work shall be valued as follows—

(a) if—

(i) the work is transferred for money or any other valuable consideration to a person who carries on, or intends to carry on, a profession F18 . . . in the United Kingdom, and

(ii) the cost of the work may be deducted by that person as an expense in computing for any tax purpose the [F17 profits] of that profession F18 . . . ,

the value of the work shall be taken to be the amount paid or other consideration given for the transfer; and

(b) if the work does not fall to be valued under paragraph (a) above, its value shall be taken to be the amount which would have been paid for a transfer of the work on the date of the discontinuance as between parties at arm’s length.

(2) M5 Where a profession F19 . . . is discontinued, and the [F20 company by which] it was carried on immediately before the discontinuance so elects by notice sent to the inspector at any time within [F21 the period specified in subsection (2A) below]—

(a) the amount (if any) by which the value of the work in progress at the discontinuance (as ascertained under subsection (1) above) exceeds the actual cost of the work shall not be brought into account in computing the [F17 profits] of the period immediately before the discontinuance; but

(b) the amount by which any sums received for the transfer of the work exceed the actual cost of the work shall be included in the sums chargeable to tax by virtue of section 103 as if it were a sum to which that section applies received after the discontinuance.

[F22 (2A) The period mentioned in subsection (2) above is—

(a) F23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) F24 . . . the period of two years beginning at the end of the accounting period in which the profession F24 . . . is discontinued.]

(3) M6 References in this section to work in progress at the discontinuance of a profession F25 . . . shall be construed as references to—

(a) any services performed in the ordinary course of the profession F25 . . . , the performance of which was wholly or partly completed at the time of the discontinuance and for which it would be reasonable to expect that a charge would have been made on their completion if the profession F25 . . . had not been discontinued; and

(b) any article produced, and any such material as is used, in the performance of any such services,

and references in this section to the transfer of work in progress shall include references to the transfer of any benefits and rights which accrue, or might reasonably be expected to accrue, from the carrying out of the work.

Textual Amendments

F16 Words in s. 101(1) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 80(2)(a) (with Sch. 2)

F17 Words in s. 101(1)(2)(a) substituted (31.7.1998) by Finance Act 1998 (c. 36), s. 46(3)(a)(b), Sch. 7 para. 1

F18 Words in s. 101(1) repealed (6.4.2005 with effect in accordance with s. 883(1) of the repealing Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 80(2)(b), Sch. 3 (with Sch. 2)

F19 Words in s. 101(2) repealed (6.4.2005 with effect in accordance with s. 883(1) of the repealing Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 80(3), Sch. 3 (with Sch. 2)

F20 Words in s. 101(2) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 80(3) (with Sch. 2)

F21 Words in s. 101(2) substituted (with effect in accordance with s. 135(2) of the amending Act) by Finance Act 1996 (c. 8), Sch. 21 para. 3(2)

F22 S. 101(2A) inserted (with effect in accordance with s. 135(2) of the amending Act) by Finance Act 1996 (c. 8), Sch. 21 para. 3(3)

F23 S. 101(2A)(a) repealed (6.4.2005 with effect in accordance with s. 883(1) of the repealing Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 80(4)(a), Sch. 3 (with Sch. 2)

F24 Words in s. 101(2A)(b) repealed (6.4.2005 with effect in accordance with s. 883(1) of the repealing Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 80(4)(b), Sch. 3 (with Sch. 2)

F25 Words in s. 101(3) repealed (6.4.2005 with effect in accordance with s. 883(1) of the repealing Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 80(5), Sch. 3 (with Sch. 2)

Marginal Citations

M4 Source—1970 s.138(1)

M5 Source—1970 s.138(3)

M6 Source—1970 s.138(5)

102 Provisions supplementary to sections 100 and 101. U.K.

(1) M7 Any question arising under section 100(1)(a) or 101(1)(a) shall be determined as follows, for the purpose of computing for any tax purpose the [F26 profits] of both the trades or, as the case may be, the professions F27 . . . concerned—

(a) in a case where the same body of General Commissioners have jurisdiction with respect to [F28 each of the persons whose [F29 trade or profession] is one of those] concerned, the question shall be determined by those Commissioners unless all parties concerned agree that it shall be determined by the Special Commissioners;

(b) in any other case, the question shall be determined by the Special Commissioners; and

(c) the General or Special Commissioners shall determine the question in like manner as an appeal.

(2) M8 Where, by virtue of section F30 . . . 337(1), a [F31 trade or profession] is treated as having been permanently discontinued for the purpose of computing [F32 corporation] tax, it shall also be so treated for the purposes of sections 100 and 101F30 . . . .

Textual Amendments

F26 Words in s. 102(1) substituted (31.7.1998) by Finance Act 1998 (c. 36), s. 46(3)(a)(b), Sch. 7 para. 1

F27 Words in s. 102(1) repealed (6.4.2005 with effect in accordance with s. 883(1) of the repealing Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 81(2)(a), Sch. 3 (with Sch. 2)

F28 Words in s. 102(1)(a) substituted (with effect in accordance with Sch. 22 para. 12 of the amending Act) by Finance Act 1996 (c. 8), Sch. 22 para. 11

F29 Words in s. 102(1) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 81(2)(b) (with Sch. 2)

F30 Words in s. 102(2) repealed (6.4.2005 with effect in accordance with s. 883(1) of the repealing Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 81(3)(a)(d), Sch. 3 (with Sch. 2)

F31 Words in s. 102(2) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 81(3)(b) (with Sch. 2)

F32 Word in s. 102(2) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 81(3)(c) (with Sch. 2)

Marginal Citations

M7 Source—1970 s.137(2), 138(2)

M8 Source—1970 s.137(3), 138(4)