Income Tax (Trading and Other Income) Act 2005

[F1 Chapter 17A U.K. Cash basis: adjustments for capital allowances

Textual Amendments

F1 Pt. 2 Ch. 17A inserted (with effect in accordance with Sch. 4 paras. 56, 57 of the amending Act) by Finance Act 2013 (c. 29), Sch. 4 para. 38

Introduction U.K.

240A Professions and vocations U.K.

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

Adjustments on entering cash basis U.K.

240B “Entering the cash basis” U.K.

For the purposes of this Chapter a person carrying on a trade enters the cash basis for a tax year if—

(a) [F2 the cash basis applies] in relation to the trade for the tax year, and

(b) immediately before the beginning of F3 ... the tax year, [F4 the cash basis does not apply] in relation to the trade.

Textual Amendments

F2 Words in s. 240B(a) substituted (6.4.2024 for the tax year 2024-25 and subsequent tax years) by Finance Act 2024 (c. 3), Sch. 10 paras. 28(a), 47 (with Sch. 10 paras. 48-50)

F3 Words in s. 240B(b) omitted (6.4.2024 for the tax year 2024-25 and subsequent tax years) by virtue of Finance Act 2022 (c. 3), Sch. 1 paras. 15, 61(1)

F4 Words in s. 240B(b) substituted (6.4.2024 for the tax year 2024-25 and subsequent tax years) by Finance Act 2024 (c. 3), Sch. 10 paras. 28(b), 47 (with Sch. 10 paras. 48-50)

240C [F5 Unrelieved qualifying expenditure: Parts 2, 7 and 8 of CAA 2001] U.K.

(1) This section applies if—

(a) a person carrying on a trade enters the cash basis for a tax year (“the current tax year”), and

(b) at the end of F6 ... the previous tax year, the person has unrelieved qualifying expenditure [F7 relating to the trade] to carry forward from the chargeable period ending [F8 in that tax year].

(2) But this section does not apply if section 240D (assets not fully paid for) applies.

(3) In calculating the profits of the trade for the current tax year, a deduction is allowed for [F9 any cash basis deductible amount of the expenditure].

[F10 (4) A “cash basis deductible amount” of the expenditure means any amount of the expenditure for which a deduction would be allowed in calculating the profits of the trade on the cash basis on the assumption that the expenditure was paid in the current tax year.]

(5) [F11 Any cash basis deductible amount] of the expenditure is to be determined on such basis as is just and reasonable in all the circumstances.

[F12 (5A) For the purposes of subsection (1)(b), in determining the unrelieved qualifying expenditure the person has to carry forward, disregard sections 59(4), 461A(1) and 475A(1) of CAA 2001 (which provide that an amount is not to be carried forward as unrelieved qualifying expenditure when a person enters the cash basis).]

[F13 (6) In this section “unrelieved qualifying expenditure” means unrelieved qualifying expenditure for the purposes of—

(a) Part 2 of CAA 2001 (see section 59(1) and (2) of that Act),

(b) Part 7 of that Act (see section 461 of that Act), or

(c) Part 8 of that Act (see section 475 of that Act).]

Textual Amendments

F5 S. 240C heading substituted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 7(2)

F6 Words in s. 240C(1)(b) omitted (6.4.2024 for the tax year 2024-25 and subsequent tax years) by virtue of Finance Act 2022 (c. 3), Sch. 1 paras. 16(a), 61(1)

F7 Words in s. 240C(1)(b) inserted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 7(3)

F8 Words in s. 240C(1)(b) substituted (6.4.2024 for the tax year 2024-25 and subsequent tax years) by Finance Act 2022 (c. 3), Sch. 1 paras. 16(b), 61(1)

F9 Words in s. 240C(3) substituted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 7(4)

F10 S. 240C(4) substituted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 7(5)

F11 Words in s. 240C(5) substituted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 7(6)

F12 S. 240C(5A) inserted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 7(7)

F13 S. 240C(6) substituted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 7(8)

[F14 240CA Unrelieved qualifying expenditure: Part 5 of CAA 2001 U.K.

(1) This section applies if a person carrying on a mineral extraction trade enters the cash basis for a tax year (“the current tax year”).

(2) But this section does not apply if section 240D applies.

(3) In calculating the profits of the trade for the current tax year, a deduction is allowed for any amount of expenditure—

(a) which would, apart from section 419A(1) of CAA 2001, have been unrelieved qualifying expenditure for the current tax year, and

(b) for which a deduction would be allowed in calculating the profits of the trade on the cash basis on the assumption that the expenditure was paid in the current tax year.

(4) In this section—

• “mineral extraction trade” has the meaning given in section 394 of CAA 2001;

• “unrelieved qualifying expenditure” means unrelieved qualifying expenditure for the purposes of Part 5 of CAA 2001 (see section 419 of that Act).]

Textual Amendments

F14 S. 240CA inserted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 8

240D Assets not fully paid for U.K.

(1) This section applies if—

(a) a person carrying on a trade enters the cash basis for a tax year,

(b) at any time before the beginning of F15 ... that tax year the person has [F16 incurred relevant expenditure, and]

(c) not all of the relevant expenditure has actually been paid by the person.

[F17 (1A) “Relevant expenditure” means expenditure—

(a) for which a deduction would be allowed in calculating the profits of the trade on the cash basis on the assumption that the expenditure was paid in the tax year, and

(b) in respect of which the person has obtained capital allowances under Part 2, 5, 6, 7 or 8 of CAA 2001.]

(2) If the amount of the relevant expenditure that the person has actually paid exceeds the amount of capital allowances given in respect of the relevant expenditure, the difference is to be deducted in calculating the profits of the trade for the tax year.

(3) If the amount of the relevant expenditure that the person has actually paid is less than the amount of capital allowances given in respect of the relevant expenditure, the difference is to be treated as a receipt in calculating the profits of the trade for the tax year.

(4) [F18 Any question as to whether or to what extent expenditure is relevant expenditure, or as to whether or to what extent any capital allowance obtained is in respect of relevant expenditure,] is to be determined on such basis as is just and reasonable in all the circumstances.

(5) If the amount of capital allowances given [F19 under Part 2 of CAA 2001] in respect of the relevant expenditure has been reduced under section 205 or 207 of CAA 2001 (reduction where asset provided or used only partly for qualifying activity), the amount of the relevant expenditure that the person has actually paid is to be proportionately reduced for the purposes of this section.

F20 (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F15 Words in s. 240D(1)(b) omitted (6.4.2024 for the tax year 2024-25 and subsequent tax years) by virtue of Finance Act 2022 (c. 3), Sch. 1 paras. 17, 61(1)

F16 Words in s. 240D(1)(b) substituted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 9(2)

F17 S. 240D(1A) inserted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 9(3)

F18 Words in s. 240D(4) substituted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 9(4)

F19 Words in s. 240D(5) inserted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 9(5)

F20 S. 240D(6) omitted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by virtue of Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 9(6)

Successions where predecessor and successor are connected persons U.K.

240E Effect of election where predecessor and successor are connected persons U.K.

(1) This section applies if—

(a) a person carrying on a trade enters the cash basis for a tax year,

(b) the person is the successor for the purposes of section 266 of CAA 2001, and

(c) as a result of an election under section 267 of that Act, relevant plant or machinery is treated as sold by the predecessor to the successor at any time during F21 ... the tax year.

(2) The provisions of this Chapter have effect in relation to the successor as if everything done to or by the predecessor had been done to or by the successor.

(3) Any expenditure actually incurred by the successor on acquiring the relevant plant or machinery is to be ignored for the purposes of calculating the profits of the trade for the tax year.

(4) In this section “the predecessor” and “relevant plant or machinery” have the same meaning as in section 267 of CAA 2001.]

Textual Amendments

F21 Words in s. 240E(1)(c) omitted (6.4.2024 for the tax year 2024-25 and subsequent tax years) by virtue of Finance Act 2022 (c. 3), Sch. 1 paras. 18, 61(1)