Finance Act 1976

PART IV General

Partnerships

19 (1) Where a trade is carried on by persons in partnership, entitlement to relief or liability to charge under this Schedule is a joint entitlement or liability, and any claim for relief under this Schedule shall be a single claim made in the partnership name.

(2) Where none of those persons is a company, entitlement to relief and liability to charge under this Schedule shall be ascertained and given effect as if the trade were carried on by an individual.

(3) Where any of those persons is a company, entitlement to relief and liability to charge under this Schedule shall be ascertained as if the partnership were a company and shall be given effect in accordance with the following provisions of this paragraph.

(4) A company's share in any such entitlement or liability in any accounting period of the partnership shall be determined according to the interests of the partners during that period, and shall be given effect as if the share derived from a trade carried on by the company alone in its corresponding accounting period or periods.

In this sub-paragraph "corresponding accounting period or periods" means the accounting period or periods of the company comprising or together comprising the accounting period of the partnership, and any necessary apportionment shall be made between corresponding accounting periods if more than one.

(5) The share in any such entitlement or liability of the partner or partners other than companies shall be given effect as if that share derived from a trade carried on by him, or, as the case may be, by them in partnership, otherwise than in partnership with a company.

Successions

20 (1) The provisions of this paragraph apply—

(a) where the whole or part of a trade carried on by one company (" the predecessor ") is transferred to another company ("the successor") and section 252 of the Taxes Act (company reconstructions) has effect in relation to that event; or

(b) where the whole of a trade carried on by an individual or by persons in partnership (" the predecessor ") is transferred to a company resident in the United Kingdom ("the successor ") and at the date of the transfer not less than three-quarters of the ordinary share capital of the company is held by that individual or those persons,

and, in either case, the trading stock is transferred at cost or at market value.

(2) Where the whole of a trade is transferred and the predecessor and successor so elect, then, for the purposes of this Schedule—

(a) the trading stock transferred shall be treated both as forming part of the predecessor's closing stock in his period of account which ends with or includes the date of transfer, and as forming part of the successor's opening stock in his period of account which begins with or includes the date of transfer ; and

(b) in ascertaining in that or any later period of account the amount of unrecovered past relief allowed to a person in respect of the trade, the successor shall be treated as having carried on the trade since the predecessor began (or is himself treated, by virtue of this sub-paragraph or of any other provision of this Schedule, as having begun) to do so.

(3) Where part of a trade is transferred and the predecessor and successor so elect, then, for the purposes of this Schedule, the predecessor shall be treated as having carried on in the period of account during or at the end of which the transfer occurs a separate trade consisting of the part transferred; and all necessary apportionments between the two parts of the trade (including the apportionment of unrecovered past relief allowed for the trade) shall be made by reference to the respective values of the trading stock of each part immediately after the transfer.

(4) An election under this paragraph shall be by notice in writing signed by both the predecessor and the successor and sent to the inspector within two years after the date of the transfer.

21 (1) Subject to the provisions of this paragraph, where there is a change in the persons engaged in carrying on a trade, this Schedule applies as if the trade had been permanently discontinued at the date of the change and a new trade had been then set up and commenced.

For the purposes of this paragraph, a change in the personal representatives of any person, or in the trustees of any trust, shall not be treated as a change in the persons carrying on any trade carried on by those personal representatives or trustees as such.

(2) Where there is a change of persons but—

(a) a person engaged in carrying on the trade immediately before the change continues to be so engaged immediately after the change; and

(b) the trading stock of the trade immediately before the change is the trading stock immediately after the change,

an election may be made to the effect that sub-paragraph (1) shall not apply to the change.

(3) An election under this paragraph must be made by all the persons engaged in carrying on the trade before the change ("the predecessors ") and all those so engaged immediately after the change (" the successors "), and be signed by them and sent to the inspector within two years after the date of the change.

Where those persons have elected under section 154(2) of the Taxes Act that the trade be treated as continuing for income tax purposes, they shall be treated as having also made an election under this paragraph.

(4) In ascertaining for the purposes of this Schedule the amount of unrecovered past relief allowed to a person in respect of a trade where at an earlier date a change in the persons carrying on that trade has been the subject of an election under this paragraph, the successors (in relation to that change) shall be treated as having carried on the trade since the predecessors began (or are themselves treated, by virtue of this sub-paragraph or of any other provision of this Schedule, as having begun) to do so.

(5) Where during a period of account there is a change in the persons engaged in carrying on a trade, and—

(a) an election is made under this paragraph ; but

(b) no election is made under section 154(2) of the Taxes Act in relation to that change,

any relief or charge under this Schedule in respect of that period of account shall be apportioned between the precedessors and successors according to the respective lengths of the parts of the period falling before and after the change, and for the purpose of giving effect to that relief or charge each of those parts shall be treated as if it were a separate period of account.

Adjustment for special circumstances

22 (1) Where any arrangements have been effected by a person carrying on a trade, or by him and other persons acting together, such as, in particular, the following—

(a) any acquisition or disposal of trading stock otherwise than in the normal course of the trade in question ; or

(b) any change in the normal pattern or method of carrying on the trade; or

(c) any change in the date to which the accounts of the trade are made up; or

(d) any increase in the value of a person's trading stock which is associated with a decrease in the trading stock of another person connected with him (within the meaning of section 533(5) or (6) of the Taxes Act),

and it appears that the sole or main benefit which, but for this paragraph, might have been expected to accrue to that person was the obtaining of relief or the reduction of the amount of a charge under this Schedule, an adjustment shall be made under this paragraph.

(2) The adjustment is to substitute, for the purposes of this Schedule, for any opening or closing value of trading stock in any period of account which appears to have been affected by the arrangements, the value which it appears there would have been had those arrangements not been made.

Valuation of stock in certain cases

23 (1) For the purposes of this Schedule in ascertaining the entitlement of a person to relief, or his liability to a charge, in respect of any period of account—

(a) in a case where at any time during the twelve months preceding the beginning of that period of account he was not carrying on the trade in question ; or

(b) in a case where during that period of account there was a major alteration in the conduct of the trade in question which resulted in an exceptional increase in his trading stock,

he shall be treated as having at the beginning of that period of account trading stock of such value as may be attributed in accordance with this paragraph.

(2) If for any of the purposes of this Schedule there falls to be ascertained the value of any trading stock at a date other than the beginning or end of a period of account and when no value was in fact determined, that value shall be such as may be attributed in accordance with this paragraph.

(3) The value to be attributed is such value as is reasonable and just having regard to all the relevant circumstances of the case, and in particular—

(a) to the opening and closing values of trading stock of the trade for that period of account;

(b) to movements during that period of account in the costs of items of a kind comprised in the person's trading stock during the period; and

(c) to changes during that period in the volume of the trade carried on by that person.

Discontinuity in stock values

24 (1) Where a person's closing stock value in a period of account is not calculated on the same basis as that used for the calculation of the opening stock value in that period, he shall be treated, for the purposes of this Schedule, as having at the beginning of that period trading stock of the amount he would have had if the basis of calculation had been that used for the closing stock value.

(2) Where a person's opening stock value in a period of account (including a value he is treated as having by virtue of sub-paragraph (1) above or of any other provision of this Schedule) is less than the amount of unrecovered past relief allowed to him for that trade, he shall be treated, for the purposes of this Schedule, as having at the beginning of that period trading stock of an amount equal to the amount of unrecovered past relief.

Farm animals

25 (1) Animals treated as trading stock under Schedule 6 to the Taxes Act (farm animals etc.) shall, subject to the provisions of this paragraph, be so treated for the purposes of this Schedule.

(2) Where a person makes an election for the herd basis under that Schedule which takes effect during a period of account, animals forming part of a herd with respect to which the election has effect shall be treated for the purposes of this Schedule as not having been trading stock of that person at any time during that period.

(3) Where a person makes an election for the herd basis under that Schedule then at the end of the last period of account not affected by the election (hereafter referred to as "the point of election ") the unrecovered past relief allowed to him for the fanning or other trade in question (including the relief in respect of that period of account) shall be apportioned between the herd and the rest of his trading stock by reference to their respective values at the point of election, and in subsequent periods of account that part attributed to the herd is recoverable in accordance with the following provisions of this paragraph.

(4) A charge by way of recovery of relief shall be made where in a period of account for which the election has effect there is a reduction of the number of animals in the herd and—

(a) in the case of the first period in respect of which such a charge arises, the number at the end of that period is less than the number of animals in the herd at the point of election (that difference being referred to hereafter as " the relevant number "); or

(b) in the case of any subsequent period in respect of which such a charge arises, the number at the end of that period is less than the number of animals in the herd at the end of the last preceding period of account in respect of which such a charge arose (that difference being referred to hereafter as " the relevant number ").

This paragraph also applies (subject to sub-paragraph (6) below) where the person ceases to keep the herd and the first-mentioned number in paragraph (a) or (b) above is accordingly nil.

(5) The amount on which the charge to be made is the amount which bears to the whole amount of unrecovered past relief attributed to the herd at the point of election, the same proportion as the relevant number of animals in relation to the period of account in question bears to the number of animals in the herd at the point of election.

(6) Where a herd is sold as a whole and another production herd of the same class is acquired, this paragraph applies as if those herds were the same herd.

(7) A charge under this paragraph shall be treated for all purposes as if it were a charge by way of recovery of relief under paragraph 2 or 10 above falling to be made for the farming or other trade in question, and shall be given effect accordingly.

(8) In this paragraph "herd" and "production herd" have the same meaning as in Schedule 6 to the Taxes Act, and this paragraph applies (as does that Schedule), with the necessary adaptations, to animals or other creatures kept singly as it applies in relation to herds.

Meaning of " past relief "

26 (1) References in this Schedule to " past relief", in relation to a trade carried on by any person in any period of account, are to the aggregate amount of the following reliefs allowed to him (or treated as allowed to him)—

(a) Schedule 10 relief (as defined in paragraph 18 above) allowed for that trade ; and

(b) relief under Part I or Part II of this Schedule allowed for that trade in respect of earlier periods of account.

(2) The amount of unrecovered past relief in any period of account is that aggregate amount less the aggregate of the amounts on which charges by way of recovery of relief have been made on that person for that trade in respect of earlier periods of account.

Application to professions and foreign trades etc.

27 (1) The foregoing provisions of this Schedule have effect, with the necessary modifications, in relation to professions and vocations chargeable under Case II of Schedule D as they have effect in relation to trades chargeable under Case I of that Schedule.

(2) The foregoing provisions of this Schedule (including sub-paragraph (1) of this paragraph) have effect, with the necessary modifications, in relation to trades, professions and vocations carried on outside the United Kingdom and chargeable under Case V of Schedule D otherwise than on a remittance basis as they have effect in relation to trades, professions and vocations chargeable under Case I or Case II of that Schedule, except that where, in charging the income from that trade, profession or vocation, a deduction of one quarter of the amount of that income falls to be allowed under section 23(3) of the [1974 c. 30.] Finance Act 1974 (income charged to income tax otherwise than on remittance basis) the amount of relief under this Schedule shall be confined to three-quarters of the amount which would have been applicable had the trade, profession or vocation been chargeable under the said Case I or Case II.

Interpretation

28 (1) In this Schedule " period of account" means a period for which an account is made up in relation to the trade, profession or vocation in question.

(2) For the purposes of this Schedule a source of income is "within the charge to" income tax or corporation tax if that tax is chargeable on the income arising from it, or would be so chargeable if there were any such income, and references to a person or to profits or gains, being within the charge to tax shall be similarly construed.

29 (1) Subject to the provisions of this paragraph, in this Schedule " trading stock" means property of any description, whether real or personal, being either—

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

(b) materials such as are used in the manufacture, preparation or construction of any such property as is referred to in paragraph (a) above,

and includes work in progress.

(2) Sub-paragraph (1) above does not apply to—

(a) securities, which for this purpose includes stocks and shares; or

(b) land, other than such as is ordinarily sold in the course of the trade, profession or vocation only—

(i) after being developed by the person carrying on the trade, profession or vocation, or

(ii) in the case of a company which is a member of a group, for the purpose of being developed by another company in that group ; or

(c) goods which the person carrying on the trade, profession or vocation has let on hire or hire-purchase.

(3) In sub-paragraph (2) above, references to development are references to the construction or substantial reconstruction of buildings on the land in question and "group" shall be construed in accordance with section 272 of the Taxes Act.

(4) For the purposes of this Schedule the value of a person's trading stock at any time shall be reduced to the extent to which payments on account have been made at or before that time in respect of that stock.

(5) References in this Schedule to trading stock are to the trading stock brought into account in computing the profits or gains of a trade, profession or vocation in accordance with Case I or, as the case may be, Case II of Schedule D.

(6) Where a person not resident in the United Kingdom carries on a trade partly within the United Kingdom and partly abroad, references in this Schedule to his trading stock are to the stock attributable to that part of the trade within the charge to United Kingdom tax.

30 In this Schedule " work in progress " means—

(a) any services performed in the ordinary course of the trade, profession or vocation, the performance of which was partly completed at the material time and for which it would be reasonable to expect that a charge will subsequently be made; and

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

31 (1) In tins Schedule " relevant income" in relation to a person carrying on a trade, profession or vocation, means the income from that trade, profession or vocation computed in accordance with the rules applicable to Case I or, as the case may be, Case II of Schedule D.

(2) In computing, for the purposes of this Schedule, the relevant income for any period of account—

(a) no account shall be taken of any set-off or reduction of income by virtue of section 168, 171, 174, 177 or 178 of the Taxes Act, in respect of losses ;

(b) no deduction or addition shall be made by virtue of any provision of this Schedule, in respect of any relief or charge; and

(c) no account shall be taken of any reduction in the value of trading stock directed by section 18 of the [1975 c. 7.] Finance Act 1975 or Schedule 10 to the [1975 c. 45.] Finance (No. 2) Act 1975

but there shall be taken into account any deduction or addition in respect of capital allowances and balancing charges referable to that period of account.

(3) In a case falling within Part I of this Schedule, the capital allowances and balancing charges referable to a period of account are—

(a) the first year and initial allowances claimed for expenditure incurred in that period ;

(b) balancing allowances and charges on disposals in that period ; and

(c) the appropriate fraction of the writing down allowances for the year which in relation to that period of account is the relevant year of assessment for the purposes of the said Part I.

(4) The appropriate fraction mentioned in sub-paragraph (3)(c) is the fraction of which the denominator is the number of months during which the trade was carried on in the relevant year of assessment and the numerator is the number of months during which the trade was carried on in the period of account.

For the purposes of this sub-paragraph fractions of a month shall be disregarded.

(5) In a case falling within Part II of this Schedule the capital allowances referable to a period of account are the allowances (less any balancing charges) for the accounting period or periods constituting that period of account.

(6) In a case falling within Part III of this Schedule the relevant income for the base period there referred to is the aggregate amount of the relevant income for each of the periods of account comprising that period, and the capital allowances and balancing charges referable to each such period of account shall be ascertained as if those periods were periods to which Part I or, as the case may be, Part II of this Schedule applied.

32 Any reference in this Schedule to a period ending in another period includes a reference to a period ending on the same day as the other period.