Paragraph 168: section 392 of ICTA
3434.The amendment of section 392 of ICTA by paragraph 168 of this Schedule preserves the loss regime that applies to income that is, in the source legislation, income within Schedule D Case VI.
3435.Section 392 of ICTA is an income tax only provision that provides relief for losses in income types that, in the source legislation, are charged to tax under Schedule D Case VI. It provides the only avenue of relief available in respect of such losses.
3436.In the source legislation the charge under Schedule D Case VI comprises three elements:
a cornerstone, “sweeping-up” charge that catches any income not caught by the other Schedules and Cases;
a range of specific charges on miscellaneous transactions and receipts; and
a range of specific charges of an administrative nature to recover excess relief or undercharges of tax.
3437.On account of its breadth and diversity, Schedule D Case VI is often referred to as a “sweep-up” charge. Subject to some important qualifications mentioned below, the purpose of section 392 of ICTA is to allow set-off of losses arising from these different types of swept-up income against swept-up profits. Losses are allowed, and profits relieved, on an undifferentiated basis. That is, once within section 392 of ICTA, a loss can be set off against a profit of any sort (provided it is a Schedule D Case VI profit or, in addition, since ITEPA, certain pension profit) and is not limited to set off only against profit of the same type.
3438.But not all of the items within the Schedule D Case VI charge fall automatically within the section 392 of ICTA loss regime because not all are inherently capable of producing a loss. And section 392 of ICTA requires the presence of a “transaction” from which the loss or profit must arise.
3439.If there is a transaction, section 392 of ICTA provides:
(where a loss can arise) for the loss to be allowable provided that, had the transaction from which it arises been profitable, that profit would have been chargeable under Schedule D Case VI; and
for the set-off of such a loss against the profits of any other transactions chargeable under Schedule D Case VI (or against certain pension income chargeable under ITEPA) for the current year and carry-forward of any surplus against similar profits of later years.
3440.This Act makes wide-ranging changes in the way Schedule D Case VI income is charged. Specifically:
the labels “Schedule D” and “Case VI” disappear;
certain income charged under Schedule D Case VI is transferred to other heads of charge such as trading income or property income;
other income is charged under various bespoke sections in Parts 4 and 5; and
there is a pure “sweep-up” section in Part 5 (section 687).
3441.The amendment of section 392 of ICTA will ensure that, notwithstanding these recategorisations, the scheme of loss relief provided by the source legislation will continue unchanged. The table in the new section 836B of ICTA lists the provisions that, as they apply before the commencement of this Act, contain a Schedule D Case VI charge and to which section 392 of ICTA is, therefore, potentially relevant. Provisions of an administrative nature to recover excess relief and undercharges of tax are excluded: see the commentary on the amendment in Schedule 1 to this Act of section 18, Schedule D Case VI, of ICTA . These are:
FA 1950
section 40(3) (recovery of relief);
TMA
section 30(4) (recovery of over-repayment of tax; repealed, see paragraph 15 of this volume of Explanatory Notes and Schedule 3);
ICTA
section 118ZH(3) (recovery of relief);
section 307(1) (withdrawal of relief not due);
section 384(8) (withdrawal of certain loss relief);
section 384A(6) (withdrawal of certain loss relief);
section 399(3) (withdrawal of certain loss relief);
section 703(3) (recovery of inappropriate tax repayment);
section 788(7) (double taxation relief adjustment);
section 790(11) (double taxation relief adjustment);
paragraph 4 of Schedule 15B (recovery of venture capital trust relief); and
FA 2002
paragraph 27(2) of Schedule 16 (withdrawal of community investment tax relief).
3442.There is one Schedule D Case VI provision in the source legislation where the position in the source legislation has not been preserved. That is section 127 of ICTA (enterprise allowance) which is rewritten as section 207 in Chapter 15 of Part 2 of this Act. The amount charged under Schedule D Case VI in the source legislation is dealt with in this Act as part of the calculation of trade profits: see Change 53 in Annex 1. So it does not need to be included in the amendment of section 392 of ICTA.
