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) an election under section 25A has effect in relation to the trade for the tax year, and

(b) immediately before the beginning of the basis period for the tax year, such an election does not have effect in relation to the trade.

240C Unrelieved qualifying expenditure 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 the basis period for the previous tax year, the person has unrelieved qualifying expenditure to carry forward from the chargeable period ending with that basis period.

(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 the relevant portion of the expenditure.

(4) The “relevant portion” of the expenditure means the amount of the expenditure for which a deduction would be allowed in calculating the profits of the trade on the cash basis for a period if the expenditure was paid during that period.

(5) The relevant portion of the expenditure is to be determined on such basis as is just and reasonable in all the circumstances.

(6) Section 59(1) and (2) of CAA 2001 (unrelieved qualifying expenditure) has effect for the purposes of this section.

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 the basis period for that tax year the person has obtained capital allowances in respect of expenditure on the provision of plant or machinery (“the relevant expenditure”), and

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

(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) The amount of any capital allowance obtained in respect of expenditure on the provision of any plant or machinery is to be determined on such basis as is just and reasonable in all the circumstances.

(5) If the amount of capital allowances given 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.

(6) This section does not apply where the relevant expenditure was incurred on the provision of a car.

In this subsection “car” has the same meaning as in Part 2 of CAA 2001 (see section 268A of that Act).

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 the basis period for 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.]