Income Tax (Trading and Other Income) Act 2005

[F1 CHAPTER 7A U.K. Cash basis: adjustments for capital allowances

Textual Amendments

F1 Ss. 334A-334E and cross-headings 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. 29

334B “Entering the cash basis” U.K.

For the purposes of this Chapter, a person carrying on a property business enters the cash basis for a tax year if the profits of the business are calculated—

(a) on the cash basis for the tax year (see section 271D), and

(b) in accordance with GAAP (see section 271B) for the previous tax year.

334C Unrelieved qualifying expenditure U.K.

(1) This section applies if—

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

(b) the person would, apart from section 59(4A) of CAA 2001, have unrelieved qualifying expenditure relating to a relevant property business activity to carry forward from the chargeable period which is the previous tax year.

(2) But this section does not apply if section 334D applies.

(3) In calculating the profits of the property business for the current tax year, a deduction is allowed for any cash basis deductible amount of the expenditure relating to each relevant property business activity.

(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 property business on the cash basis on the assumption that the expenditure was paid in the current tax year.

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

(6) In this section—

• “relevant property business activity” means—

  (a)

  in relation to a UK property business, an ordinary UK property business and a UK furnished holiday lettings business (within the meaning of Part 2 of CAA 2001 (see sections 16 and 17 of that Act)), and

  (b)

  in relation to an overseas property business, an ordinary overseas property business and an EEA furnished holiday lettings business (within the meaning of Part 2 of that Act (see sections 17A and 17B of that Act));

• “unrelieved qualifying expenditure” means unrelieved qualifying expenditure for the purposes of Part 2 of CAA 2001 (see section 59(1) and (2) of that Act).

334D Assets not fully paid for U.K.

(1) This section applies if—

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

(b) at any time before the end of the chargeable period which is the previous tax year the person has incurred relevant expenditure, and

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

(2) “Relevant expenditure” means expenditure on plant or machinery—

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

(b) in respect of which the person has obtained capital allowances.

(3) 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 property business for the current tax year.

(4) 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 property business for the current tax year.

(5) 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.

(6) 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.

334E Effect of election where predecessor and successor are connected persons U.K.

(1) This section applies if—

(a) a person carrying on a property business 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 that section, relevant plant or machinery is treated as sold by the predecessor to the successor at any time during 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 property business for the tax year.

(4) In this section—

• “the predecessor” has the same meaning as in section 266 of CAA 2001, and

• “relevant plant or machinery” has the same meaning as in section 267 of that Act.]