Income Tax (Trading and Other Income) Act 2005

[F1 CHAPTER 1 U.K. Trading allowance

Textual Amendments

F1 Pt. 6A inserted (16.11.2017) (with effect in accordance with Sch. 3 para. 13 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 3 para. 1

Modifications etc. (not altering text)

C1 Pt. 6A Ch. 1 excluded (22.7.2020) by Finance Act 2020 (c. 14), Sch. 16 para. 4(4)

Introduction U.K.

783A Relief under this Chapter U.K.

(1) This Chapter gives relief to an individual on—

(a) the income of a relevant trade (see section 783AA), and

(b) miscellaneous income (see section 783AB).

(2) If the individual qualifies for full relief (see section 783AE), the individual's relevant income (see section 783AC) is not charged to income tax (see sections 783AF and 783AG).

(3) If the individual qualifies for partial relief (see section 783AH), the individual's relevant income is calculated by alternative methods (see sections 783AI to 783AK).

(4) Any provision of this Chapter which gives relief is subject to sections 783AN to 783AQ, which specify circumstances in which relief under this Chapter is not given.

Basic definitions U.K.

783AA “Relevant trade” of an individual U.K.

(1) For the purposes of this Chapter, a trade carried on by an individual is a “relevant trade” of the individual for a tax year if—

(a) the individual carries on the trade otherwise than in partnership, and

(b) the trade is not a rent-a-room trade in relation to the individual for the tax year.

(2) For the purposes of subsection (1)(b) a trade is a “rent-a-room trade” in relation to an individual for a tax year if—

(a) the individual qualifies for rent-a-room relief for the tax year, and

(b) the individual has rent-a-room receipts for the tax year which would, apart from Chapter 1 of Part 7 (rent-a-room relief), be brought into account in calculating the profits of the trade.

See section 783AR for definitions relevant to this subsection.

(3) In this Chapter references to a trade include references to a profession or vocation.

783AB “Miscellaneous income” U.K.

(1) For the purposes of this Chapter, an individual's “miscellaneous income” for a tax year is all the income arising to the individual in the tax year which would be chargeable to income tax under Chapter 8 of Part 5 (income not otherwise charged) for the tax year.

(2) But if—

(a) the individual qualifies for rent-a-room relief for the tax year, and

(b) the individual has rent-a-room receipts for the tax year which would, apart from Chapter 1 of Part 7, be chargeable to income tax under Chapter 8 of Part 5,

the rent-a-room receipts are not miscellaneous income.

(3) The reference in subsection (1) to the amount which would be chargeable to income tax under Chapter 8 of Part 5 is to the amount which would be so chargeable—

(a) apart from this Chapter, and

(b) if no deduction were made for expenses or any other matter.

783AC The individual's “relevant income” U.K.

(1) For the purposes of this Chapter, an individual's “relevant income” for a tax year is the sum of the following—

(a) the receipts for the tax year of the individual's relevant trades for the tax year, and

(b) the individual's miscellaneous income for the tax year.

(2) In subsection (1)(a) the reference to the receipts of a trade for a tax year is to all the amounts which would, apart from this Chapter, be brought into account as a receipt in calculating the profits of the trade for the tax year.

783AD The individual's trading allowance U.K.

(1) For the purposes of this Chapter, an individual's trading allowance for a tax year is £1,000.

(2) The Treasury may by regulations amend subsection (1) so as to substitute a higher sum for the sum for the time being specified in that subsection.

Full relief U.K.

783AE Full relief: introduction U.K.

(1) An individual qualifies for full relief for a tax year if—

(a) the individual has relevant income for the tax year,

(b) the relevant income does not exceed the individual's trading allowance for the tax year, and

(c) no election by the individual under section 783AL has effect for the tax year (election for full relief not to be given).

(2) An individual also qualifies for full relief for a tax year if—

(a) the individual has relevant income for the tax year which consists of or includes receipts of one or more relevant trades,

(b) the relevant income exceeds the individual's trading allowance for the tax year,

(c) the conditions mentioned in subsection (3) are met,

(d) no election by the individual under section 783AL has effect for the tax year, and

(e) no election by the individual under section 783AM has effect for the tax year (election for partial relief).

(3) The conditions are that—

[F2 (a) the cash basis applies for the tax year in relation to one or more of the trades mentioned in subsection (2)(a);]

(b) the individual's relevant income would not exceed the individual's trading allowance for the tax year if it were to be assumed that an election by the individual under section [F3 25C(1)] had effect for the tax year, [F4 in relation to one or more of the trades mentioned in paragraph (a)]

F5 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F6 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F2 S. 783AE(3)(a) substituted (6.4.2024 for the tax year 2024-25 and subsequent tax years) by Finance Act 2024 (c. 3), Sch. 10 paras. 31(a), 47 (with Sch. 10 paras. 48-50)

F3 Word in s. 783AE(3)(b) substituted (6.4.2024 for the tax year 2024-25 and subsequent tax years) by Finance Act 2024 (c. 3), Sch. 10 paras. 31(b)(i), 47 (with Sch. 10 paras. 48-50)

F4 Words in s. 783AE(3)(b) inserted (6.4.2024 for the tax year 2024-25 and subsequent tax years) by Finance Act 2024 (c. 3), Sch. 10 paras. 31(b)(ii), 47 (with Sch. 10 paras. 48-50)

F5 S. 783AE(3)(c) omitted (6.4.2024 for the tax year 2024-25 and subsequent tax years) by virtue of Finance Act 2024 (c. 3), Sch. 10 paras. 31(c), 47 (with Sch. 10 paras. 48-50)

F6 S. 783AE(3)(d) omitted (6.4.2024 for the tax year 2024-25 and subsequent tax years) by virtue of Finance Act 2024 (c. 3), Sch. 10 paras. 31(c), 47 (with Sch. 10 paras. 48-50)

783AF Full relief: trade profits U.K.

(1) This section applies if—

(a) an individual qualifies for full relief for a tax year, and

(b) the individual's relevant income for the tax year consists of or includes receipts of one or more relevant trades.

(2) The profits or losses of each such trade for the tax year are treated as nil.

783AG Full relief: miscellaneous income U.K.

(1) This section applies if—

(a) an individual qualifies for full relief for a tax year, and

(b) the individual's relevant income for the tax year consists of or includes miscellaneous income.

(2) The amount of—

(a) the miscellaneous income arising in the tax year, less

(b) any expenses associated with that income,

is treated as nil.

Partial relief U.K.

783AH Partial relief: alternative calculation of profits: introduction U.K.

An individual qualifies for partial relief for a tax year if—

(a) the individual has relevant income for the tax year,

(b) the relevant income exceeds the individual's trading allowance for the tax year, and

(c) an election by the individual under section 783AM has effect for the tax year (election for partial relief).

783AI Partial relief: alternative calculation of trade profits U.K.

(1) This section applies if—

(a) an individual qualifies for partial relief for a tax year, and

(b) the individual's relevant income for the tax year consists of or includes receipts of one or more relevant trades.

(2) The profits or losses for the tax year of each of the individual's relevant trades are given by taking the following steps—

• Step 1 Calculate the total of all the amounts which would, apart from this Chapter, be brought into account as a receipt in calculating the profits of the trade for the tax year.

• Step 2 Subtract the deductible amount.

• F7 ...

(3) Subject to section 783AK, the deductible amount is equal to the individual's trading allowance for the tax year.

F8 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F7 Words in s. 783AI(2) 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. 21(2), 61(1)

F8 S. 783AI(4) 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. 21(3), 61(1)

783AJ Partial relief: alternative calculation of chargeable miscellaneous income U.K.

(1) This section applies if—

(a) an individual qualifies for partial relief for a tax year, and

(b) the individual's relevant income for the tax year consists of or includes miscellaneous income.

(2) The amount of miscellaneous income chargeable to income tax for the tax year is—

(a) the miscellaneous income for the tax year, less

(b) the deductible amount.

(3) Subject to section 783AK, the deductible amount is equal to the individual's trading allowance for the tax year.

783AK Deductible amount: splitting of trading allowance U.K.

(1) This section applies where the individual's relevant income for the tax year includes—

(a) receipts of a relevant trade, and

(b) receipts of any other relevant trade or miscellaneous income (or both).

(2) The references in section 783AI and (where it applies) section 783AJ to the deductible amount are to amounts which, in total, equal the individual's trading allowance for the tax year.

(3) The question of how to allocate the individual's trading allowance for the tax year for the purposes of subsection (2) is to be decided by the individual, subject to subsections (4) and (5).

(4) The deductible amount in respect of a relevant trade must not be such that the amount given by step 2 of section 783AI(2) is negative.

(5) The deductible amount in respect of miscellaneous income must not be such as to result in the individual making a loss in the transactions giving rise to the miscellaneous income.

Elections U.K.

783AL Election for full relief not to be given U.K.

(1) An individual may elect not to be given full relief for a tax year (see sections 783AF and 783AG).

(2) An election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year for which the election is made.

783AM Election for partial relief U.K.

(1) An individual may elect for partial relief to be given for a tax year if the individual's relevant income for the tax year exceeds the individual's trading allowance for the tax year (see sections 783AI and 783AJ).

(2) An election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year for which the election is made.

Exclusions from relief U.K.

783AN Exclusion from relief: expenses deducted against rent-a-room receipts U.K.

(1) No relief under this Chapter is given to an individual for a tax year if—

(a) the individual qualifies for rent-a-room relief for the tax year,

(b) the individual has rent-a-room receipts mentioned in subsection (2) for the tax year, and

(c) condition A or B is met.

(2) The rent-a-room receipts mentioned in subsection (1) are—

(a) rent-a-room receipts which would, apart from Chapter 1 of Part 7 (rent-a-room relief), be brought into account in calculating the profits of a trade, or

(b) rent-a-room receipts which would, apart from Chapter 1 of Part 7, be chargeable to income tax under Chapter 8 of Part 5 (income not otherwise charged).

(3) Condition A is that—

(a) the individual's total rent-a-room amount for the tax year does not exceed the individual's limit for the tax year (see section 783AR), and

(b) an election by the individual under section 799 has effect to disapply full rent-a-room relief for the tax year.

(4) Condition B is that—

(a) the individual's total rent-a-room amount for the tax year exceeds the individual's limit for the tax year, and

(b) no election by the individual under section 800 has effect to apply the alternative method of calculating profits for the tax year.

783AO Exclusion from relief: payments by employer U.K.

No relief under this Chapter is given to an individual for a tax year if—

(a) the individual has relevant income for the tax year, and

(b) the income includes a payment made by, or on behalf of, a person at a time when the individual is—

(i) an employee of the person, or

(ii) the spouse or civil partner of an employee of the person.

783AP Exclusion from relief: payments by firm U.K.

No relief under this Chapter is given to an individual for a tax year if—

(a) the individual has relevant income for the tax year, and

(b) the income includes a payment made by, or on behalf of, a firm at a time when the individual is—

(i) a partner in the firm, or

(ii) connected with a partner in the firm.

783AQ Exclusion from relief: payments by close company U.K.

(1) No relief under this Chapter is given to an individual for a tax year if—

(a) the individual has relevant income for the tax year, and

(b) the income includes a payment made by, or on behalf of, a close company at a time when the individual is—

(i) a participator in the close company, or

(ii) an associate of a participator in the close company.

(2) In this section “associate” and “participator” have the same meanings as in Part 10 of CTA 2010 (see sections 448 and 454).

Interpretation U.K.

783AR Interpretation of this Chapter U.K.

In this Chapter—

(a) “rent-a-room relief”, “rent-a-room receipts” and “total rent-a-room amount” have the same meanings as in Chapter 1 of Part 7 (rent-a-room relief: see sections 784, 786 and 788), and

(b) references to “the individual's limit” are to be construed in accordance with section 789 (the individual's limit for the purposes of rent-a-room relief).]