Income Tax (Trading and Other Income) Act 2005

Cited as:2005 c. 5
Jurisdiction:UK Non-devolved


Income Tax (Trading and OtherIncome) Act 2005

2005 Chapter 5

An Act to restate, with minor changes, certain enactments relating to income tax on trading income, property income, savings and investment income and certain other income; and for connected purposes.

[24th March 2005]

Be it enacted by the Queen's most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:—

1 Overview

Part 1

Overview

S-1 Overview of Act

1 Overview of Act

(1) This Act imposes charges to income tax under—

(a) Part 2 (trading income)

(b) Part 3 (property income)

(c) Part 4 (savings and investment income), and

(d) Part 5 (certain miscellaneous income)

(2) Those charges to tax have effect for the purposes of section 1(1) of ICTA [Income and Corporation Taxes Act 1988 (c. 1)] (the general charge to income tax)

(3) Exemptions from those charges are dealt with in Part 6 (exempt income) but any Part 6 exemptions which are most obviously relevant to particular types of income are also mentioned in the provisions about those types of income.

(4) What is or is not mentioned in those provisions does not limit the effect of Part 6.

(5) This Act also contains—

(a) provision about rent-a-room relief and foster-care relief (see Part 7),

(b) special rules for foreign income (see Part 8),

(c) special rules for partnerships (see Part 9), and

(d) certain calculation rules and general provisions (see Part 10).

(6) For abbreviations and defined expressions used in this Act, see section 885 and Schedule 4.

S-2 Overview of priority rules

2 Overview of priority rules

(1) This Act contains some rules establishing an order of priority in respect of certain amounts which would otherwise—

(a) fall within a charge to income tax under two or more Chapters or Parts of this Act, or

(b) fall within a charge to income tax under a Chapter or Part of this Act and ITEPA 2003 [Income Tax (Earnings and Pensions) Act 2003 (c. 1)].

(2) See, in particular—

section 4 (provisions which must be given priority over Part 2),

section 261 (provisions which must be given priority over Part 3),

section 262 (priority between Chapters within Part 3),

section 366 (provisions which must be given priority over Part 4),

section 367 (priority between Chapters within Part 4),

section 575 (provisions which must be given priority over Part 5), and

section 576 (priority between Chapters within Part 5).

(3) But the rules in those sections need to be read with other rules of law (whether in this Act or otherwise) about the scope of particular provisions or the order of priority to be given to them.

(4) Section 171(2) of FA 1993 [Finance Act 1993 (c. 34)] (profits of Lloyd's underwriters charged only under Chapter 2 of Part 2 of this Act) is one example of another rule of law.

2 Trading income

Part 2

Trading income

Chapter 1

Introduction

S-3 Overview of Part 2

3 Overview of Part 2

(1) This Part imposes charges to income tax under—

(a) Chapter 2 (the profits of a trade, profession or vocation which meet the territorial conditions mentioned in section 6)

(b) Chapter 17 (amounts treated as adjustment income under section 228), and

(c) Chapter 18 (post-cessation receipts that are chargeable under this Part).

(2) Part 6 deals with exemptions from the charges under this Part.

(3) See, in particular, the exemptions under sections 777 (VAT repayment supplements) and 778 (incentives to use electronic communications).

(4) The charges under this Part apply to non-UK residents as well as UK residents but this is subject to sections 6(2) and (3) and 243(3) and (4) (charges on non-UK residents only on UK income).

(5) The rest of this Part contains rules relevant to the charges to tax under this Part.

(6) This section needs to be read with the relevant priority rules (see sections 2 and 4).

S-4 Provisions which must be given priority over Part 2

4 Provisions which must be given priority over Part 2

4 Provisions which must be given priority over Part 2

(1) Any receipt or other credit item, so far as it falls within—

(a) Chapter 2 of this Part (receipts of trade, profession or vocation), and

(b) Chapter 3 of Part 3 so far as it relates to a UK property business,

is dealt with under Part 3.

(2) Any receipt or other credit item, so far as it falls within—

(a) this Part, and

(b) Part 2, 9 or 10 of ITEPA 2003 [Income Tax (Earnings and Pensions) Act 2003 (c. 1)] (employment income, pension income or social security income),

is dealt with under the relevant Part of ITEPA 2003 [Income Tax (Earnings and Pensions) Act 2003 (c. 1)].

Chapter 2

Income taxed as trade profits

Charge to tax on trade profits

Charge to tax on trade profits

S-5 Charge to tax on trade profits

5 Charge to tax on trade profits

Income tax is charged on the profits of a trade, profession or vocation.

S-6 Territorial scope of charge to tax

6 Territorial scope of charge to tax

(1) Profits of a trade arising to a UK resident are chargeable to tax under this Chapter wherever the trade is carried on.

(2) Profits of a trade arising to a non-UK resident are chargeable to tax under this Chapter only if they arise—

(a) from a trade carried on wholly in the United Kingdom, or

(b) in the case of a trade carried on partly in the United Kingdom and partly elsewhere, from the part of the trade carried on in the United Kingdom.

(3) This section applies to professions and vocations as it applies to trades.

S-7 Income charged

7 Income charged

(1) Tax is charged under this Chapter on the full amount of the profits of the tax year.

(2) For this purpose the profits of a tax year are the profits of the basis period for the tax year.

(3) For the rules identifying the basis period for a tax year, see Chapter 15.

(4) This section is subject to Part 8 (foreign income: special rules).

(5) And, for the purposes of section 830 (meaning of ‘relevant foreign income’), the profits of a trade, profession or vocation arise from a source outside the United Kingdom only if the trade, profession or vocation is carried on wholly outside the United Kingdom.

S-8 Person liable

8 Person liable

The person liable for any tax charged under this Chapter is the person receiving or entitled to the profits.

Trades and trade profits

Trades and trade profits

S-9 Farming and market gardening

9 Farming and market gardening

(1) Farming or market gardening in the United Kingdom is treated for income tax purposes as the carrying on of a trade or part of a trade (whether or not the land is managed on a commercial basis and with a view to the realisation of profits)

(2) All farming in the United Kingdom carried on by a person, other than farming carried on as part of another trade, is treated for income tax purposes as one trade.

(3) In the case of farming carried on by a firm, this rule is explained by section 859(1).

S-10 Commercial occupation of land other than woodlands

10 Commercial occupation of land other than woodlands

10 Commercial occupation of land other than woodlands

(1) The commercial occupation of land in the United Kingdom is treated for income tax purposes as the carrying on of a trade or part of a trade.

(2) For this purpose the occupation of land is commercial if the land is managed—

(a) on a commercial basis, and

(b) with a view to the realisation of profits.

(3) This section does not apply—

(a) to farming or market gardening (which is dealt with by section 9),

(b) if the land is being prepared for forestry purposes, or

(c) if the land comprises woodlands (which is dealt with by section 11).

S-11 Commercial occupation of woodlands

11 Commercial occupation of woodlands

(1) The commercial occupation of woodlands in the United Kingdom is not a trade or part of a trade for any income tax purpose.

(2) For this purpose the occupation of woodlands is commercial if the woodlands are managed—

(a) on a commercial basis, and

(b) with a view to the realisation of profits.

(3) See also sections 267 and 768 (which, when read with this section, secure that profits or losses from the commercial occupation of woodlands in the United Kingdom are ignored for income tax purposes).

S-12 Profits of mines, quarries and other concerns

12 Profits of mines, quarries and other concerns

(1) Profits or losses arising out of land in the case of a concern to which this section applies are calculated as if the concern were a trade

(2) Any profits arising out of the land are charged to income tax as if the concern were a trade carried on in the United Kingdom.

But this does not impose a charge to tax on a non-UK resident in the case of a concern outside the United Kingdom.

(3) Any losses arising out of the land are treated for the purposes of Chapter 1 of Part 10 of ICTA [Income and Corporation Taxes Act 1988 (c. 1)] (loss relief) as losses of a trade carried on in the United Kingdom.

(4) The concerns to which this section applies are—

(a) mines and quarries (including gravel pits, sand pits and brickfields),

(b) ironworks, gasworks, salt springs or works, alum mines or works, waterworks and streams of water,

(c) canals, inland navigation, docks and drains or levels,

(d) rights of fishing,

(e) rights of markets and fairs, tolls, bridges and ferries,

(f) railways and other kinds of way, and

(g) a concern of the same kind as one specified in paragraph (b), (c), (d) or (e).

(5) This section does not apply to a concern if section 10 (commercial occupation of land other than woodlands) applies to the occupation of the land out of which the profits or losses arise.

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