(1) In determining whether section 23E applies in relation to a relevant benefit, no regard is to be had to any arrangements the main purpose, or one of the main purposes, of which is to secure that section 23E does not apply in relation to the whole, or any part, of—
(a) the relevant benefit, or
(b) the relevant benefit and one or more other relevant benefits (whether or not all arising to the same person).
(2) Where arrangements are disregarded under subsection (1), and a relevant benefit (or part of it)—
(a) would, if the arrangements were not disregarded, arise before 6 April 2017, but
(b) would, when the arrangements are disregarded, arise on or after that date,
the relevant benefit (or part) is to be regarded for the purposes of this group of sections as arising on the date on which it would arise apart from the arrangements.
(1) This section applies where—
(a) income tax is charged on an individual by virtue of the application of section 23E in relation to a relevant benefit amount, and
(b) at any time, a tax (whether income tax or another tax) is charged on the individual or another person otherwise than by virtue of the application of section 23E in relation to the relevant benefit concerned.
(2) In order to avoid a double charge to tax, the individual may make a claim for one or more consequential adjustments to be made in respect of the tax charged as mentioned in subsection (1)(b).
(3) On a claim under this section an officer of Revenue and Customs must make such of the consequential adjustments claimed (if any) as are just and reasonable.
(4) The value of any consequential adjustments must not exceed the lesser of—
(a) the income tax charged on the individual as mentioned in subsection (1)(a), and
(b) the tax charged as mentioned in subsection (1)(b).
(5) Consequential adjustments may be made—
(a) in respect of any period,
(b) by way of an assessment, the modification of an assessment, the amendment of a claim, or otherwise, and
(c) despite any time limit imposed by or under any enactment.
(1) This section applies where—
(a) an individual performs investment management services in any tax year directly or indirectly in respect of an investment scheme under any arrangements, and
(b) under the arrangements, one or more sums of carried interest arise to the individual from an investment scheme in a tax year.
(2) For income tax purposes—
(a) the individual is treated as carrying on a trade, by virtue of the arrangements, for the tax year referred to in subsection (1)(b),
(b) the amount to be treated as the profits of the trade for that tax year is the sum of the non-qualifying profits of the trade and 72.5% of the qualifying profits of the trade (see subsection (3)), and
(c) the individual is treated as the person receiving or entitled to those profits.
(3) In subsection (2)(b)—
(a) the amount of the non-qualifying profits of the trade is—
(i) the total amount of carried interest arising to the individual from any investment scheme in the tax year under the arrangements that is not qualifying carried interest, minus
(ii) the proportion of any permitted deduction for the tax year (see section 23N) that is the same as the proportion of the total amount of carried interest that is not qualifying carried interest;
(b) the amount of the qualifying profits of the trade is—
(i) the total amount of qualifying carried interest arising to the individual from any investment scheme in the tax year under the arrangements, minus
(ii) the proportion of any permitted deduction for the tax year that is the same as the proportion of the total amount of carried interest that is qualifying carried interest.
(4) In Schedule A1—
(a) Part 1 explains what it means for a sum arising to an individual from an investment scheme under arrangements to be “carried interest” for the purposes of this group of sections and that Schedule;
(b) Part 2 sets out certain circumstances in which a sum arising to another person is treated as arising to the individual;
(c) Part 3 sets out how to determine the extent to which carried interest arising to an individual from an investment scheme is qualifying carried interest;
(d) Part 4 allows for an election to be made to treat carried interest as arising at an earlier time.
(5) A sum of carried interest arising to an individual from an investment scheme in a tax year is to be treated for the purposes of this section as not being a sum of carried interest to the extent that—
(a) it is chargeable to income tax on the individual by virtue of section 62 (earnings) or Part 7 of ITEPA 2003 (employment income relating to securities) in the tax year, or
(b) an election made under section 23J that has effect for the tax year applies in relation to the sum.
(1) An individual who performs investment management services directly or indirectly in respect of an investment scheme under arrangements mentioned in section 23I(1)(a) may make an election under this section.
(2) Where an election made under this section has effect for a tax year, the election applies in relation to a sum of carried interest arising to the individual under the arrangements in the tax year to the extent that the carried interest would, ignoring this group of sections, be brought into account in calculating the profits of a trade of the individual for the purposes of income tax for any tax year.
(3) An election made under this section—
(a) must be made by notice given to an officer of Revenue and Customs, and
(b) may not be revoked.
(4) A notice making an election—
(a) must state the tax year for which it is to have effect, and
(b) may not be given after 31 January following the end of that tax year.
23K Location of trade treated as carried on under section 23I etc
(1) An individual who is treated as carrying on a trade for a tax year under section 23I is treated as carrying on the trade—
(a) wholly in the United Kingdom, if all of the applicable workdays are UK workdays;
(b) wholly outside the United Kingdom, if all of the applicable workdays are not UK workdays;
(c) otherwise, partly in the United Kingdom and partly outside the United Kingdom.
(2) Where the trade is treated as carried on partly in the United Kingdom and partly outside the United Kingdom, the amount to be treated as the profits arising from the part of the trade treated as carried on in the United Kingdom is the sum of the non-qualifying profits of that part of the trade and 72.5% of the qualifying profits of that part of the trade.
(3) In subsection (2)—
(a) the amount of the non-qualifying profits of the part of the trade treated as carried on in the United Kingdom is the proportion of the non-qualifying profits of the trade (determined in accordance with section 23I(3)(a)) that is the same as the proportion of the applicable workdays that are UK workdays (but see subsection (4));
(b) the amount of the qualifying profits of the part of the trade treated as carried on in the United Kingdom is the proportion of the qualifying profits of the trade (determined in accordance with section 23I(3)(b)) that is the same as the proportion of the applicable workdays that are UK workdays (but see subsection (5)).
(4) For the purposes of subsection (3)(a) in a case where—
(a) the individual is a non-UK resident for the tax year, and
(b) any of the non-qualifying profits of the trade are anticipated qualifying profits,
any UK workday in a non-UK tax year is not to be treated as a UK workday (but remains an applicable workday) for the purposes of determining the proportion of the anticipated qualifying profits that is an amount of non-qualifying profits of the part of the trade treated as carried on in the United Kingdom.
(5) For the purposes of subsection (3)(b) in a case where the individual is a non-UK resident for the tax year, the following days are not to be treated as UK workdays (but remain applicable workdays)—
(a) any UK workday prior to 30 October 2024;
(b) any UK workday in a non-UK tax year;
(c) any UK workday prior to a period of 3 or more non-UK tax years.
(6) For the purposes of this section—
(a) a day is an “applicable workday” if it is a day in the relevant period on which the individual performs any investment management services directly or indirectly in respect of an investment scheme (whether or not under the arrangements mentioned in section 23I(1)(a));
(b) a day is a “UK workday” if it is a day in the relevant period on which the individual spends more than 3 hours performing any investment management services directly or indirectly in respect of an investment scheme (whether or not under those arrangements) in the United Kingdom;
(c) a year is a “non-UK tax year” if the individual is a non-UK resident for the tax year and there are fewer than 60 UK workdays in the year;
(d) non-qualifying profits are “anticipated qualifying profits” if, on the first UK workday in the relevant period, it was reasonable to assume that they would be qualifying profits.
(7) For the purposes of subsection (6) the “relevant period” is the period—
(a) beginning with the later of—
(i) the day on which the first external investor was admitted to any scheme from which the individual is entitled to carried interest under the arrangements mentioned in section 23I(1)(a), and
(ii) the first day on which the individual performs any investment management services directly or indirectly in respect of an investment scheme under the arrangements;
(b) ending with the earlier of—
(i) the last day in the tax year for which the individual was treated as carrying on the trade under section 23I on which a sum of carried interest arose to the individual from an investment scheme under the arrangements for the purposes of that section, and
(ii) the last day on which the individual performed any investment management services directly or indirectly in respect of an investment scheme under the arrangements.
(8) For the purposes of subsection (6)—
(a) investment management services performed by an individual in the course of travelling to or from the United Kingdom by air or sea or via a tunnel under the sea are assumed to be performed overseas even during the part of the journey in or over the United Kingdom, and
(b) travelling to or from the United Kingdom is taken to—
(i) begin when the individual boards the aircraft, ship or train that is bound for a destination in the United Kingdom or (as the case may be) overseas, and
(ii) end when the individual disembarks from that aircraft, ship or train.
23L Carried interest arising where individual deceased
(1) This section applies where—
(a) the individual referred to in section 23I(1)(a)has died, and
(b) as a result, one or more sums that would have been sums of carried interest arising to the individual from an investment scheme under the arrangements arise instead to another person in a tax year.
(2) For the purposes of sections 23I and 23K—
(a) the sums are treated as if they had arisen to the individual in the tax year in which they arose to the other person,
(b) the other person is treated as carrying on the trade under section 23I for that tax year (instead of the individual), and
(c) the other person is treated as the person receiving or entitled to the profits of that trade.
(1) This section applies where, on the disposal of an asset by an individual who was temporarily non-resident in tax year 2025-26 or earlier, a gain accrued to the individual in the temporary period of non-residence under section 103KA(2) or (3) of TCGA 1992 (as it then had effect).
(2) For income tax purposes—
(a) the individual is treated as carrying on a trade for the period of return,
(b) the amount to be treated as the profits of the trade for the period of return is 72.5% of the amount of the gain which accrued to the individual in the temporary period of non-residence, and
(c) the individual is treated as the person receiving or entitled to those profits.
(3) For the purposes of this section, “the period of return”, “temporarily non-resident” and “the temporary period of non-residence” have the meanings given by Part 4 of Schedule 45 to FA 2013 (statutory residence test: anti-avoidance).
(1) For the purpose of section 23I the amount of any “permitted deduction” for a tax year is—
(a) the amount of any consideration given by or on behalf of the individual wholly and exclusively for the entitlement to carried interest under the arrangements referred to in section 23I(1)(a), minus
(b) the amount of any such consideration deducted in calculating the profits of a trade that the individual is treated as carrying on under section 23I for an earlier tax year by virtue of those arrangements.
(2) In subsection (1), “consideration” means consideration in money or money’s worth but does not include the performance of any investment management services directly or indirectly in respect of an investment scheme.
(3) For the purposes of this Act no other deduction may be made from the amount treated as the profits of the trade under section 23I.
(1) In determining whether section 23I applies in relation to an individual, no regard is to be had to any arrangements the main purpose, or one of the main purposes, of which is to secure that that section does not to any extent apply in relation to—
(a) the individual, or
(b) the individual and one or more other individuals.
(2) In determining whether an individual falls within paragraph (a) of section 23I(1), no regard is to be had to any arrangements the main purpose, or one of the main purposes, of which is to secure that the individual falls within that paragraph.
23Q Carried interest: avoidance of double taxation
(1) Subsection (2) applies where—
(a) an individual performs investment management services directly or indirectly in respect of an investment scheme under arrangements mentioned in section 23I(1)(a), and
(b) the individual is entitled to carried interest under the arrangements.
(2) No income tax is chargeable on the individual by virtue of the individual’s entitlement to carried interest other than—
(a) income tax chargeable in respect of carried interest arising to the individual under the arrangements—
(i) by virtue of section 23I or 23M,
(ii) by virtue of section 62 (earnings) or Part 7 of ITEPA 2003 (employment income relating to securities), or
(iii) where an election made under section 23J has effect for a tax year, otherwise under this Part, or
(b) income tax chargeable in respect of—
(i) the award of the entitlement to carried interest to the individual, or
(ii) the individual’s acquisition of the entitlement to carried interest,
whether by virtue of section 62 (earnings) or Part 7 of ITEPA 2003 (employment income relating to securities) or otherwise.
(3) Subsection (4) applies where—
(a) an individual is chargeable to income tax and national insurance contributions by virtue of section 23I or 23M in respect of a sum of carried interest arising to the individual from an investment scheme, and
(b) at any time any other UK tax or national insurance contributions charged on any person—
(i) in relation to the sum mentioned in paragraph (a), or
(ii) or in respect of any person’s entitlement to that sum,
has or have been paid and not repaid.
(4) The individual may make a claim for one or more consequential adjustments to be made in respect of the profits chargeable by virtue of section 23I or 23M to take account of the amounts paid as mentioned in subsection (3)(b).
(5) On a claim under this section an officer of Revenue and Customs must make such of the consequential adjustments claimed (if any) as are just and reasonable.
(6) Consequential adjustments in respect of the profits chargeable by virtue of section 23I or 23M must not have the effect that—
(a) the total of—
(i) the amount of income tax and national insurance contributions charged on the adjusted profits by virtue of section 23I or 23M, and
(ii) any amounts paid as mentioned in subsection (3)(b), is less than
(b) the amount of income tax and national insurance contributions to which the individual was chargeable by virtue of section 23I or 23M in respect of the sum of carried interest before the making of any consequential adjustments.
(7) Consequential adjustments may be made—
(a) in respect of any period,
(b) by way of an assessment, the modification of an assessment, the amendment of a claim, or otherwise, and
(c) despite any time limit imposed by or under an enactment.
(8) In this section “UK tax” means income tax, corporation tax, capital gains tax or inheritance tax.
(9) For the purposes of section 9(2) of TIOPA 2010 (unilateral entitlement to credit for non-UK tax corresponding to capital gains tax), in a case where the capital gain mentioned in subsection (2)(b) of that section accrued on a sum of carried interest arising to an individual, the reference to capital gains tax calculated by reference to that gain is to be read as if it were a reference to income tax chargeable under section 23I in respect of the sum of carried interest.
(1) In this section, this group of sections and Schedule A1—
“AIF” has the meaning given by regulation 3 of the Alternative Investment Fund Managers Regulations 2013 and includes—
arrangements which permit an external investor to participate in investments acquired by the AIF without participating in the AIF itself, and
arrangements under which sums arise to an individual performing investment management services in respect of the AIF without those sums arising from the AIF itself;
“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable);
“collective investment scheme” has the meaning given by section 235 of FISMA 2000 and includes—
arrangements which permit an external investor to participate in investments acquired by the collective investment scheme without participating in the scheme itself, and
arrangements under which sums arise to an individual performing investment management services in respect of the collective investment scheme without those sums arising from the scheme itself;
“external investor”, in relation to an investment scheme and any arrangements, means a participant in the scheme other than—
an individual who at any time performs or is to perform investment management services directly or indirectly in respect of the scheme, or
a person through whom sums are to, or may, arise directly or indirectly to such an individual from the scheme under the arrangements;
“investment management services”, in relation to an investment scheme, includes—
the provision of investment advice,
seeking funds for the purposes of the scheme from participants or potential participants,
researching potential investments to be made for the purposes of the scheme,
acquiring, managing or disposing of property for the purposes of the scheme,
acting for the purposes of the scheme with a view to assisting a body in which the scheme has made an investment to raise funds, and
any activity incidental or ancillary to any activity mentioned in paragraphs (a) to (e);
“investment scheme” means—
a collective investment scheme, or
an AIF, or any part of an AIF, that is not a collective investment scheme;
“participant”, in relation to an investment scheme, means a person taking part in the scheme, whether by becoming the owner of, or of any part of, the property that is the subject of the scheme or otherwise;
“sum” includes any money or money's worth (and other expressions are to be construed accordingly);
“this group of sections” means sections 23I to 23Q.
(2) For the purposes of section 23K and Schedule A1, in determining what it is reasonable to assume in relation to an investment scheme, regard is to be had to all the circumstances including in particular any prospectus or other document which—
(a) is made available to external investors in the investment scheme, and
(b) on which external investors may reasonably be supposed to have relied or been able to rely.
(1) The profits of a trade for a tax year must be calculated on the cash basis, unless—
(a) the trade is an excluded trade in relation to the tax year (see section 25B), or
(b) an election under section 25C(1) has effect in relation to the trade for the tax year.
(2) In this Part—
(a) references to calculating the profits of a trade on the cash basis are references to doing so in accordance with this section, and
(b) references to a trade in relation to which the cash basis applies are to a trade the profits of which are required by virtue of subsection (1) to be calculated on the cash basis.
(3) Chapter 3A contains provision about the calculation of profits on the cash basis and the application of the rest of this Part in relation to the cash basis.
(4) Where the cash basis applies in relation to a trade, sections 27, 28 and 30 do not apply in relation to the calculation of the profits of the trade.
(5) This section does not affect provisions of the Income Tax Acts relating to the calculation of the profits of Lloyd's underwriters.
(1) The profits of a trade to which the cash basis does not apply must be calculated in accordance with generally accepted accounting practice, subject to any adjustment required or authorised by law in calculating profits for income tax purposes.
(2) This does not—
(a) require a person to comply with the requirements of the Companies Act 2006 or subordinate legislation made under that Act except as to the basis of calculation, or
(b) impose any requirements as to audit or disclosure.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) This section does not affect provisions of the Income Tax Acts relating to the calculation of the profits of Lloyd's underwriters.
(1) A trade is an excluded trade in relation to a tax year if the trade meets any of conditions A to G.
(2) Condition A is that—
(a) the person who is or has been carrying on the trade is a firm, and
(b) one or more of the persons who have been partners in the firm at any time during the tax year was not an individual at that time.
(3) Condition B is that the person who is or has been carrying on the trade was a limited liability partnership at any time during the tax year.
(4) Condition C is that an election under Chapter 8 (trade profits: herd basis rules) has effect in relation to the trade for the tax year.
(5) Condition D is that a claim under Chapter 16 (claim for averaging of fluctuating profits) has been made in relation to the trade for the tax year.
(6) Condition E is that, at any time within the period of 7 years ending immediately before the tax year, the person who is or has been carrying on the trade obtained an allowance under Part 3A of CAA 2001 (business premises renovation allowances) in relation to the trade.
(7) Condition F is that the trade is or was at any time during the tax year a mineral extraction trade within the meaning of Part 5 of CAA 2001 (see section 394(2) of that Act).
(8) Condition G is that—
(a) at any time before the beginning of the tax year the person who is or has been carrying on the trade obtained an allowance under Part 6 of CAA 2001 (research and development allowances) in respect of qualifying expenditure incurred by the person in relation to the trade, and
(b) the person owns an asset representing the expenditure.
In this subsection “qualifying expenditure” has the same meaning as in Part 6 of CAA 2001.
(9) The Treasury may by regulations amend this section.
(10) A statutory instrument containing regulations under subsection (9) that restricts the circumstances in which an election may be made under section 25C may not be made unless a draft of the instrument containing the regulations has been laid before, and approved by a resolution of, the House of Commons.
25C Election for profits to be calculated in accordance with GAAP
(1) A person who is or has been carrying on a trade, other than an excluded trade, may elect for the profits of the trade to be calculated in accordance with generally accepted accounting practice (instead of on the cash basis).
(2) An election made in relation to a trade under subsection (1) has effect—
(a) for the tax year for which it is made, and
(b) for every subsequent tax year (subject to subsection (3)).
(3) An election made in relation to a trade under subsection (1) ceases to have effect if—
(a) the trade is an excluded trade in relation to a tax year, or
(b) the person who is or has been carrying on the trade, other than an excluded trade, elects to calculate its profits for a subsequent tax year on the cash basis.
(4) Subsection (3) does not prevent an election being made under subsection (1) for any subsequent tax year.
(5) For the meaning of “excluded trade”, see section 25B.
(1) The same rules apply for income tax purposes in calculating losses of a trade as apply in calculating profits.
(2) This is subject to any express provision to the contrary.
(1) In the Income Tax Acts, in the context of the calculation of the profits of a trade, references to receipts and expenses are to any items brought into account as credits or debits in calculating the profits.
(2) There is no implication that an amount has been actually received or paid.
(3) This section is subject to any express provision to the contrary.
28 Items treated under CAA 2001 as receipts and expenses
The rules for calculating the profits of a trade need to be read with—
(a) the provisions of CAA 2001 which treat charges as receipts of a trade, and
(b) the provisions of CAA 2001 which treat allowances as expenses of a trade.
(1) Subsection (2) applies—
(a) for the purpose of bringing into account an amount arising in respect of a transaction involving money's worth entered into in the course of a trade, and
(b) if an amount at least equal to the amount that would be brought into account under that subsection is not otherwise brought into account as a receipt in calculating the profits of a trade under a provision of this Part other than a provision mentioned in subsection (3).
(2) For the purpose of calculating the profits of the trade, an amount equal to the value of the money's worth is brought into account as a receipt if, had the transaction involved money, an amount would have been brought into account as a receipt in respect of it.
(3) But where another provision of this Part makes express provision for the bringing into account of an amount in respect of money's worth as a receipt in calculating the profits of a trade (however expressed), that other provision applies instead of subsection (2).
(1) Animals or other living creatures kept for the purposes of a trade are treated as trading stock if they are not kept wholly or mainly—
(a) for the work they do in connection with the carrying on of the trade,
(b) for public exhibition, or
(c) for racing or other competitive purposes.
(2) But they are not treated as trading stock if they are part of a herd in relation to which a herd basis election has effect (see Chapter 8).
(3) This section applies to shares in animals or other living creatures as it applies to the creatures themselves.
(4) This section does not apply to professions or vocations.
31 Relationship between rules prohibiting and allowing deductions
(1) Any relevant permissive rule in this Part—
(a) has priority over any relevant prohibitive rule in this Part, but
(b) is subject to section 36 (unpaid remuneration), section 38 (employee benefit contributions), section 48 (car ... hire) and section 55 (crime-related payments).
(1A) But, if the relevant permissive rule would allow a deduction in calculating the profits of a trade in respect of an amount which arises directly or indirectly in consequence of, or otherwise in connection with, relevant tax avoidance arrangements, that rule—
(a) does not have priority under subsection (1)(a), and
(b) is subject to any relevant prohibitive rule in this Part (and to the provisions mentioned in subsection (1)(b)).
(2) In this section “any relevant permissive rule in this Part” means any provision of—
(a) Chapter 5 (apart from sections 60 to 67),
(aa) Chapter 5A,
(b) Chapter 11, ...
(c) Chapter 13, or
(d) Chapter 17A,
which allows a deduction in calculating the profits of a trade.
(3) In this section “any relevant prohibitive rule in this Part”, in relation to any deduction, means any provision of this Part (apart from sections 36, 38, 48 and 55) which might otherwise be read as—
(a) prohibiting the deduction, or
(b) restricting the amount of the deduction.
(4) In this section “relevant tax avoidance arrangements” means arrangements—
(a) to which the person carrying on the trade is a party, and
(b) the main purpose, or one of the main purposes, of which is the obtaining of a tax advantage (within the meaning of section 1139 of CTA 2010).
“Arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).
(1) This section applies to professions and vocations as it applies to trades.
(2) To determine the profits of a trade for a tax year on the cash basis—
Step 1 Calculate the total amount of receipts of the trade received during ... the tax year.
Step 2 Deduct from that amount the total amount of expenses of the trade paid during ... the tax year.
(3) Subsection (2) is subject to any adjustment required or authorised by law in calculating profits for income tax purposes.
(4) In determining the profits of a trade on the cash basis, section 7A(2) applies as if the profits or losses of a period of account were determined in accordance with subsection (2) of this section (and for these purposes, references in subsection (2) of this section to a tax year are to be read as references to a period of account).
31F Overview of rest of Part 2 as it applies to cash basis
(1) For provision about the application of Chapters 4 to 6 (rules about deductions and receipts) in relation to the cash basis, see sections 32A, 56A and 95A.
(2) For provision about the application of Chapter 11 (trade profits: other specific trades) in relation to the cash basis, see section 148K.
(3) The following Chapters apply only where profits are calculated on the cash basis—
Chapter 6A (trade profits: amounts not reflecting commercial transactions),
Chapter 17A (cash basis: adjustments for capital allowances).
(4) The following Chapters do not apply in relation to the cash basis—
Chapter 8 (trade profits: herd basis rules),
Chapter 9 (trade profits: sound recordings),
Chapter 10 (trade profits: certain telecommunication rights),
Chapter 10A (leases of plant or machinery: special rules for long funding leases),
Chapter 11A (trade profits: changes in trading stock),
Chapter 13 (deductions from profits: unremittable amounts),
Chapter 14 (disposal and acquisition of know-how),
Chapter 16 (averaging profits of farmers and creative artists),
Chapter 16ZA (compensation for compulsory slaughter of animal),
Chapter 16A (oil activities).
(1) The following sections do not apply in calculating the profits of a trade on the cash basis—
section 33 (capital expenditure),
section 35 (bad and doubtful debts),
sections 36 and 37 (unpaid remuneration),
section 43 (employee benefit contributions: profits calculated before end of 9 month period),
sections 48 to 50B (car hire).
(2) For rules restricting deductions that apply only where profits are calculated on the cash basis, see ...
section 33A (cash basis: capital expenditure).
...
(1) This section applies in relation to the calculation of the profits of a trade on the cash basis.
(2) No deduction is allowed for an item of a capital nature incurred on, or in connection with, the acquisition or disposal of a business or part of a business.
(3) No deduction is allowed for an item of a capital nature incurred on, or in connection with, education or training.
(4) No deduction is allowed for an item of a capital nature incurred on, or in connection with, the provision, alteration or disposal of—
(a) any asset that is not a depreciating asset (see subsections (6) and (7)),
(b) any asset not acquired or created for use on a continuing basis in the trade,
(c) a car (see subsection (14)),
(d) land,
(e) a non-qualifying intangible asset (see subsections (8) to (11)), or
(f) a financial asset (see subsection (12)).
(5) But subsection (4)(d) does not prevent a deduction being made for expenditure that—
(a) is incurred on the provision of a depreciating asset which, in being provided, is installed or otherwise fixed to land so as to become, in law, part of the land, but
(b) is not incurred on, or in connection with, the provision of—
(i) a building,
(ii) a wall, floor, ceiling, door, gate, shutter or window or stairs,
(iii) a waste disposal system,
(iv) a sewerage or drainage system, or
(v) a shaft or other structure in which a lift, hoist, escalator or moving walkway may be installed.
(6) An asset is a “depreciating” asset if, on the date the item of a capital nature is incurred, it is reasonable to expect that before the end of 20 years beginning with that date—
(a) the useful life of the asset will end, or
(b) the asset will decline in value by 90% or more.
(7) The useful life of an asset ends when it could no longer be of use to any person for any purpose as an asset of a business.
(8) “Intangible asset” means anything that is capable of being an intangible asset within the meaning of FRS 105 and, in particular, includes—
(a) an internally-generated intangible asset, and
(b) intellectual property.
(9) An intangible asset is “non-qualifying” unless, by virtue of having a fixed maximum duration, it must cease to exist before the end of 20 years beginning with the date on which the item of a capital nature is incurred.
(10) An intangible asset is “non-qualifying” if it consists of a right, whether conditional or not, to obtain an intangible asset without a fixed maximum duration by virtue of which that asset must, assuming the right is exercised at the last possible time, cease to exist before the end of 20 years beginning with the date on which the item of a capital nature is incurred.
(11) Where—
(a) the trader has an intangible asset, and
(b) the trader grants a licence or any other right in respect of that asset to another person,
any intangible asset that consists of a licence or other right granted to the trader in respect of the intangible asset mentioned in paragraph (a) is “non-qualifying”.
(12) A “financial asset” means any right under or in connection with—
(a) a financial instrument, or
(b) an arrangement that is capable of producing a return that is economically equivalent to a return produced under any financial instrument.
(13) A reference to acquisition, provision, alteration or disposal includes potential acquisition, provision, alteration or (as the case may be) disposal.
(14) In this section—
“arrangement” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable);
“building” includes any fixed structure;
“car” has the same meaning as in Part 2 of CAA 2001 (see section 268A of that Act);
“financial instrument” has the same meaning as in FRS 105;
“FRS 105” means Financial Reporting Standard 105 (the Financial Reporting Standard applicable to the Micro-entities Regime), issued by the Financial Reporting Council in July 2015;
“intellectual property” means—
any patent, trade mark, registered design, copyright or design right, plant breeders' rights or rights under section 7 of the Plant Varieties Act 1997,
any right under the law of a country or territory outside the United Kingdom corresponding or similar to a right within paragraph (a),
any information or technique not protected by a right within paragraph (a) or (b) but having industrial, commercial or other economic value, or
any licence or other right in respect of anything within paragraph (a), (b) or (c);
“provision” includes creation, construction or acquisition;
“the trader” means the person carrying on the trade.
34 Expenses not wholly and exclusively for trade and unconnected losses
(1) In calculating the profits of a trade, no deduction is allowed for—
(a) expenses not incurred wholly and exclusively for the purposes of the trade, or
(b) losses not connected with or arising out of the trade.
(2) If an expense is incurred for more than one purpose, this section does not prohibit a deduction for any identifiable part or identifiable proportion of the expense which is incurred wholly and exclusively for the purposes of the trade.
(1) In calculating the profits of a trade, no deduction is allowed for a debt owed to the person carrying on the trade, except so far as—
(a) the debt is bad,
(b) the debt is estimated to be bad, or
(c) the debt is released wholly and exclusively for the purposes of the trade as part of a statutory insolvency arrangement.
(2) If the debtor is bankrupt or insolvent, the whole of the debt is estimated to be bad for the purposes of subsection (1)(b), except so far as any amount may reasonably be expected to be received on the debt.
(1) This section applies if, in calculating the profits of a trade of a period of account—
(a) an amount is charged in the accounts for the period in respect of employees' remuneration, and
(b) a deduction for the remuneration would otherwise be allowable for the period.
(2) No deduction is allowed for the remuneration for the period of account unless it is paid before the end of the period of 9 months immediately following the end of the period of account.
(3) If the remuneration is paid after the end of that 9 month period, a deduction for it is allowed for the period of account in which it is paid.
(1) For the purposes of section 36 an amount charged in the accounts in respect of employees' remuneration includes an amount for which provision is made in the accounts with a view to its becoming employees' remuneration.
(2) For the purposes of section 36 it does not matter whether an amount is charged for—
(a) particular employments, or
(b) employments generally.
(3) If the profits of the trade are calculated before the end of the 9 month period mentioned in section 36(2)—
(a) it must be assumed, in making the calculation, that any remuneration which is unpaid when the calculation is made will not be paid before the end of that period, but
(b) if the remuneration is subsequently paid before the end of that period, nothing in this subsection prevents the calculation being revised and any tax return being amended accordingly.
(4) For the purposes of this section and section 36 remuneration is paid when it—
(a) is treated as received by an employee for the purposes of ITEPA 2003 by section 18, 19, 31 or 32 of that Act (receipt of money and non-money earnings), or
(b) would be so treated if it were not exempt income.
(5) In this section and section 36—
“employee” includes an office-holder and “employment” therefore includes an office, and
“remuneration” means an amount which is or is treated as earnings for the purposes of ITEPA 2003.
(1) This section applies if, in calculating for income tax purposes the profits of a trade of a person (“the employer”) for a period, a deduction would otherwise be allowable for the period in respect of employee benefit contributions made or to be made (but see subsection (4)).
(1A) No deduction is allowed under this section in respect of employee benefit contributions for a period of account which starts more than 5 years after the end of the period of account in which the contributions are made.
(2) No deduction is allowed for the contributions for the period except so far as—
(a) qualifying benefits are provided, or qualifying expenses are paid, out of the contributions during the period or within 9 months from the end of it, or
(b) if the making of the contributions is itself the provision of qualifying benefits, the contributions are made during the period or within 9 months from the end of it.
(2AA) Subsection (2) is subject to subsections (1A) and (2AB).
(2AB) Where subsection (3C) applies, no deduction is allowed for an amount in respect of the contributions for the period except so far as the amount is a qualifying amount (see subsection (3D)).
(2A) In calculating for income tax purposes the profits of a trade on the cash basis, this section has effect as if—
(a) in subsection (1), the words “or to be made” were omitted, and
(b) in subsection (2), the words “or within 9 months from the end of it” were omitted (in both places).
(3) An amount disallowed under subsection (2) is allowed as a deduction for a subsequent period so far as—
(a) qualifying benefits are provided out of the contributions before the end of the subsequent period, or
(b) if the making of the contributions is itself the provision of qualifying benefits, the contributions are made before the end of the subsequent period.
(3A) Subsection (3) is subject to subsections (1A) and (3B).
(3B) Where subsection (3C) applies, an amount disallowed under subsection (2) is allowed as a deduction for a subsequent period only so far as it is a qualifying amount.
(3C) This subsection applies where the provision of qualifying benefits out of, or by way of, the contributions gives rise both to an employment income tax charge and to an NIC charge.
(3D) An amount in respect of employee benefit contributions is a “qualifying amount” if the relevant tax charges are paid before the end of the relevant period (and are not repaid).
(3E) For the purposes of subsection (3D)—
(a) the “relevant tax charges”, in relation to an amount, are the employment income tax charge and the NIC charge arising in respect of benefits which are provided out of, or by way of, that amount, and
(b) the “relevant period” is the period of 12 months immediately following the end of the period of account for which the deduction for the employee benefit contributions would (apart from this section) be allowable.
(3F) For the purposes of subsections (3C) and (3E), “employment income tax charge” and “NIC charge” have the meaning given by section 40(7).
(3G) Subsection (3H) applies where—
(a) a deduction would, apart from this section, be allowable for an amount (the “remuneration amount”) in respect of employees' remuneration, and
(b) in consequence of the payment of the employees' remuneration, employee benefit contributions are made, or are to be made, in respect of the remuneration amount.
(3H) In calculating for income tax purposes the profits of a trade, the deduction referred to in subsection (3G)(a) is to be treated as a deduction in respect of employee benefit contributions made or to be made (and is to be treated as not being a deduction in respect of employees' remuneration).
(4) This section does not apply to any deduction that is allowable for—
(a) anything given as consideration for goods or services provided in the course of a trade or profession,
(b) contributions under a registered pension scheme or under a superannuation fund to which section 615(3) of ICTA applies,
(c) contributions under a qualifying overseas pension scheme in respect of an individual who is a relevant migrant member of the pension scheme in relation to the contributions, or
(d) contributions under an accident benefit scheme.
For the purposes of paragraph (c) “qualifying overseas pension scheme” and “relevant migrant member” have the same meaning as in Schedule 33 to FA 2004 (see paragraphs 4 to 6 of that Schedule).
(5) See also—
section 39 (making of “employee benefit contributions”),
section 40 (provision of qualifying benefits),
section 41 (timing and amount of certain qualifying benefits),
section 42 (provision or payment out of employee benefit contributions),
section 43 (profits calculated before end of 9 month period), and
section 44 (interpretation of sections 38 to 44).
(1) For the purposes of section 38, an “employee benefit contribution” is made if, as a result of any act or omission—
(a) property is held, or may be used, under an employee benefit scheme, or
(b) there is an increase in the total value of property that is so held or may be so used (or a reduction in any liabilities under an employee benefit scheme).
(2) For this purpose “employee benefit scheme” means a trust, scheme or other arrangement for the benefit of persons who are, or include, present or former employees of the employer or persons linked with present or former employees of the employer .
(3) Section 554Z1 of ITEPA 2003 applies for the purposes of subsection (2) but as if references to A were to a present or former employee of the employer.
(4) So far as it is not covered by subsection (2), “employee benefit scheme” also means—
(a) an arrangement (the “relevant arrangement”) which is—
(i) an arrangement within subsection (1)(b) of section 554A of ITEPA 2003 to which subsection (1)(c) of that section applies, or
(ii) an arrangement within subsection (1)(b) of section 554AA of ITEPA 2003 to which subsection (1)(c) of that section applies, or
(b) any other arrangement connected (directly or indirectly) with the relevant arrangement.