Chapter 4: Certain telecommunication rights: non-trading income
2369.This Chapter imposes a charge on profits derived from certain telecommunication rights not held for trading purposes. It also sets out how the profits are to be calculated. The Chapter is based on Schedule D Cases III, V and VI of ICTA and Schedule 23 to FA 2000. The rights dealt with in the Chapter are certain telecommunications licences and capacity on telecommunications cable systems, known as indefeasible rights to use (IRU).
2370.Schedule 23 to FA 2000 does not impose a charge to tax on the income derived from the rights. The main purpose of Schedule 23 to FA 2000 is to allow a taxpayer who acquires qualifying rights a revenue deduction for expenditure that would otherwise be treated as capital for tax purposes. It does this by providing that the income tax treatment follows the treatment in the accounts provided the accounts are prepared in accordance with generally accepted accounting practice. This rule applies not only to the acquisition but also to revaluations and disposals.
2371.In most cases it is likely that the rights will be acquired for use in a trade. For this reason Schedule 23 to FA 2000 is rewritten as Chapter 10 of Part 2 of this Act. But the Schedule applies for all income tax purposes. This Chapter rewrites the charge if the assets are not acquired for the purposes of a trade.
2372.The Chapter applies only to IRUs acquired on or after 21 March 2000. See the transitional rules in paragraphs 130 and 131 of Schedule 2 to this Act. No telecommunications licences to which this Chapter applies were acquired before that date.
Section 614: Charge to tax on certain telecommunication rights of a non-trader
2373.This section charges to tax income from telecommunication rights arising to a non-trader. It is based on Schedule D Cases III, V and VI, section 18(1) and (3) of ICTA, and paragraph 1 of Schedule 23 to FA 2000.
2374.If the rights are acquired for pure investment purposes and the licensor does not undertake to provide any extra services, ICTA charges the profits to tax under Schedule D Case III as an annual payment (or under Schedule D Case V in the unlikely event that the source is outside the United Kingdom).
2375.If the licensor undertakes to provide services that do not amount to a trade, ICTA charges the profits under Schedule D Case VI (or under Schedule D Case V if the source is outside the United Kingdom).
Section 615: Income charged
2376.This section sets out the amount charged to tax. It is based on sections 64, 65, 68 and 69 of ICTA and Schedule 23 to FA 2000.
Section 616: Person liable
2377.This section states who is liable for any tax charged. It is based on section 59 of ICTA.
Section 617: Deductions in calculating certain income charged
2378.This section sets out how to calculate the income charged to tax if the taxpayer provides services that do not amount to a trade. It is based on section 69 of ICTA and Schedule 23 to FA 2000.
2379.In the source legislation this income would be charged under Schedule D Case VI (or under Schedule D Case V if the source is outside the United Kingdom). The rules set out in this section deal with two aspects of the calculation of this income. First, the general deduction rules that apply to income taxed under Schedule D Case VI. Second, the particular rules that apply to income from telecommunication rights.
2380.There is no express provision in the legislation for deductions of expenditure from Schedule D Case VI income, although it is implied by the word “profits” in section 69 of ICTA (Case VI assessments) and by section 392 of ICTA (Case VI losses). This view has been upheld by the courts (see Curtis Brown v Jarvis (1929), 14 TC 744 HC). Expenditure admissible relating to income arising in the United Kingdom within the scope of the section would not cease to be admissible in respect of the same type of income arising outside the United Kingdom. However, under section 64 of ICTA (Case III assessments) no deduction is permitted from income within the Schedule D Case III charge so this section specifically does not apply to annual payments.
2381.Schedule 23 to FA 2000 set out a particular set of rules that apply to income from telecommunication rights. Because they are most likely to apply to trading income this section merely cross-refers to the rewrite of those rules in sections 147 and 148 of this Act.
Section 618: Payments received after deduction of tax
2382.This section deals with the position of an individual receiving income within this Chapter from which tax has been deducted. It is based on sections 348 and 349 of ICTA.
2383.Under section 348(1)(b) of ICTA “a sum representing the amount of income tax thereon” may be deducted from certain annual payments. The section reproduces the effect of section 348(1)(d) of ICTA, under which the sum is treated as income tax paid by the person to whom the payment is made. The payer is entitled, but not obliged, to deduct this sum representing tax, which is treated as tax paid by the recipient. The tax treated as paid by the recipient of the annual payment is taken into account, along with any other tax paid by deduction at source and any tax credits, in calculating the tax payable for the tax year.
2384.In so far as this section covers payments which are not annual payments within section 348(1) of ICTA, the scope of the provision has been made more explicit. Section 348(1)(d) of ICTA applies, in terms, only to annual payments from which any deduction is made under section 348(1)(b) of ICTA, but case law effectively extends it to payments under sections 348(2) and 349 of ICTA. See commentary on section 426 of this Act.