Income Tax (Trading and Other Income) Act 2005

[F1 Eligibility U.K.

Textual Amendments

F1 Pt. 2 Ch. 3A inserted (with effect in accordance with Sch. 4 paras. 56, 57 of the amending Act) by Finance Act 2013 (c. 29), Sch. 4 para. 5

31A Conditions to be met for profits to be calculated on cash basis U.K.

(1) A person may make an election under section 25A for a tax year if conditions A to C are met.

(2) Condition A is that the aggregate of the cash basis receipts of each trade, profession or vocation carried on by the person during that tax year does not exceed any relevant maximum applicable for that tax year (see section 31B).

(3) Condition B is that, in a case where the person is either an individual who controls a firm or a firm controlled by an individual—

(a) the aggregate of the cash basis receipts of each trade, profession or vocation carried on by the individual or the firm during that tax year does not exceed any relevant maximum applicable for that tax year, and

(b) the firm or the individual (as the case may be) has also made an election under section 25A for that tax year.

(4) Condition C is that the person is not an excluded person in relation to the tax year (see section 31C).

(5) For the purposes of this section, the “cash basis receipts” of a trade, profession or vocation, in relation to a tax year, are any receipts that—

(a) are received during the basis period for the tax year, and

(b) would be brought into account in calculating the profits of the trade, profession or vocation for that tax year on the cash basis.

31B Relevant maximum U.K.

(1) For the purposes of section 31A there is a “relevant maximum” applicable for a tax year in relation to a trade, profession or vocation carried on by a person if any of conditions A to C is met.

(2) Condition A is that an election under section 25A did not have effect in relation to the trade, profession or vocation for the previous tax year.

(3) Condition B is that the aggregate of the cash basis receipts of each trade, profession or vocation carried on by the person during the previous tax year is greater than an amount equal to twice the VAT threshold for that previous tax year.

(4) Condition C is that, in a case where the person is either an individual who controls a firm or a firm controlled by an individual, the aggregate of the cash basis receipts of each trade, profession or vocation carried on by the individual or the firm during the previous tax year is greater than an amount equal to twice the VAT threshold for that previous tax year.

(5) If there is a relevant maximum applicable for a tax year, the amount of the relevant maximum is—

(a) the VAT threshold, or

(b) in the case where the person is an individual who is a universal credit claimant in the tax year, an amount equal to twice the VAT threshold.

(6) For the purposes of this section, where the basis period for a tax year is less than 12 months, the VAT threshold is proportionately reduced.

(7) In this section—

• “universal credit claimant”, in relation to a tax year, means a person who is entitled to universal credit under the relevant legislation for an assessment period (within the meaning of the relevant legislation) that falls within the basis period for the tax year,

• “the relevant legislation” means—

  (a)

  Part 1 of the Welfare Reform Act 2012, or

  (b)

  any provision made for Northern Ireland which corresponds to that Part of that Act, and

• “the VAT threshold”, in relation to a tax year, means the amount specified at the end of that tax year in paragraph 1(1)(a) of Schedule 1 to VATA 1994.

(8) The Treasury may by order amend this section.

(9) A statutory instrument containing an order under subsection (8) that restricts the circumstances in which an election may be made under section 25A may not be made unless a draft of the instrument containing the order has been laid before, and approved by a resolution of, the House of Commons.

31C Excluded persons U.K.

(1) A person is an excluded person in relation to a tax year if the person meets any of conditions A to H.

(2) Condition A is that—

(a) the person is a firm, and

(b) one or more of the persons who have been partners in the firm at any time during the basis period for the tax year was not an individual at that time.

(3) Condition B is that the person was a limited liability partnership at any time during the basis period for the tax year.

(4) Condition C is that the person is an individual who has been a Lloyd's underwriter at any time during the basis period for the tax year.

(5) Condition D is that the person has made an election under Chapter 8 (trade profits: herd basis rules) that has effect in relation to the tax year.

(6) Condition E is that the person has made a claim under section 221 (claim for averaging of fluctuating profits) in relation to the tax year.

(7) Condition F is that, at any time within the period of 7 years ending immediately before the basis period for the tax year, the person obtained an allowance under Part 3A of CAA 2001 (business premises renovation allowances).

(8) Condition G is that the person has carried on a mineral extraction trade at any time during the basis period for the tax year.

In this subsection “mineral extraction trade” has the same meaning as in Part 5 of CAA 2001 (see section 394(2) of that Act).

(9) Condition H is that—

(a) at any time before the beginning of the basis period for the tax year the person obtained an allowance under Part 6 of CAA 2001 (research and development allowances) in respect of qualifying expenditure incurred by the person, 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.

(10) The Treasury may by order amend this section.

(11) A statutory instrument containing an order under subsection (10) that restricts the circumstances in which an election may be made under section 25A may not be made unless a draft of the instrument containing the order has been laid before, and approved by a resolution of, the House of Commons.]