Income Tax (Trading and Other Income) Act 2005 (c. 5)

Part 2 U.K. Trading income

Chapter 2 U.K. Income taxed as trade profits

Charge to tax on trade profits U.K.

5 Charge to tax on trade profits U.K.

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

6 Territorial scope of charge to tax U.K.

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

[F1 (1A) Profits of a trade of dealing in or developing UK land arising to a non-UK resident are chargeable to tax under this Chapter wherever the trade is carried on.]

(2) Profits of a trade [F2 other than a trade of dealing in or developing UK land] 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.

[F3 (2A) If the tax year is a split year as respects a UK resident individual, this section has effect as if, for the overseas part of that year, the individual were non-UK resident.]

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

Textual Amendments

F1 S. 6(1A) inserted (with effect in accordance with s. 82 of the amending Act) by Finance Act 2016 (c. 24), s. 78(1)(a) (and also with effect in accordance with Finance (No. 2) Act 2017 (c. 32), s. 39(1)(2))

F2 Words in s. 6(2) inserted (with effect in accordance with s. 82 of the amending Act) by Finance Act 2016 (c. 24), s. 78(1)(b) (and also with effect in accordance with Finance (No. 2) Act 2017 (c. 32), s. 39(1)(2))

F3 S. 6(2A) inserted (with effect in accordance with Sch. 45 para. 153(2) of the amending Act) by Finance Act 2013 (c. 29), Sch. 45 para. 75

[F4 6A Arrangements for avoiding tax U.K.

(1) Subsection (3) applies if a person has entered into an arrangement the main purpose or one of the main purposes of which is to obtain a relevant tax advantage for the person.

(2) In subsection (1) the reference to obtaining a relevant tax advantage includes obtaining a relevant tax advantage by virtue of any provisions of double taxation arrangements, but only in a case where the relevant tax advantage is contrary to the object and purpose of the provisions of the double taxation arrangements (and subsection (3) has effect accordingly, regardless of anything in section 6(1) of TIOPA 2010).

(3) The relevant tax advantage is to be counteracted by means of adjustments.

(4) For this purpose adjustments may be made (whether by an officer of Revenue and Customs or by the person) by way of an assessment, the modification of an assessment, amendment or disallowance of a claim, or otherwise.

(5) In this section “relevant tax advantage” means a tax advantage in relation to income tax to which the person is chargeable (or would without the tax advantage be chargeable) by virtue of section 6(1A).

(6) In this section “tax advantage” includes—

(a) a relief or increased relief from tax,

(b) repayment or increased repayment of tax,

(c) avoidance or reduction of a charge to tax or an assessment to tax,

(d) avoidance of a possible assessment to tax,

(e) deferral of a payment of tax or advancement of a repayment of tax, and

(f) avoidance of an obligation to deduct or account for tax.

(7) In this section—

• “arrangement” (except in the phrase “double taxation arrangements”) includes any agreement, understanding, scheme, transaction or series of transactions, whether or not legally enforceable;

• “double taxation arrangements” means arrangements which have effect under section 2(1) of TIOPA 2010 (double taxation relief by agreement with territories outside the United Kingdom).

Textual Amendments

F4 Ss. 6A, 6B inserted (with effect in accordance with s. 82 of the amending Act) by Finance Act 2016 (c. 24), s. 78(2) (and also with effect in accordance with Finance (No. 2) Act 2017 (c. 32), s. 39(1)(2))

6B Trade of dealing in or developing UK land U.K.

(1) A non-UK resident person's “trade of dealing in or developing UK land” consists of —

(a) any activities falling within subsection (2) which the person carries on, and

(b) any activities from which profits arise which are treated under Part 9A of ITA 2007 as profits of the person's trade of dealing in or developing UK land.

(2) The activities within this subsection are—

(a) dealing in UK land;

(b) developing UK land for the purpose of disposing of it.

(3) In this section “land” includes—

(a) buildings and structures,

(b) any estate, interest or right in or over land, and

(c) land under the sea or otherwise covered by water.

(4) In this section—

• “disposal” is to be interpreted in accordance with section 517R of ITA 2007;

• “UK land” means land in the United Kingdom.]

Textual Amendments

F4 Ss. 6A, 6B inserted (with effect in accordance with s. 82 of the amending Act) by Finance Act 2016 (c. 24), s. 78(2) (and also with effect in accordance with Finance (No. 2) Act 2017 (c. 32), s. 39(1)(2))

7 Income charged U.K.

(1) Tax is charged under this Chapter on the full amount of the profits of the tax year [F5 (including amounts treated as profits of the tax year under section 23E(1))].

F6 (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F7 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(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.

Textual Amendments

F5 Words in s. 7(1) inserted (6.4.2024 for the tax year 2024-25 and subsequent tax years) by Finance Act 2022 (c. 3), Sch. 1 paras. 2(2), 61(1)

F6 S. 7(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. 2(3), 61(1)

F7 S. 7(3) 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. 2(3), 61(1)

[F8 7A Apportionment etc of profits to tax year U.K.

(1) This section and sections 7B to 7D apply if a period of account of a person carrying on a trade (“the trader”) does not coincide with a tax year.

(2) Any of the following steps may be taken if they are necessary in order to arrive at the profits or losses of the trade of the tax year—

(a) apportioning the profits or losses of a period of account to the parts of that period falling in different tax years, and

(b) adding the profits or losses of a period of account (or part of a period) to profits or losses of other periods of account (or parts).

(3) The steps must be taken by reference to the number of days in the periods concerned.

(4) But the trader may use a different way of measuring the length of the periods concerned if—

(a) it is reasonable to do so, and

(b) the way of measuring the length of periods is used consistently for the purposes of the trade.

(5) Sections 7B and 7C contain rules for the purpose of avoiding the need to apportion profits or losses under this section (and section 7D makes provision for the trader to elect for those rules not to apply).

(6) This section and sections 7B to 7D apply to professions and vocations as they apply to trades.

Textual Amendments

F8 Ss. 7A-7D inserted (with effect in accordance with s. 61(1)(3) of the amending Act) by Finance Act 2022 (c. 3), Sch. 1 para. 3

7B Rule if trader starts to carry on trade after 31 March U.K.

(1) This section applies if, in a tax year (“the relevant tax year”), the trader—

(a) starts to carry on the trade after 31 March, and

(b) does not permanently cease to carry on the trade.

(2) For the purposes of this Chapter—

(a) the profits or losses of the trade of the relevant tax year are treated as nil, and

(b) the actual profits or losses of the trade of the relevant tax year are treated as arising in the following tax year.

Textual Amendments

F8 Ss. 7A-7D inserted (with effect in accordance with s. 61(1)(3) of the amending Act) by Finance Act 2022 (c. 3), Sch. 1 para. 3

7C Rule if there is a late accounting date U.K.

(1) This section applies if, in a tax year (“the relevant tax year”), the trader—

(a) does not start to carry on the trade or does so before 1 April,

(b) does not permanently cease to carry on the trade, and

(c) has an accounting date that is 31 March or 1, 2, 3 or 4 April.

(2) For the purposes of this Chapter—

(a) the profits or losses of the trade of the period beginning immediately after the accounting date and ending with 5 April in the relevant tax year are treated as nil, and

(b) the actual profits or losses of the trade of that period are treated as arising in the following tax year.

(3) In this section, “accounting date” in relation to a tax year means—

(a) the date in the tax year to which accounts are drawn up, or

(b) if there are two or more such dates, the latest of them.

Textual Amendments

F8 Ss. 7A-7D inserted (with effect in accordance with s. 61(1)(3) of the amending Act) by Finance Act 2022 (c. 3), Sch. 1 para. 3

7D Election to disapply late accounting date rules U.K.

(1) The trader may make an election under this section in relation to the trade.

(2) If an election under this section has effect for a tax year, neither of sections 7B and 7C apply in relation to the trade for that tax year.

(3) An election under this section—

(a) must be made on or before the first anniversary of the normal self-assessment filing date for the first tax year for which it is to have effect, and

(b) has effect for that tax year and the four tax years following that tax year (subject to subsection (4)).

(4) If the trader permanently ceases to carry on the trade before the end of the last of the tax years mentioned in subsection (3)(b), the election has effect for each tax year up to and including the tax year immediately before the tax year in which the trader permanently ceases to carry on the trade.]

Textual Amendments

F8 Ss. 7A-7D inserted (with effect in accordance with s. 61(1)(3) of the amending Act) by Finance Act 2022 (c. 3), Sch. 1 para. 3

8 Person liable U.K.

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