Finance Act 2013

Receipts U.K.

18 U.K. Chapter 6 (trade profits: receipts) is amended as follows.

19 U.K. After section 95 insert—

“Cash basis accounting U.K.

95A Application of Chapter to the cash basis

For rules about receipts that apply only for the purpose of calculating profits on the cash basis, see the following—

• section 96A (cash basis: capital receipts),

• section 97A (cash basis: value of trading stock on cessation of trade),

• section 97B (cash basis: value of work in progress on cessation of profession or vocation).”

20 U.K. After section 96 insert—

“96A Cash basis: capital receipts

(1) This section applies if—

(a) the whole or part of any expenditure incurred in acquiring, creating or improving an asset has been brought into account in calculating the profits of a trade of a person on the cash basis, or

(b) the whole or part of any such expenditure would have been so brought into account if an election under section 25A had had effect in relation to the trade at the time the expenditure was paid.

(2) The following amounts are to be brought into account as a receipt in calculating the profits of the trade on the cash basis—

(a) any proceeds arising from the disposal of the asset or any part of it;

(b) any proceeds arising from the grant of any right in respect of, or any interest in, the asset;

(c) any amount of damages, proceeds of insurance or other compensation received in respect of the asset.

(3) In a case where only part of the expenditure incurred in acquiring, creating or improving an asset has been, or would have been, brought into account as mentioned in subsection (1), the amount brought into account under subsection (2) is proportionately reduced.

(4) If—

(a) at any time the person ceases to use the asset or any part of it for the purposes of the trade, but

(b) the person does not dispose of the asset (or that part) at that time,

the person is to be regarded for the purposes of this section as disposing of the asset (or that part) at that time for an amount equal to the market value amount.

(5) If at any time there is a material increase in the person's non-business use of the asset or any part of it, the person is to be regarded for the purposes of this section as disposing of the asset (or that part) at that time for an amount equal to the relevant proportion of the market value amount.

(6) For the purposes of subsection (5)—

(a) there is an increase in a person's non-business use of an asset (or part of an asset) if—

(i) the proportion of the person's use of the asset (or that part) that is for the purposes of the trade decreases, and

(ii) the proportion of the person's use of the asset (or that part) that is for other purposes (the “non-business use”) increases;

(b) “the relevant proportion” is the difference between—

(i) the proportion of the person's use of the asset (or part of the asset) that is non-business use, and

(ii) the proportion of the person's use of the asset (or that part) that was non-business use before the increase mentioned in subsection (5).

(7) In this section “the market value amount” means the amount that would be regarded as normal and reasonable—

(a) in the market conditions then prevailing, and

(b) between persons dealing with each other at arm's length in the open market.”

21 U.K. After section 97 insert—

“Cash basis: value of stock and work in progress on cessation U.K.

97A Cash basis: value of trading stock on cessation of trade

(1) This section applies if—

(a) a person permanently ceases to carry on a trade in a tax year, and

(b) an election under section 25A (cash basis for small businesses) has effect in relation to the trade for the tax year.

(2) The value of any trading stock belonging to the trade at the time of the cessation is brought into account as a receipt in calculating the profits of the trade for the tax year.

(3) The value is to be determined on a basis that is just and reasonable in all the circumstances.

(4) If there is a change in the persons carrying on a trade, subsection (2) does not apply in relation to the trade so long as a person carrying on the trade immediately before the change continues to carry it on after the change.

(5) In this section “trading stock” has the same meaning as in Chapter 12 (see section 174).

(6) This section does not apply to professions or vocations.

97B Cash basis: value of work in progress on cessation of profession or vocation

(1) This section applies if—

(a) a person permanently ceases to carry on a profession or vocation in a tax year, and

(b) an election under section 25A (cash basis for small businesses) has effect in relation to the profession or vocation for the tax year.

(2) The value of any work in progress at the time of the cessation is brought into account as a receipt in calculating the profits of the profession or vocation for the tax year.

(3) The value is to be determined on a basis that is just and reasonable in all the circumstances.

(4) If there is a change in the persons carrying on a profession, subsection (2) does not apply in relation to the profession so long as a person carrying on the profession immediately before the change continues to carry it on after the change.

(5) In this section “work in progress” has the same meaning as in Chapter 12 (see section 183).”

22 (1) Section 105 (industrial development grants) is amended as follows. U.K.

(2) In subsection (2), at the end of paragraph (a) insert “ (but see subsection (2A)) ”.

(3) After that subsection insert—

“(2A) Subsection (2)(a) is to be disregarded in calculating the profits of a trade on the cash basis.”