Income Tax (Trading and Other Income) Act 2005

Chapter 2U.K.Income taxed as trade profits

Charge to tax on trade profitsU.K.

5Charge to tax on trade profitsU.K.

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

6Territorial scope of charge to taxU.K.

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

(2)Profits of a trade 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.

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

7Income chargedU.K.

(1)Tax is charged under this Chapter on the full amount of the profits of the tax year.

(2)For this purpose the profits of a tax year are the profits of the basis period for the tax year.

(3)For the rules identifying the basis period for a tax year, see Chapter 15.

(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.

8Person liableU.K.

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

Trades and trade profitsU.K.

9Farming and market gardeningU.K.

(1)Farming or market gardening in the United Kingdom is treated for income tax purposes as the carrying on of a trade or part of a trade (whether or not the land is managed on a commercial basis and with a view to the realisation of profits).

(2)All farming in the United Kingdom carried on by a person, other than farming carried on as part of another trade, is treated for income tax purposes as one trade.

(3)In the case of farming carried on by a firm, this rule is explained by section 859(1).

10Commercial occupation of land other than woodlandsU.K.

(1)The commercial occupation of land in the United Kingdom is treated for income tax purposes as the carrying on of a trade or part of a trade.

(2)For this purpose the occupation of land is commercial if the land is managed—

(a)on a commercial basis, and

(b)with a view to the realisation of profits.

(3)This section does not apply—

(a)to farming or market gardening (which is dealt with by section 9),

(b)if the land is being prepared for forestry purposes, or

(c)if the land comprises woodlands (which is dealt with by section 11).

11Commercial occupation of woodlandsU.K.

(1)The commercial occupation of woodlands in the United Kingdom is not a trade or part of a trade for any income tax purpose.

(2)For this purpose the occupation of woodlands is commercial if the woodlands are managed—

(a)on a commercial basis, and

(b)with a view to the realisation of profits.

(3)See also sections 267 and 768 (which, when read with this section, secure that profits or losses from the commercial occupation of woodlands in the United Kingdom are ignored for income tax purposes).

12Profits of mines, quarries and other concernsU.K.

(1)Profits or losses arising out of land in the case of a concern to which this section applies are calculated as if the concern were a trade.

(2)Any profits arising out of the land are charged to income tax as if the concern were a trade carried on in the United Kingdom.

But this does not impose a charge to tax on a non-UK resident in the case of a concern outside the United Kingdom.

(3)Any losses arising out of the land are treated for the purposes of [F1Part 4 of ITA 2007](loss relief) as losses of a trade carried on in the United Kingdom.

(4)The concerns to which this section applies are—

(a)mines and quarries (including gravel pits, sand pits and brickfields),

(b)ironworks, gasworks, salt springs or works, alum mines or works, waterworks and streams of water,

(c)canals, inland navigation, docks and drains or levels,

(d)rights of fishing,

(e)rights of markets and fairs, tolls, bridges and ferries,

(f)railways and other kinds of way, and

(g)a concern of the same kind as one specified in paragraph (b), (c), (d) or (e).

(5)This section does not apply to a concern if section 10 (commercial occupation of land other than woodlands) applies to the occupation of the land out of which the profits or losses arise.

13Visiting performersU.K.

(1)This section applies if an entertainer, sportsman or sportswoman of a prescribed description (a “performer”)—

(a)is non-UK resident in a tax year, and

(b)performs a relevant activity in the United Kingdom in the tax year.

(2)If a payment or transfer connected with the relevant activity is made, the performer is treated for income tax purposes as performing the relevant activity in the course of a trade, profession or vocation carried on in the United Kingdom.

(3)It does not matter whether the payment or transfer is made to the performer or anyone else.

(4)Subsection (2) does not apply—

(a)so far as the performer would otherwise be performing the relevant activity in the course of a trade, profession or vocation carried on in the United Kingdom, or

(b)if the relevant activity is performed in the course of an employment or office.

(5)If a payment or transfer connected with the relevant activity is made to —

(a)a person other than the performer, and

(b)that person is of a prescribed description,

the payment or transfer is treated for income tax purposes as made instead to the performer in the course of a trade, profession or vocation carried on in the United Kingdom.

(6)Subsection (5) does not apply in such circumstances as may be prescribed.

(7)If—

(a)income tax is chargeable on profits arising from payments or transfers (made to any person), and

(b)the payments or transfers are connected with the relevant activity,

the tax is charged as if the payments or transfers were received in the course of a separate trade, profession or vocation (distinct from any other trade, profession or vocation carried on by the performer).

(8)In this section and section 14—

• F2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• “prescribed” means prescribed by regulations,

• “regulations” means regulations made by the Treasury,

• “relevant activity” means an activity of a prescribed description, and

• F2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

and a payment or transfer is connected with a relevant activity if it has a connection of the prescribed kind with that activity.

[F3(9)In this section and section 14—

(a)references to a payment include references to a payment by way of loan of money, and

(b)references to a transfer do not include references to a transfer of money but, subject to that, include references to—

(i)a temporary transfer (as by way of loan), and

(ii)a transfer of a right (whether or not a right to receive money).

(10)This section does not apply to payments or transfers of a kind prescribed in regulations under section 966(6) of ITA 2007.]

14Visiting performers: supplementaryU.K.

(1)Regulations may provide—

(a)for the deduction, in calculating any profits of the performer arising from the payment or transfer, of expenses incurred by other persons in relation to the payment or transfer,

(b)that any liability to income tax (whether of the performer or anyone else) which would, apart from section 13(5), arise in relation to the payment or transfer is not to arise (or is to arise so far as prescribed).

(2)Regulations may provide—

(a)for the apportionment of profits between different trades, professions or vocations of the performer,

(b)for the apportionment between different tax years of the profits arising from relevant activities of the performer,

(c)for losses made in any trade, profession or vocation of the performer to be deducted from or set off against the profits of another trade, profession or vocation of the performer,

(d)that prescribed provisions of the Income Tax Acts about losses, or about expenses, are not to apply (or are to apply with prescribed modifications) in prescribed circumstances relating to the performer.

(3)References in this section to a trade, profession or vocation of the performer include references to the separate one referred to in section 13(7) as well as to any other carried on by the performer.

(4)Regulations may—

(a)make provision generally for giving effect to section 13, and

(b)make different provision for different cases or descriptions of cases.

15Divers and diving supervisorsU.K.

(1)This section applies if—

(a)a person performs the duties of employment as a diver or diving supervisor in the United Kingdom or in any area designated by Order in Council under section 1(7) of the Continental Shelf Act 1964 (c. 29),

(b)the duties consist wholly or mainly of seabed diving activities, and

(c)any employment income from the employment would otherwise be chargeable to tax under Part 2 of ITEPA 2003.

(2)The performance of the duties of employment is instead treated for income tax purposes as the carrying on of a trade in the United Kingdom.

(3)For the purposes of this section the following are seabed diving activities—

(a)taking part as a diver in diving operations concerned with the exploration or exploitation of the seabed, its subsoil and their natural resources, and

(b)acting as a diving supervisor in relation to any such diving operations.

16Oil extraction and related activitiesU.K.

(1)If a person carries on any oil-related activities as part of a trade, those activities are treated for income tax purposes as a separate trade, distinct from all other activities carried on by the person as part of the trade.

(2)For this purpose the following are oil-related activities—

(a)oil extraction activities, and

(b)any activities consisting of the acquisition, enjoyment or exploitation of oil rights.

(3)“Oil extraction activities” and “oil rights” have the meaning given by [F4sections 225A and 225B].

Starting and ceasing to tradeU.K.

17Effect of becoming or ceasing to be a UK residentU.K.

(1)This section applies if—

(a)an individual carries on a trade wholly or partly outside the United Kingdom otherwise than in partnership, and

(b)the individual becomes or ceases to be UK resident.

(2)The individual is treated for income tax purposes—

(a)as permanently ceasing to carry on the trade at the time of the change of residence, and

(b)so far as the individual continues to carry on the trade, as starting to carry on a new trade immediately afterwards.

(3)But subsection (2) does not prevent a loss made before the change of residence from being [F5deducted under section 83 of ITA 2007 from] profits arising after the change.

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

(5)In the case of a trade carried on by a firm, see sections 852(6) and (7) and 854(5).

18Effect of company starting or ceasing to be within charge to income taxU.K.

(1)This section applies if a company starts or ceases to be within the charge to income tax under this Chapter in respect of a trade.

(2)The company is treated for the purposes of this Part—

(a)as starting to carry on the trade when it starts to be within the charge, or

(b)as permanently ceasing to carry on the trade when it ceases to be within the charge.

Trading income and property incomeU.K.

19Tied premisesU.K.

(1)This section applies if —

(a)in the course of carrying on a trade a person (“the trader”) supplies, or is concerned in the supply of, goods sold or used on premises occupied by another person,

(b)the trader has an estate or interest in the premises,

(c)the estate or interest is dealt with as property employed for the purposes of the trade, and

(d)receipts and expenses in connection with the premises would otherwise be brought into account in calculating the profits of a property business of the trader.

(2)Both the receipts and expenses are instead brought into account in calculating the profits of the trade.

(3)Any apportionment of receipts or expenses that is necessary because—

(a)the receipts or expenses do not relate only to the premises, or

(b)the above conditions are met only in relation to part of the premises,

is to be made on a just and reasonable basis.

20Caravan sites where trade carried onU.K.

(1)This section applies if—

(a)a person (“the trader”) carries on material activities connected with the operation of a caravan site,

(b)the activities are, or are part of, a trade, and

(c)receipts from, and expenses of, lettings of caravans or pitches for caravans on the site would otherwise be brought into account in calculating the profits of a property business of the trader.

(2)The trader may instead bring both the receipts and expenses into account in calculating the profits of the trade.

(3)But if the conditions in subsection (1)(a) and (b) are met for only part of a tax year, subsection (2) applies only to the receipts and expenses that would otherwise be brought into account in calculating the profits of the property business for that part of the tax year.

(4)In this section—

• “caravan site” means—

  (a)

  land on which a caravan is stationed for the purposes of human habitation, and

  (b)

  land which is used in conjunction with land on which a caravan is so stationed, and

• “letting” includes a licence to occupy.

21Surplus business accommodationU.K.

(1)This section applies if—

(a)a person (“the trader”) carrying on a trade obtains receipts from a letting of business accommodation that is temporarily surplus to requirements (see subsections (3) and (4)),

(b)the accommodation is not held as trading stock,

(c)the receipts are in respect of part of a building of which another part is used to carry on the trade,

(d)the receipts are relatively small, and

(e)the receipts, and the expenses of the letting, would otherwise be brought into account in calculating the profits of a property business of the trader.

(2)The trader may instead bring both the receipts and expenses into account in calculating the profits of the trade.

(3)Accommodation is temporarily surplus to requirements only if—

(a)it has been used within the last 3 years to carry on the trade or acquired within the last 3 years,

(b)the trader intends to use it to carry on the trade at a later date, and

(c)the letting is for a term of not more than 3 years.

(4)If accommodation is temporarily surplus to requirements at the beginning of a period of account, it continues to be temporarily surplus to requirements until the end of that period.

(5)If under this section any of the receipts from and expenses of a letting are brought into account in calculating the profits of the trade, all subsequent receipts from and expenses of the letting must be dealt with in the same way (but only so long as this section continues to apply).

(6)In this section “letting” includes a licence to occupy.

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

22Payments for wayleavesU.K.

(1)This section applies if—

(a)a person (“the trader”) carries on a trade on some or all of the land to which a wayleave relates,

(b)rent is receivable, or expenses are incurred, by the trader in respect of the wayleave, and

(c)apart from any rent or expenses in respect of a wayleave, no other receipts or expenses in respect of any of the land are brought into account in calculating the profits of any property business of the trader.

(2)If—

(a)the trader would otherwise be liable to tax under Chapter 9 of Part 3 in respect of the rent for the wayleave (rent receivable for UK electric-line wayleaves), or

(b)expenses [F6incurred by the trader in respect of the wayleave would otherwise be brought into account in calculating profits] charged under that Chapter,

the trader may instead bring both the rent and expenses into account in calculating the profits of the trade.

(3)If—

(a)rent for the wayleave would otherwise be brought into account in calculating the profits of a property business of the trader, or

(b)expenses incurred by the trader in respect of the wayleave would otherwise be so brought into account,

the trader may instead bring both the rent and expenses into account in calculating the profits of the trade.

(4)In this section “rent” includes—

(a)a receipt mentioned in section 266(3), and

(b)any other receipt in the nature of rent.

(5)In this section “wayleave” means an easement, servitude or right in or over land which is enjoyed in connection with—

(a)an electric, telegraph or telephone wire or cable,

(b)a pipe for the conveyance of any thing, or

(c)any apparatus used in connection with such a pipe.

(6)The reference to the enjoyment of an easement, servitude or right in connection with an electric, telegraph or telephone wire or cable includes (in particular) its enjoyment in connection with—

(a)a pole or pylon supporting such a wire or cable, or

(b)apparatus used in connection with such a wire or cable.

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

Rent-a-room and foster-care reliefU.K.

23Rent-a-room and foster-care reliefU.K.

(1)The rules for calculating the profits of a trade carried on by an individual are subject to Chapter 1 of Part 7 (rent-a-room relief).

(2)That Chapter provides relief on income from the use of furnished accommodation in the individual's only or main residence (see, in particular, sections 792 and 796).

(3)The rules for calculating the profits of a trade, profession or vocation carried on by an individual are subject to Chapter 2 of Part 7 (foster-care relief).

(4)That Chapter provides relief on income from the provision by the individual of foster care (see, in particular, sections 813, 816, 822 and 823).