Annex 1: Minor Changes in the Law Change 13: Trading and property income: lease premiums etc: restrictions on expenses under sections 63 and 232 in respect of taxed receipt: sections 66, 67, 233 and 234
This change clarifies how expenses that a tenant is treated under section 37(4) of ICTA (property business) or section 87(2) of ICTA (trade) as incurring by reference to a taxed receipt are affected in certain cases. Those cases are where there is a reduction, under section 37(2) of ICTA (later chargeable amount) or under section 288 of ITTOIA (additional calculation rule), by reference to that taxed receipt.
It brings the income tax and corporation tax codes back into line.
Section 37(4) of ICTA provides:
Section 37(5) of ICTA modifies section 37(4) of ICTA if the reduced amount of a later chargeable amount has been calculated under section 37(2) of ICTA by reference to the amount chargeable on the superior interest (“ACSI”). Section 37(5) of ICTA provides:
The appropriate fraction is defined in section 37(7) of ICTA.
The general principle behind section 37(5) of ICTA is that, if part of ACSI has been used under section 37(2) of ICTA to reduce a later chargeable amount, only the balance of the ACSI should be available under section 37(4) of ICTA. This is achieved by reducing the amount of rent that the tenant is treated, in relation to the ACSI, as paying under section 37(4) of ICTA for the period in respect of which the later chargeable amount arose. And if (in the calculation under section 37(2) of ICTA) the appropriate fraction of the ACSI was fully used to reduce the later chargeable amount, no rent is treated as incurred under section 37(4) of ICTA for the period in respect of which the later chargeable amount arises.
The same general principle applies under section 37A of ICTA where part of ACSI has been used under section 288 of ITTOIA (additional calculation rule). The appropriate fraction is defined in section 37A(6) and (7) of ICTA.
Section 87(5) of ICTA applies section 37(5) of ICTA (part of ACSI used under section 37(2) of ICTA) if a tenant under a taxed lease is treated as paying rent under section 87(2) of ICTA in circumstances in which section 87(4) of ICTA applies.
Section 87A of ICTA applies section 37A of ICTA (part of ACSI used under section 288 of ITTOIA) if a tenant under a taxed lease is treated as paying rent under section 87(2) of ICTA in circumstances in which section 87(4) of ICTA applies.
The following explanation is in terms of sections 37 and 87 of ICTA but is equally applicable to sections 37A and 87A of ICTA.