Annex 1: Minor changes in the law made by the Act: Change 1: Income taxed as trade profits: omit the words “immediately derived from” in the identification of the foreign income to which the trade profit rules apply: section 7
This change omits the words “immediately derived from” in the identification of the foreign income to which the trade profit rules apply.
Section 65(3) of ICTA deals with the calculation “under Case IV or V of Schedule D” of profits “immediately derived … from the carrying on … of any trade …”. Those words date from FA 1907.
For trading income generally, this Act refers simply to the profits of a trade.
The change brings the rules for calculating all foreign trade profits (whether “immediately derived” or not) into line with the rules for calculating trade profits within Schedule D Case I. It is in line with the general approach of the source legislation in applying the same calculation rules to foreign and United Kingdom trades.
In the case of foreign trade profits that are not immediately derived from the carrying on of a trade, the income will be calculated in accordance with the trade profit rules, instead of being “computed on the full amount of the income arising” as in section 65(1) of ICTA. There is unlikely to be any practical difference.
If the foreign trade profits that are not immediately derived from the carrying on of a trade are profits of an overseas property business the profits will instead be charged as trade profits.
This change is adverse to some taxpayers and favourable to others in principle. But it is expected to have no practical effect as it is in line with current practice.