Schedule 1: Consequential Amendments Part 1: Income and Corporation Taxes Act 1988 Paragraph 45: section 74 of ICTA
3384.Section 74(1) of ICTA lists various items in respect of which no deduction is allowed in computing profits to be charged under Schedule D Case I or II.
3385.Section 74(1)(b) of ICTA prohibits deductions in respect of expenditure on “maintenance of the parties, their families or establishments, or any sums expended for any other domestic or private purposes distinct from the purposes of the trade, profession or vocation”.
3386.Section 74(1)(b) of ICTA is not rewritten for income tax purposes because the deductions which it prohibits are covered by section 34 which rewrites the general prohibition on deductions not “wholly and exclusively laid out for the purposes of the trade, profession or vocation” in section 74(1)(a) of ICTA. And because it applies only to individuals, there is no need to preserve section 74(1)(b) of ICTA. It is therefore omitted.
3387.Section 74(1)(h) of ICTA prohibits deductions for interest forgone on capital used in the trade or in improving the trade premises. It is unlikely that any accounts drawn up in accordance with generally accepted accounting practice would include a deduction for notional interest. Section 74(1)(h) of ICTA is not rewritten for income tax purposes as it is considered to be redundant.
3388.Section 74(1)(k) of ICTA prohibits deductions for “any average loss beyond the actual amount of loss after adjustment”. This rule applies to the practice in shipping and aviation trades of sharing between all parties with a financial interest in a vessel and its cargo the financial loss incurred where part of a vessel or its cargo is lost or damaged in an attempt to save the vessel, the crew and passengers or the rest of the cargo. The term “average loss” is applied to the share of the loss allocated to each party. The amount of the average loss “after adjustment” may not be known for some years after the actual loss has occurred.
3389.Section 74(1)(k) of ICTA is not rewritten for income tax purposes. This allows the tax treatment of the average loss to follow the generally accepted accountancy practice in such cases. This is to make a provision in the year of loss and to review that provision in subsequent years.
3390.Section 74(1)(m) of ICTA prevents a deduction for any annuity and other annual payment “payable out of the profits”. Because the rule applies only to amounts payable “out of the profits”, it has no application to the calculation of those profits. The rule is not rewritten for income tax purposes.
3391.Section 74(1)(o) of ICTA prevents a deduction in calculating trade profits for any interest that has qualified for Mortgage Interest Relief At Source. When MIRAS was available for mortgage interest generally this rule against double deductions served an important function. Since 1999 MIRAS has been available only on loans to buy a life annuity and secured on the private residence of a person aged 65 years or over. The relief is given only to loans in existence on 9 March 1999 or replacement loans.
3392.It is very unlikely that any interest would satisfy the conditions to qualify both for MIRAS and as a deduction in calculating trade profits. For this reason this Act does not rewrite section 74(1)(o) of ICTA.