ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is adverse to some taxpayers in principle. But it is expected to have no practical effect as it is in line with current practice.
Change 64: VCT: excluded activities: the meaning of trade in relation to the provision of services or facilities for another business: section 310 and Schedule 2Part 8 (excluded activities: provision of services or facilities for another business)
This change adapts the definition of “trade” in paragraph 5(4) of Schedule 28B to ICTA.
Paragraph 4 of Schedule 28B to ICTA is concerned with the meaning of a qualifying trade. Paragraph 5 contains provisions that interpret paragraph 4. Paragraph 5(4) contains a definition of trade:
“References in paragraph 4 above or this paragraph to a trade, except the references in paragraph 4(2)(f) to the trade for which services or facilities are provided, shall be construed without regard to so much of the definition of “trade” in section 832(1) as relates to adventures or concerns in the nature of trade; and those references in paragraph 4(2)(f) above to a trade shall have effect, in relation to cases in which it is carried on by a person other than a company, as including references to any business, profession or vocation.”
Paragraph 4 of Schedule 28B to ICTA defines a “qualifying trade” and lists a number of activities (called “excluded activities” in the rewritten sections) that may prevent a trade being a qualifying trade. Paragraph 4(2)(f) concerns the activity of:
“providing services or facilities for any such trade carried on by another person … [which] consists, to a substantial extent, in activities within any of paragraphs (a) to (ee) above and is a trade in which a controlling interest is held by a person who also has a controlling interest in the trade carried on by the company providing the services or facilities.”
Paragraph 5(2) and (3) interpret a “controlling interest”.
As noted, under paragraph 5(4) of Schedule 28B to ICTA the reference to the trade in paragraph 4(2)(f) is governed by the definition in section 832(1) of ICTA, in relation to the trade for which services or facilities are provided.
Section 989 of this Act rewrites section 832(1) for income tax. There are two references to that section in Chapter 4 of Part 6 of this Act.
First in section 300(4) (meaning of “qualifying trade”):
“References in this section to a trade are to be read without regard to the definition of “trade” in section 989.”
Secondly in section 313(3) (interpretation of Chapter):
“References in sections 303 to 309 to a trade are to be read without regard to the definition of “trade” in section 989 (see also section 300(4)).”
These sections do not apply to section 310 (provision of services or facilities for another business) which rewrites paragraph 4(2)(f) and paragraph 5(2) to (4). So section 989 of this Act applies to define “trade” in section 310. The interpretation applies to all the references to “business” in section 310 and not only to the business for which services or facilities are provided.
The other part of paragraph 5(4) of Schedule 28B to ICTA states that references in paragraph 4(2)(f) of that Schedule to a trade include references to any business, profession or vocation in relation to some cases. These are the cases in which a person other than a company carries on the trade.
In section 310 of this Act there are consistent references to “business” rather than “trade”. This includes references to the business carried on by a company. Paragraph 33 of Schedule 15 to FA 2000 (corporate venturing scheme) has been used as a model for this.
Instead of interpreting a trade as including a reference to “any business, profession or vocation”, the approach in section 310(5)(b) is the other way round. It provides:
““business” includes any trade, profession or vocation.”
In effect therefore, in this section, a trade includes a business, profession or vocation, whether it is carried on by “a company” or “a person other than a company”.
The first part of the change (in relation to the definition in section 989) simplifies things. In whatever way “trade” is interpreted in relation to the provider of the services or facilities in section 310, the activity of the relevant company or a qualifying subsidiary is required to be a qualifying trade for the other purposes of Chapter 4 of Part 6 of this Act.
In theory the second part of the change extends the scope of this excluded activity to a business, profession or vocation carried out by a company for which the services are provided. In practice it is unlikely that the activity of this company, which constitutes an excluded activity within paragraph 4(2)(a) to (ee) of Schedule 28B to ICTA, would be other than a trade.
The change is similar but not identical to Change 46 in section 199 of this Act (the enterprise investment scheme). The changes get rid of an extra layer of complexity and have little or no practical effect.