Annex 1: Minor Changes in the Law Change 89: Partnerships: sale of patent rights: sections 1271 and 1272 and Schedule 1
This change explains how section 558 of CAA applies if there is a change of membership of a firm.
Under section 524(1) of ICTA an amount of tax is charged on the seller in instalments over a number of accounting periods. Section 525(3) of ICTA applies “where … a charge falls to be made on two or more persons jointly as being the persons for the time being carrying on a trade …”.
It is clear from section 558 of CAA that the intention is that the present partners should step into the shoes of the seller of the patent rights. But it is not clear how this should work in practice. In particular, it is not clear:
	how such a charge is to be converted into a charge that falls on the persons for the time being carrying on the business;
	by what mechanism the corporation tax charged under section 524 of ICTA is to be replaced by the charges (to income tax or corporation tax) that are appropriate to the persons for the time being carrying on the business; or
	how the spreading of the charge should work given that individuals may become liable for tax that was originally charged by reference to accounting periods and companies may become liable for tax that was originally charged by reference to tax years.
The change clarifies the effect of the legislation by filling in these gaps.
The same clarification is made by amendments to sections 861 and 862 of ITTOIA (see Schedule 1 to this Act).
Whether this particular basis is adverse or favourable to any particular taxpayer in comparison with any other theoretical basis will depend upon the specific circumstances.
This change is in principle adverse to some taxpayers and favourable to others. But it is expected to have no practical effect as it is in line with generally accepted practice.