Annex 1: Minor changes in the law made by the Act: Change 52: Basis periods etc: to allow any reasonable and consistent time basis for apportioning profits or for calculating deductible overlap profit: sections 203, 220, 275 and 871
This change involves giving statutory effect to a concessionary practice for apportioning profits or losses to different periods.
Section 72(1) of ICTA permits the apportionment of profits or losses for the purposes of Schedule D Case I, II or VI. Section 72 of ICTA is applied by section 21A(2) of ICTA for the purpose of calculating the profits of a Schedule A business.
Section 72(2) of ICTA secures that the apportionment must be by reference to days. But, by concession, taxpayers can adopt any other reasonable basis for time apportionment (described in paragraph 71025 of the Business Income Manual).
Section 203 rewrites section 72 of ICTA (so far as trades, professions and vocations are concerned); and section 275 reproduces the effect of applying that section by section 21A(2) of ICTA. Subsection (4) of each section allows the periods to be measured otherwise than by reference to days if it is reasonable to do so and the measure is used consistently. Similarly, section 871 rewrites section 72 of ICTA (in respect of profits formerly charged under Schedule D Case VI which are now listed in section 836B of ICTA), and subsection (5) of that section operates like subsection (4) of sections 203 and 275.
Section 63A(2) of ICTA provides for the calculation and deduction of overlap profit by reference to “days” and the “overlap period” is defined by section 63A(5) of ICTA as the number of days in the period in which the overlap profit arose.
Section 220 preserves that basic approach. But, by concession, taxpayers can adopt any other reasonable measure provided it is used consistently (described in paragraph 71140 of the Business Income Manual). Subsection (4) gives effect to this practice.
This change is in taxpayers' favour in principle. But it is expected to have no practical effect as it is in line with current practice.