ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is adverse to some taxpayers in principle and in practice. But the numbers affected and the amounts involved are likely to be small.
Change 9: Trading losses: trades carried on “on a commercial basis”: basis periods: sections 66 and 74 and Schedule 2Part 5 (trade loss relief against general income and early trade losses relief)
This change amends the rule about when a trade must be carried on “on a commercial basis”, if certain restrictions on loss relief are not to apply, so that it operates by reference to basis periods rather than years of assessment.
The source legislation is set out in terms of a requirement for the trade to be carried on “on a commercial basis throughout the year of assessment”. And if there is a change in the basis on which it is carried on during the year, it is to be treated as being carried on throughout the year as it is carried on by the end of the year. But this does not fit well with the fact that profits and losses are determined by reference to basis periods.
The sections now state that the trade is commercial if it is carried on a commercial basis “throughout the basis period for the tax year” or, if there is a change during the basis period, “by the end of the basis period”.
As a result of looking to basis periods, it is no longer necessary for these sections to cater for the possibility of the trade only being carried on for part of a tax year (since a trade cannot, by definition, be carried on for less than a complete basis period).