Annex 1: Minor changes in the law made by the Act: Change 75: Meaning of “relevant period” in sections 325 and 326: non-resident companies: section 324
This change defines the “relevant period” by reference to the tax year for non-resident companies liable to income tax in respect of furnished holiday accommodation. That removes any doubt as to how the source legislation applies to such companies.
The provisions in Chapter 6 of Part 3 of this Act define lettings that can qualify for special tax advantages. They are based on section 504 of ICTA. To qualify, certain conditions have to be met during a particular test period – the “relevant period” in section 324.
Section 504(4) of ICTA deals with non-company cases. The test period is defined by reference to the tax year.
Section 504(5) of ICTA deals with company cases. The test period is defined by reference to the accounting period.
Those subsections reflect the different chargeable periods for income tax (the tax year) and corporation tax (the accounting period).
Section 324 is based on section 504(4) of ICTA so the “relevant period” for all persons within this Act is defined by reference to the tax year. But because this Act applies to non-resident companies liable to income tax, that does not replicate directly the source legislation. If the concept of “accounting period” can apply for income tax purposes, the source legislation defines the test period for such companies by reference to their accounting period by virtue of section 504(5) of ICTA.
The change is to define the “relevant period” for non-resident companies that are within the charge to income tax by reference to the tax year. This is appropriate because non-resident companies not within corporation tax are liable to Schedule A income tax on the profits of the tax year and not the profits of an accounting period (sections 11 and 21(2) of ICTA). It brings non-resident companies into line with all other income tax payers in this respect. Doing so reflects the Inland Revenue view of how this legislation is intended to work. And it reflects, as far as can be established, wider views on, and current practice in, interpreting the section.
This change is adverse to some taxpayers and favourable to others in principle. But it is expected to have no practical effect as it is in line with current practice.