Annex 1: Minor changes in the law made by the Act: Change 147: General calculation rules: apportionment of profits: section 871
This modifies the application of section 72 of ICTA so that it applies to certain income within Schedule D Cases IV and V as well as Case VI.
Section 72(1) of ICTA permits the apportionment of profits or losses for the purposes of Schedule D Cases I, II or VI where accounts have been made up for a period which is not coterminous with the tax year (for income tax) or an accounting period (for corporation tax). Section 72 of ICTA is applied by section 21A of ICTA for the purpose of calculating the profits of a Schedule A business.
Although section 72 of ICTA is expressed to apply in the case of profits or gains chargeable under Schedule D Cases I, II and VI only, it applies also to income chargeable to tax under Schedule D Cases IV and V which is derived by a person (whether solely or in partnership) from a trade profession or vocation. Section 65(3) of ICTA applies the rules applicable to Schedule D Cases I and II in computing such Schedule D Case IV or V income. Section 203 (apportionment etc. of profits to basis periods) applies the income tax rule in section 72 of ICTA to all trades, professions and vocations, whether within Schedule D Cases I or II or Cases IV or V.
Section 871 applies the income tax rule in section 72 of ICTA for the purpose of calculating income charged under provisions listed in section 836B of ICTA (inserted by paragraph 340 of Schedule 1 to this Act). Subsection (2) disapplies section 836B(4)(a) of ICTA, which excludes relevant foreign income from income within the tables in that section. This ensures that section 871 extends to income within Schedule D Case IV or V as well as income within Case VI.
This change is in taxpayers' favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small.