Lost in Legislation?

Birmingham & District WorkshopKaren Bullen

Tolley Exam Training

What is the legislation?

Effectively the sameYellow = RedOrange = Green

Minor differences e.g. stamp taxes in CCH Red books and in Tolleys Orange

But at the end of the day all the legislation is in there somewhere

2

Book 1

Income Tax, Corporation Tax and CGT

Chronological order

Grey shading = key statutes for us – Consolidation Acts

In-between grey shading = Finance Acts and minor statutes

3

Book 1a

Taxes Management Act (TMA) 1970

Administration

But Finance Acts 2007, 2008 and 2009 (in Book 1c) have made lots of changes to administration especially in relation to penalties

Income and Corporation Taxes Act 1988 (ICTA 1988)

Largely replaced by newer acts

4

Book 1a

Taxation of Chargeable Gains Act 1992 (TCGA 1992)

CGT for individuals and chargeable gains for companies

Reliefs – PPR, Rollover Relief, Gift Relief…….

No blobs………

Finance Acts to 2000

Probably most useful is Finance Act 1998 as Schedule 18 has Corporation Tax administration in it.

5

Book 1b

Capital Allowances Act (CAA) 2001

Very useful with definition of ‘plant’

Section 21 – what is a building so not plant

Section 22 – list of structures which are not plant

Section 23 – list of items that look like building / structure BUT are plant

Most of items in Section 23 come from case law

6

Book 1b

Capital Allowances Act (CAA) 2001

Very useful with definition of ‘plant’

Section 21 – what is a building so not plant

Section 22 – list of structures which are not plant

Section 23 – list of items that look like building / structure BUT are plant

Most of items in Section 23 come from case law

7

CAA 2001

Buildings, structures and land21 Buildings(1) For the purposes of this Act, expenditure on the provision of plant or machinery does not include

expenditure on the provision of a building.(2) The provision of a building includes its construction or acquisition.(3) In this section, “building” includes an asset which—(a) is incorporated in the building,(b) although not incorporated in the building (whether because the asset is moveable or for any other

reason), is in the building and is of a kind normally incorporated in a building, or(c) is in, or connected with, the building and is in list A.LIST A

ASSETS TREATED AS BUILDINGS1 Walls, floors, ceilings, doors, gates, shutters, windows and stairs.2 Mains services, and systems, for water, electricity and gas.3 Waste disposal systems.4 Sewerage and drainage systems.5 Shafts or other structures in which lifts, hoists, escalators and moving walkways are installed.6 Fire safety systems.(4) This section is subject to section 23.

8

CAA 2001

22 Structures, assets and works(1) For the purposes of this Act, expenditure on the provision of plant or machinery does

not include expenditure on—(a) the provision of a structure or other asset in list B, or(b) any works involving the alteration of land.LIST B

EXCLUDED STRUCTURES AND OTHER ASSETS1 A tunnel, bridge, viaduct, aqueduct, embankment or cutting.2 A way, hard standing (such as a pavement), road, railway, tramway, a park for vehicles

or containers, or an airstrip or runway.3 An inland navigation, including a canal or basin or a navigable river.4 A dam, reservoir or barrage, including any sluices, gates, generators and other

equipment associated with the dam, reservoir or barrage.5 A dock, harbour, wharf, pier, marina or jetty or any other structure in or at which

vessels may be kept, or merchandise or passengers may be shipped or unshipped.6 A dike, sea wall, weir or drainage ditch.

9

2001

23 Expenditure unaffected by sections 21 and 22(1) Sections 21 and 22 do not apply to any expenditure to which any of the provisions listed in

subsection (2) applies.(2) The provisions are—section 28 (thermal insulation of . . . buildings);. . .section 30 (safety at designated sports grounds);section 31 (safety at regulated stands at sports grounds);section 32 (safety at other sports grounds);section 33 (personal security);[section 33A (integral features);]section 71 (software and rights to software);section [143 of ITTOIA 2005 or section] 40D of F(No 2)A 1992 (election relating to tax treatment of films

expenditure).(3) Sections 21 and 22 also do not affect the question whether expenditure on any item described in

list C is, for the purposes of this Act, expenditure on the provision of plant or machinery.(4) But items 1 to 16 of list C do not include any asset whose principal purpose is to insulate or

enclose the interior of a building or to provide an interior wall, floor or ceiling which (in each case) is intended to remain permanently in place.

10

CAA 2001

LIST CEXPENDITURE UNAFFECTED BY SECTIONS 21 AND 22

1 Machinery (including devices for providing motive power) not within any other item in this list.2 . . . Gas and sewerage systems provided mainly—(a) to meet the particular requirements of the qualifying activity, or(b) to serve particular plant or machinery used for the purposes of the qualifying activity.3 . . .4 Manufacturing or processing equipment; storage equipment (including cold rooms); display equipment;

and counters, checkouts and similar equipment.5 Cookers, washing machines, dishwashers, refrigerators and similar equipment; washbasins, sinks, baths,

showers, sanitary ware and similar equipment; and furniture and furnishings.6 [Hoists].7 Sound insulation provided mainly to meet the particular requirements of the qualifying activity.8 Computer, telecommunication and surveillance systems (including their wiring or other links).9 Refrigeration or cooling equipment.10 Fire alarm systems; sprinkler and other equipment for extinguishing or containing fires.11 Burglar alarm systems.12 Strong rooms in bank or building society premises; safes.13 Partition walls, where moveable and intended to be moved in the course of the qualifying activity.14 Decorative assets provided for the enjoyment of the public in hotel, restaurant or similar trades.15 Advertising hoardings; signs, displays and similar assets.

11

Book 1b

Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003)

Employment incomeHow to tax it – what benefits to tax / exempt

Schedules 2 to 5 – very usefulSchedules come at the end of the Act after all the section numbers end

Schedule 2 – Approved share incentive plansSchedule 3 – Approved SAYE option plansSchedule 4 – Approved CSOP schemesSchedule 5 – Enterprise Management Incentives

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ITEPA 2003 – Contents pages

Contents pages

Chapter 4 Taxable Benefits: Vouchers and Credit-tokensCash vouchers: introduction

73 Cash vouchers to which this Chapter applies74 Provision for, or receipt by, member of employee's family

Meaning of “cash voucher”75 Meaning of “cash voucher”76 Sickness benefits-related voucher77 Apportionment of cost of provision of voucher

Cash vouchers: exceptions78 Voucher made available to public generally79 Voucher issued under approved scheme80 Vouchers where payment of sums exempt from tax

Benefit of cash voucher treated as earnings81 Benefit of cash voucher treated as earnings

Non-cash vouchers: introduction82 Non-cash vouchers to which this Chapter applies83 Provision for, or receipt by, member of employee's family

Meaning of “non-cash voucher”84 Meaning of “non-cash voucher”

13

ITTEPA 2003

Chapter 5 Taxable Benefits: Living AccommodationLiving accommodation

97 Living accommodation to which this Chapter appliesExceptions

98 Accommodation provided by local authority99 Accommodation provided for performance of duties100 Accommodation provided as result of security threat[100A Homes outside UK owned through company etc][100B Section 100A(1): exceptions]101 Chevening House

Benefit of living accommodation treated as earnings102 Benefit of living accommodation treated as earnings

Calculation of cash equivalent103 Method of calculating cash equivalent104 General rule for calculating cost of providing accommodation

Accommodation costing £75,000 or less105 Cash equivalent: cost of accommodation not over £75,000

14

ITEPA 2003

Chapter 6 Taxable Benefits: Cars, Vans and Related BenefitsGeneral

114 Cars, vans and related benefits115 Meaning of “car” and “van”116 Meaning of when car or van is available to employee117 Meaning of car or van made available by reason of employment118 Availability for private use119 Where alternative to benefit of car offered

Cars: benefit treated as earnings120 Benefit of car treated as earnings121 Method of calculating the cash equivalent of the benefit of a car

Cars: the price of a car122 The price of the car123 The list price of a car124 The notional price of a car with no list price124A Automatic car for a disabled employee

Cars: treatment of accessories125 Meaning of “accessory” and related terms

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ITEPA 2003

Cars: capital contributions by employee132 Capital contributions by employee

Cars: the appropriate percentage133 How to determine the “appropriate percentage”134 Meaning of car with or without a CO2 emissions figure

Cars: appropriate percentage: first registered on or after 1st January 1998135 Car with a CO2 emissions figure: pre-October 1999 registration136 Car with a CO2 emissions figure: post-September 1999 registration137 Car with a CO2 emissions figure: bi-fuel cars138 Car with a CO2 emissions figure: automatic car for a disabled employee139 Car with a CO2 emissions figure: the appropriate percentage [139 Cars with a CO22 emissions figure: the appropriate percentage]140 Car without a CO2 emissions figure: the appropriate percentage141 Diesel cars: the appropriate percentage

16

ITEPA 2003

Chapter 7 Taxable Benefits: LoansIntroduction

173 Loans to which this Chapter applies[173A Alternative finance arrangements]174 Employment-related loans

Benefit of taxable cheap loan treated as earnings175 Benefit of taxable cheap loan treated as earnings176 Exception for loans on ordinary commercial terms177 Exceptions for loans at fixed rate of interest178 Exception for loans where interest qualifies for tax relief179 Exception for certain advances for necessary expenses180 Threshold for benefit of loan to be treated as earnings

17

ITEPA 2003

Part 4 Employment Income: ExemptionsChapter 1 Exemptions: General

227 Scope of Part 4228 Effect of exemptions on liability under provisions outside Part 2

Chapter 2 Exemptions: Mileage Allowances and Passenger PaymentsMileage allowances

229 Mileage allowance payments230 The approved amount for mileage allowance payments231 Mileage allowance relief232 Giving effect to mileage allowance relief

Passenger payments233 Passenger payments234 The approved amount for passenger payments

Supplementary235 Vehicles to which this Chapter applies236 Interpretation of this Chapter

Chapter 3 Exemptions: Other Transport, Travel and Subsistence237 Parking provision and expenses238 Modest private use of heavy goods vehicles239 Payments and benefits connected with taxable cars and vans and exempt heavy goods vehicles240 Incidental overnight expenses and benefits

18

ITEPA 2003

Chapter 4 Exemptions: Education and TrainingWork-related training

250 Exemption of work-related training provision251 Meaning of “work-related training”252 Exception for non-deductible travel expenses253 Exception where provision for excluded purposes254 Exception where unrelated assets are provided

Individual learning account training255 Exemption for contributions to individual learning account training256 Meaning of “individual learning account training”257 Exception for non-deductible travel expenses258 Exception where provision for excluded purposes259 Exception where unrelated assets are provided260 Exception where training not generally available to staff

Chapter 5 Exemptions: Recreational BenefitsRecreational facilities

261 Exemption of recreational benefits262 Benefits not exempted by section 261263 Power to alter benefits to which section 261 applies

Annual parties and functions264 Annual parties and functions

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ITEPA 2003

Chapter 11 Miscellaneous ExemptionsLiving accommodation

313 Repairs and alterations to living accommodation314 Council tax etc paid for certain living accommodation315 Limited exemption for expenses connected with certain living accommodation

Work accommodation, supplies etc316 Accommodation, supplies and services used in employment duties[316A Homeworker's additional household expenses]

Workplace meals317 Subsidised meals

Childcare[318 Childcare: exemption for employer-provided care][318A Childcare: limited exemption for other care][318B Childcare: meaning of “care”, “child” and “parental responsibility”][318C Childcare: meaning of “qualifying child care”][318D Childcare: power to vary exempt amount and qualifying conditions]

Telephones and computer equipment[319 Mobile telephones]

20

Book 1b

Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005)

Trading incomeProperty income

What is a deductible expense?

Contents pages are very useful here as a reminder

21

ITTOIA 2005 - contents pages

Chapter 4 Trade Profits: Rules Restricting Deductions

Introduction32 Professions and vocations

Capital expenditure33 Capital expenditure

Wholly and exclusively and losses rules34 Expenses not wholly and exclusively for trade and unconnected losses

Bad and doubtful debts35 Bad and doubtful debts

Unpaid remuneration36 Unpaid remuneration37 Unpaid remuneration: supplementary

22

ITTOIA 2005 - Contents pages

Employee benefit contributions38 Restriction of deductions39 Making of “employee benefit contributions”40 Provision of qualifying benefits41 Timing and amount of certain qualifying benefits42 Provision or payment out of employee benefit contributions43 Profits calculated before end of 9 month period44 Interpretation of sections 38 to 44

Business entertainment and gifts45 Business entertainment and gifts: general rule46 Business entertainment: exceptions47 Business gifts: exceptions

23

ITTOIA 2005 Contents pages

Interest payments52 Exclusion of double relief for interest

Social security contributions53 Social security contributions

Penalties, interest and VAT surcharges54 Penalties, interest and VAT surcharges

Crime-related payments55 Crime-related payments

[Integral features][55A Expenditure on integral features]

[Rental rebates][55B Rental rebates]

Chapter 5 Trade Profits: Rules Allowing Deductions

Introduction56 Professions and vocations

Pre-trading expenses57 Pre-trading expenses

24

Book 1c

Income Taxes Act 2007 (ITA 2007)

All about individuals and Income Tax

Think “calculation of the Income Tax bill”

Especially Loss reliefs

25

ITA 2007

Chapter 2 Trade LossesIntroduction

60 Overview of Chapter61 Non-partners: losses of a tax year62 Partners: losses of a tax year etc63 Prohibition against double counting

Trade loss relief against general income64 Deduction of losses from general income65 How relief works

Restriction on relief for uncommercial trades66 Restriction on relief unless trade is commercial

Restriction on relief for “hobby” farming or market gardening67 Restriction on relief in case of farming or market gardening68 Reasonable expectation of profit69 Whether trade is the same trade70 Determining losses in previous tax years

26

ITA 2007

Use of trading loss as CGT loss71 Treating trade losses as CGT losses

Early trade losses relief72 Relief for individuals for losses in first 4 years of trade73 How relief works74 Restrictions on relief unless trade is commercial etc

27

ITA 2007

Carry-forward trade loss relief83 Carry forward against subsequent trade profits84 How relief works85 Use of trade-related interest and dividends if trade profits insufficient86 Trade transferred to a company87 Ring fence trades88 Carry forward of certain interest as loss

Terminal trade loss relief89 Carry back of losses on a permanent cessation of a trade90 Losses that are “terminal losses”

28

Book 1c

Corporation Tax Act 2009 (CTA 2009)

It is almost the Corporation Tax equivalent of ITTOIA

e.g. Rules in S47 ITTOIA re Business Entertaining are found in S1300 CTA 09

29

Book 1c

Corporation Tax Act 2010 (CTA 2010)

More Corporation Tax laws!

Taxation (International etc ) Act 2010DTRTransfer pricingTax avoidanceEtc………

30

Book 1c

Not a consolidation Act BUT

Also in 1c are FA 2007, 2008 and 2009 – very important with regards to Tax administration

FA 2007 Sch 24 Incorrect return penalties

FA 2008 Sch 41 Failure to notify penalties

FA 2009 Sch 55 late return penalties

FA 2009 Sch 56 late payment penalties

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Book 1c

INDEX

Two parts to index1st – normal index2nd – Words and Phrases = commonly used expressions

( in CCH called Definitions and Meanings)

Index not overly useful and things not listed in the way you might expect but could save your bacon in a sticky situation

32

Book 1c Index – connected persons

Connected persons –

“Words and Phrases”(capital allowances) CAA 2001 s 232(capital gains tax) TCGA 1992 s 286(corporation tax) CTA 2010 ss 1122, 1123(income and corporation tax) TA 1988 s 839(1)-(4), (7)

“Main Index”application of definition ITA 2007 s 1021capital allowances, application to CAA 2001 s 575chargeable gains, application to TCGA 1992 s18company purchase of own shares, TA 1988 s 228employee share schemes, unapproved, application to FA 1988 s 83(1), (4)meaning, TA 1988 s 839, TCGA 1992 s 286, ITA 2007 ss 993-994

33

Q on conditions re EMI scheme

Index look up Enterprise Management incentive scheme

Not there

Look up share schemes

Not there

Look up share option schemes

EMI

34

More helpful than the index…….

…are the contents pages at the front of the consolidation acts

But in the exam……….

35

Part 2

Income Tax, Corporation Tax and CGT

Secondary legislationAnd Non-statutory legislation

INDEX

36

Part 2

Statutory Instruments

Revenue Interpretations

Press Releases

HMRC Code of Practice

Miscellaneous

At front of each section is a contents page – very useful

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Part 2; SI contents - highlight

SI 1998/3175 Payment of tax – large Cos - instalments

SI 2003/2682 PAYE Heaven!!!!!

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Part 2; ESC Contents - highlight

D2 CGT residence – year of arrival / departure

D3 PPR periods of absence (a)

D4 PPR Periods of absence (b)

D6 PPR separated couples

D22 Rollover – assets not brought into immediate use

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PPR Relief

223 Amount of relief

(1) No part of a gain to which section 222 applies shall be a chargeable gain if the dwelling-house or part of a dwelling-house has been the individual's only or main residence throughout the period of ownership, or throughout the period of ownership except for all or any part of the last 36 months of that period..........

……….at end of section you find info re

ESC D3 PPR periods of absence (a)D4 PPR Periods of absence (b)D6 PPR separated couples

SPCasesCross references

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Part 2; Miscellaneous

My favourite part is Miscellaneous

Misc II – HMRC 6Residence, Domicile and remittance basis

Misc III – HMRC Booklet – Employed or self-employed?

Misc V- IR 35 – Revised Guidance

Book 2 is well worth a few hours of looking through

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Part 3

IHTNICTax credits and PRT

“All aspects” in each of these 4 sections

So first section is IHT and starts with Acts, then SIs then ESCs the SPs and then non-statutory material.

Ending with the IHT index

42

Orange / Green Book

Contains all aspects of

VATStamp TaxesOther indirect taxes (IPT and the ‘green’ taxes)

‘All aspects’ meansActsStatutory instrumentsOther stuff – eg Notices, Press releases

Index

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Grey blobs!

1st grey blob is VAT statutes – VATA 1994 is most interesting

2nd blob is Statutory instruments re VAT

Then EC material, VAT ESCs, VAT Notices,then Miscellaneous Press Releases .

Finally VAT INDEX

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Orange / Green Book 1

For VAT there are two bits of the first and second grey blob you really need to be familiar with

VATA 1994

SI 1995 / 2518

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-CHARGE TO TAX

-RELIEFS, EXEMPTIONS AND REPAYMENTS

-APPLICATION OF ACT IN PARTICULAR AREAS

-ADMINISTRATION, COLLECTION AND ENFORCEMENT

-SUPPLEMENTARY PROVISIONS

-SCHEDULES

VATA 1994

VATA 1994 Schedule 8

Part II The GroupsGroup 1 — Food

The supply of anything comprised in the general items set out below, except—(a) a supply in the course of catering; and(b) a supply of anything comprised in any of the excepted items set out below,

unless it is also comprised in any of the items overriding the exceptions set out below which relates to that excepted item.

General itemsItem No1Food of a kind used for human consumption.2Animal feeding stuffs.

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VATA 1994 Schedule 8

Excepted itemsItem No1Ice cream, ice lollies, frozen yoghurt, water ices and similar frozen products, and prepared mixes and

powders for making such products.2Confectionery, not including cakes or biscuits other than biscuits wholly or partly covered with

chocolate or some product similar in taste and appearance.3Beverages chargeable with any duty of excise specifically charged on spirits, beer, wine or made-wine

and preparations thereof.4Other beverages (including fruit juices and bottled waters) and syrups, concentrates, essences,

powders, crystals or other products for the preparation of beverages.5Any of the following when packaged for human consumption without further preparation, namely,

potato crisps, potato sticks, potato puffs, and similar products made from the potato, or from potato flour, or from potato starch, and savoury food products obtained by the swelling of cereals or cereal products; and salted or roasted nuts other than nuts in shell.

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VATA 1994 Schedule 8

Items overriding the exceptionsItem No1Yoghurt unsuitable for immediate consumption when frozen.2Drained cherries.3Candied peels.4Tea, maté, herbal teas and similar products, and preparations and extracts thereof.5Cocoa, coffee and chicory and other roasted coffee substitutes, and preparations and

extracts thereof.

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VATA 1994 Schedule 8

NOTES:(1) “Food” includes drink.(2) “Animal” includes bird, fish, crustacean and mollusc.(3) A supply of anything in the course of catering includes—(a) any supply of it for consumption on the premises on which it is supplied; and(b) any supply of hot food for consumption off those premises;and for the purposes of paragraph (b) above “hot food” means food which, or any part

of which—(i) has been heated for the purposes of enabling it to be consumed at a temperature

above the ambient air temperature; and[(ii) is above that temperature at the time it is provided to the customer.]1

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preliminary

registration & provisions for special cases

VAT invoices & other invoicing requirements

EC sales statements

accounting, payment and records

payments on account

annual accounting

SI 1995 / 2518

cash accounting

supplies by retailers

time of supply & time of acquisition

valuation of acquisitions

place of supply

input tax & partial exemption

adjustments to the deduction of input tax on capital items

importations, exportations and removals

fiscal & other warehousing schemes

new means of transport

bad debt relief

repayment of input tax (BDR)

repayments to community traders

repayments to third country traders

repayment supplement

refunds to “do-it-yourself” builders

flat-rate scheme for farmers

distress & diligence

Know your way around the books

Get a feel for what is in each book and then for what the different acts are all about.

Capital allowances – CAA 2001Employee – ITEPA 2003Self-employed – ITTOIA 2005

Use of Sole trader losses – relates to calculation of taxITA 2007 – Income Tax Act 2007

Companies – CTA 2009 / 2010

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Can I write in the books

“Publications brought into the examination must be bound copies. They can be underlined, sidelined and highlighted. Annotating, use of “post-its” and tagging is NOT allowed”

You can write your name on the books

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How do I study with them?

In the exam you will have little time to use the legislation

Not much time to translate what is in the book into something that answers a question in a meaningful way.

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So what use are they?

Aide memoire!

Instead of using your brain to remember things likeDefinitionsConditionsTime limits

Useful highlighting of the books can do this for you

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Example

Conditions for a company to qualify for Enterprise Investment Scheme (EIS)

ITA 2007

Part 5 – EIS

Section 180 = good overview

58

ITA 2007

180 Overview of Chapter The issuing company is a qualifying company in relation to the relevant shares if the

requirements of this Chapter are met as to—(a) trading (see section 181),(b) the issuing company to carry on the qualifying business activity (see section 183),(c) unquoted status (see section 184),(d) control and independence (see section 185),(e) gross assets (see section 186),[(ea) number of employees (see section 186A),](f) qualifying subsidiaries (see section 187), and(g) property managing subsidiaries (see section 188).

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ITA 2007

180 Overview of Chapter The issuing company is a qualifying company in relation to the relevant shares if the

requirements of this Chapter are met as to—(a) trading (see section 181),(b) the issuing company to carry on the qualifying business activity (see section 183),(c) unquoted status (see section 184),(d) control and independence (see section 185),(e) gross assets (see section 186),[(ea) number of employees (see section 186A),](f) qualifying subsidiaries (see section 187), and(g) property managing subsidiaries (see section 188).

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183 The issuing company to carry on the qualifying business activity requirement(1) The requirement of this section is met in relation to the issuing company if, at no

time in period B, is any of the following— (a) the relevant qualifying trade,(b) relevant preparation work (if any), and(c) relevant research and development (if any),carried on by a person other than the issuing company or a qualifying 90% subsidiary

of that company.(2) Subsection (3) has effect for the purpose of determining whether the

requirement of this section is met in relation to the issuing company in a case where relevant preparation work is carried out by that company or a qualifying 90% subsidiary of that company.

(3) The carrying on of the relevant qualifying trade by a company other than the issuing company or a subsidiary of that company is to be ignored if it takes place at any time in period B before the issuing company or any qualifying 90% subsidiary of that company begins to carry on that trade.

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183 The issuing company to carry on the qualifying business activity requirement(1) The requirement of this section is met in relation to the issuing company if, at no

time in period B, is any of the following— (a) the relevant qualifying trade,(b) relevant preparation work (if any), and(c) relevant research and development (if any),carried on by a person other than the issuing company or a qualifying 90% subsidiary

of that company.(2) Subsection (3) has effect for the purpose of determining whether the

requirement of this section is met in relation to the issuing company in a case where relevant preparation work is carried out by that company or a qualifying 90% subsidiary of that company.

(3) The carrying on of the relevant qualifying trade by a company other than the issuing company or a subsidiary of that company is to be ignored if it takes place at any time in period B before the issuing company or any qualifying 90% subsidiary of that company begins to carry on that trade.

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189 Meaning of “qualifying trade”(1) For the purposes of this Part, a trade is a qualifying trade if—(a) it is conducted on a commercial basis and with a view to the realisation of

profits, and(b) it does not at any time in period B consist wholly or as to a substantial part in the

carrying on of excluded activities.(2) References in this section and sections 192 to 198 to a trade are to be read

without regard to the definition of “trade” in section 989.

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189 Meaning of “qualifying trade”(1) For the purposes of this Part, a trade is a qualifying trade if—(a) it is conducted on a commercial basis and with a view to the realisation of

profits, and(b) it does not at any time in period B consist wholly or as to a substantial part in the

carrying on of excluded activities.(2) References in this section and sections 192 to 198 to a trade are to be read

without regard to the definition of “trade” in section 989.

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192 Meaning of “excluded activities”(1) The following are excluded activities for the purposes of sections 181 and 189—(a) dealing in land, in commodities or futures or in shares, securities or other financial instruments,(b) dealing in goods otherwise than in the course of an ordinary trade of wholesale or retail distribution,(c) banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities,(d) leasing (including letting ships on charter or other assets on hire),(e) receiving royalties or licence fees,(f) providing legal or accountancy services,(g) property development,(h) farming or market gardening,(i) holding, managing or occupying woodlands, any other forestry activities or timber production,[(ia) shipbuilding,(ib) producing coal,(ic) producing steel,](j) operating or managing hotels or comparable establishments or managing property used as an hotel or

comparable establishment,(k) operating or managing nursing homes or residential care homes or managing property used as a nursing

home or residential care home, and(l) any activities which are excluded activities under section 199 (provision of services or facilities for another

business).

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192 Meaning of “excluded activities”(1) The following are excluded activities for the purposes of sections 181 and 189—(a) dealing in land, in commodities or futures or in shares, securities or other financial instruments,(b) dealing in goods otherwise than in the course of an ordinary trade of wholesale or retail distribution,(c) banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities,(d) leasing (including letting ships on charter or other assets on hire),(e) receiving royalties or licence fees,(f) providing legal or accountancy services,(g) property development,(h) farming or market gardening,(i) holding, managing or occupying woodlands, any other forestry activities or timber production,[(ia) shipbuilding,(ib) producing coal,(ic) producing steel,](j) operating or managing hotels or comparable establishments or managing property used as an hotel or

comparable establishment,(k) operating or managing nursing homes or residential care homes or managing property used as a nursing

home or residential care home, and(l) any activities which are excluded activities under section 199 (provision of services or facilities for another

business).

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186 The gross assets requirement(1) In the case of relevant shares issued by a single company, the value of the

company's assets—(a) must not exceed £7 million immediately before the relevant share issue, and(b) must not exceed £8 million immediately afterwards.(2) In the case of relevant shares issued by a parent company, the value of the group

assets—(a) must not exceed £7 million immediately before the relevant share issue, and(b) must not exceed £8 million immediately afterwards.

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186 The gross assets requirement(1) In the case of relevant shares issued by a single company, the value of the

company's assets—(a) must not exceed £7 million immediately before the relevant share issue, and(b) must not exceed £8 million immediately afterwards.(2) In the case of relevant shares issued by a parent company, the value of the group

assets—(a) must not exceed £7 million immediately before the relevant share issue, and(b) must not exceed £8 million immediately afterwards.

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[186A The number of employees requirement][(1) If the issuing company is a single company, the full-time equivalent employee

number for it must be less than 50 when the relevant shares are issued.(2) If the issuing company is a parent company, the sum of— (a) the full-time equivalent employee number for it, and(b) the full-time equivalent employee numbers for each of its qualifying subsidiaries,must be less than 50 when the relevant shares are issued.(3) The full-time equivalent employee number for a company is

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[186A The number of employees requirement][(1) If the issuing company is a single company, the full-time equivalent employee

number for it must be less than 50 when the relevant shares are issued.(2) If the issuing company is a parent company, the sum of— (a) the full-time equivalent employee number for it, and(b) the full-time equivalent employee numbers for each of its qualifying subsidiaries,must be less than 50 when the relevant shares are issued.(3) The full-time equivalent employee number for a company is

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ITA contents pages

Part 5 Enterprise Investment Scheme

Chapter 1 IntroductionEIS relief

156 Meaning of “EIS relief” and commencement157 Eligibility for EIS relief158 Form and amount of EIS relief

Miscellaneous159 Periods A, B and C160 Overview of other Chapters of Part161 Other tax reliefs relating to EIS

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Chapter 4 The Issuing CompanyIntroduction

180 Overview of ChapterThe requirements

[180A The UK permanent establishment requirement][180B The financial health requirement]181 The trading requirement182 Ceasing to meet trading requirement because of administration or receivership183 The issuing company to carry on the qualifying business activity requirement184 The unquoted status requirement185 The control and independence requirement186 The gross assets requirement[186A The number of employees requirement]187 The qualifying subsidiaries requirement188 The property managing subsidiaries requirement

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Highlighting Golden Rules

1. Less is better than more – can always add more later but cannot take away

2. Think before you put the highlighter on to paper

3. Always highlight contents pages of Acts also

4. Consider a highlight of the index if the Act is not obvious to you

5. Consider using different colours

6. Cannot highlight everything

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e.g. Rollover Relief

TCGA 1992Section 155

155 Relevant classes of assetsThe classes of assets for the purposes of section 152(1) are as follows.

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S 155 TCGA 1992

Class 1Assets within heads A and B below.Head A1. Any building or part of a building and any permanent or semi-permanent

structure in the nature of a building, occupied (as well as used) only for the purposes of the trade.

2. Any land occupied (as well as used) only for the purposes of the trade.Head A has effect subject to section 156.Head BFixed plant or machinery which does not form part of a building or of a permanent or

semi-permanent structure in the nature of a building.Class 2Ships, aircraft and hovercraft (“hovercraft” having the same meaning as in the

Hovercraft Act 1968).Class 3..........

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S 153 Assets only partly replaced

(1) Section 152(1) shall not apply if part only of the amount or value of the consideration for the disposal of, or of the interest in, the old assets is applied as described in that subsection, but if all of the amount or value of the consideration except for a part which is less than the amount of the gain (whether all chargeable gain or not) accruing on the disposal of, or of the interest in, the old assets is so applied, then the person carrying on the trade, on making a claim as respects the consideration which has been so applied, shall be treated for the purposes of this Act—

(a) as if the amount of the gain so accruing were reduced to the amount of the said part (and, if not all chargeable gain, with a proportionate reduction in the amount of the chargeable gain), and

(b) as if the amount or value of the consideration for the acquisition of, or of the interest in, the new assets were reduced by the amount by which the gain is reduced (or as the case may be the amount by which the chargeable gain is proportionately reduced) under paragraph (a) of this subsection,

but neither paragraph (a) nor paragraph (b) above shall affect the treatment for the purposes of this Act of the other party to the transaction involving the old assets, or of the other party to the transaction involving the new assets.

(2) Subsections (3) to (11) of 152 shall apply as if this section formed part of that section.

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Highlighting

DO NOT highlight whole sections

If you have to read and interpret and decide what it means in the exam it will waste valuable time

So BE SELECTIVE – key words

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“Helpful highlighting”

This is what you are aiming for

Be creative / clever!

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Restricted securities

A further charge will arise under s.426 ITEPA 2003 when the restriction is lifted. This further charge is based on the formula in s.428 ITEPA 2003. The formula in the legislation contains a

number of steps but, in the majority of cases, this can be simplified to the following: UMV x IUMV – DA IUMV where: “UMV” =the market value of the shares at the date the risk of forfeiture is lifted“IUMV” =“unrestricted” value of the shares at the date of award i.e. Initial UMV“DA” =the amount paid by the employee for the shares plus the amount charged as employment income on the initial

award

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S428 ITEPA 2003

428 Amount of charge[(1) The taxable amount for the purposes of section 426 (charge on occurrence of

chargeable event) is—UMV x (IUP – PCP – OP) – CE(2) UMV is what would be the market value of the employment-related securities

immediately after the chargeable event but for any restrictions.(3) IUP is—IUMV – DA / IUMVwhere—IUMV is what would have been the market value of the employment-related securities

at the time of the acquisition but for any restrictions, andDA is the total of any deductible amounts.

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S428 ITEPA 2003

428 Amount of charge[(1) The taxable amount for the purposes of section 426 (charge on occurrence of

chargeable event) is—UMV x (IUP – PCP – OP) – CE(2) UMV is what would be the market value of the employment-related securities

immediately after the chargeable event but for any restrictions.(3) IUP is—IUMV – DA / IUMVwhere—IUMV is what would have been the market value of the employment-related securities

at the time of the acquisition but for any restrictions, andDA is the total of any deductible amounts.

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S223 TCGA 1992

223 Amount of relief(1) No part of a gain to which section 222 applies shall be a chargeable gain if the

dwelling-house or part of a dwelling-house has been the individual's only or main residence throughout the period of ownership, or throughout the period of ownership except for all or any part of the last 36 months of that period.

(2) Where subsection (1) above does not apply, a fraction of the gain shall not be a chargeable gain, and that fraction shall be—

(a) the length of the part or parts of the period of ownership during which the dwelling-house or the part of the dwelling-house was the individual's only or main residence, but inclusive of the last 36 months of the period of ownership in any event, divided by

(b) the length of the period of ownership.

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S223 TCGA 1992

(3) For the purposes of subsections (1) and (2) above—(a) a period of absence not exceeding 3 years (or periods of absence which together did not

exceed 3 years), and in addition(b) any period of absence throughout which the individual worked in an employment or

office all the duties of which were performed outside the United Kingdom [or lived with a spouse or civil partner who worked in such an employment or office], and in addition

(c) any period of absence not exceeding 4 years (or periods of absence which together did not exceed 4 years) throughout which the individual was prevented from residing in the dwelling-house or part of the dwelling-house in consequence of the situation of his place of work or in consequence of any condition imposed by his employer requiring him to reside elsewhere, being a condition reasonably imposed to secure the effective performance by the employee of his duties, [and in addition,]

[(d) any period of absence not exceeding 4 years (or periods of absence which together did not exceed 4 years) throughout which the individual lived with a spouse or civil partner in respect of whom paragraph (c) applied in respect of that period (or periods),]

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Highlighting

It’s a personal thing

No one right way

You know what will work for you

People use the legislation in different ways – do what you are happy with

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Using the legislation

Use the legislation whilst studying

Highlight things early on that you think will be useful to you

When revising open your legislation and think if there is a way you could use the Acts to help you answer a question in the exam

What are the conditions for…….What is the definition of……..What is the time limit for……..

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A Warning

Look after your books.

Be careful lending your books to others in case they write in them etc making them useless for the exam!

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