The Schedules Schedular system of taxation

1 schedules

1.1 history
1.2 cases of schedule d
1.3 relief expenses
1.4 case of schedule d , schedule a

1.4.1 tax depreciation
1.4.2 tonnage tax


1.5 case iii of schedule d
1.6 case v of schedule d
1.7 case vi of schedule d
1.8 chargeable gains
1.9 controlled foreign company (cfc) charge

the schedules

notes:

history

income tax levied under 5 schedules - income not falling within schedules not taxed. schedules were:

schedule (tax on income uk land)
schedule b (tax on commercial occupation of land)
schedule c (tax on income public securities)
schedule d (tax on trading income, income professions , vocations, interest, overseas income , casual income)
schedule e (tax on employment income)

later sixth schedule, schedule f (tax on uk dividend income) added.

the schedules under tax levied have changed. schedule b abolished in 1988, schedule c in 1996 , schedule e in 2003. income tax purposes, remaining schedules abolished in 2005. schedules a, d , f remain corporation tax purposes.

cases of schedule d

schedule d divided number of cases:

notes:

relief expenses

the computations of income , taxable chargeable gains include deductions direct expenses. however, not sources of income have direct expenses (particularly falling within cases iii , vi of schedule d, foreign dividend income falling within case v , income falling within schedule f). company may incur expenses managing subsidiary not tend pay dividend income it.

relief therefore given management expenses incurred company investment business (before 1 april 2003 investment companies), , management expenses of life assurance company taxed on minus e basis. relief given deduction profits chargeable corporation tax payments charities, royalty payments made non-traders , manufactured overseas dividends.

case of schedule d , schedule a

subject specific statute or case law contrary, case of schedule d , schedule profits based on profits calculated using uk accepted accounting practice. same true deduction management expenses available companies investment business. company prepares accounts under international financial reporting standards, use profits computed on basis instead 2005 onwards, subject specific statute or case law contrary.

the main exceptions rule no deductions allowed under case of schedule d (or schedule a) expenses not incurred wholly , exclusively trade (or rental business) , no deductions available capital (i.e. deductions available revenue items).

in recent publications, hm revenue , customs has split various exceptions follow accounts rule 11 arbitrary categories, of 1 miscellaneous residual category. other ten are

public policy
transfer pricing
structural
avoidance
tax neutrality
capital items
fiscal incentives
symmetry
realisability , tax capacity
true reflection

tax depreciation

since no capital deductions allowed, depreciation on capital assets not tax-deductible, although tax depreciation, known capital allowances available instead expenditure on capital assets. capital allowances given capital allowances act 2001 (caa 2001). note expenditure on finance leases (as opposed to, say, lease or hire purchase agreements) considered revenue. therefore interest payments , depreciation on finance leases deductible. if finance lessor owns asset, however, may able make claim capital allowances.

there various types of capital allowances. far common type of allowance plant , machinery allowances. machinery takes normal meaning. plant has no statutory definition, although legislation designate few assets plant (e.g. integral features , expenditure on safety @ sports grounds , personal security assets) , defines cannot plant (called buildings , structures ). plant defined more 100 years of case law. in essence business apparatus , can in practice include many fixtures , fittings in buildings .

plant , machinery allowances conventionally gave 25% reducing balance basis annual writing down allowance (wda). 25% wda reduced 20% april 2008. means if plant asset, say, bought £400 in year 1, 20% of £400 (i.e. £80) deductible taxable profits tax depreciation in year 1. 20% of £(400-80) (i.e. £64) deductible in year 2, , on. 20% figure reduced 10% special rate assets. these include integral features (electrical systems; cold water systems; heating, hot water, ventilating , air conditioning systems; lifts, escalators , moving walkways; , external solar shading), long-life assets (plant , machinery expected life when new of 25 years or more - subject various exemptions, i.e. assets in offices , retail shops), , addition of thermal insulation existing buildings. april 2008 first £50,000 of expenditure on plant , machinery each year may written-off in year (called annual investment allowance ). there 100% first year capital allowances expenditure on energy-saving , environmentally beneficial (i.e. water conserving) plant , machinery (called enhanced capital allowances ).

capital allowances given @ 4% straight-line expenditure on industrial , agricultural buildings. however, these allowances being phased out april 2011 reducing rate of wda one-quarter each year, broadly rate reduce 3% april 2008, 2% april 2009, 1% april 2010 , nothing april 2011. industrial buildings in use various purposes including manufacturing, processing , storage etc. available qualifying hotels (those @ least 10 letting bedrooms , meeting other conditions) , commercial buildings in specially designated areas of need, called enterprise zones (which qualify 100% initial allowance, withdrawn april 2011).

tax depreciation potentially available expenditure on: business premises renovation (100% initial allowance), flat conversions (100% initial allowance), research , development (100% initial allowance), mineral extraction (10% or 25% wdas), know-how (25% wda), patents (25% wda), dredging , assured tenancies. expenditure on cleaning-up contaminated land , buildings may qualify 150% land remediation relief , adding thermal insulation residential properties may qualify landlord s energy saving allowance , giving £1,500 deduction per dwelling.

in particular, no tax depreciation available expenditure on land, abortive expenditure, expenditure not give rise capital asset, , apart specific circumstances mentioned above buildings.

tonnage tax

shipping companies may elect compute case profits using formula based on tonnage rather fiscally adjusted accounting profit.

case iii of schedule d

gains , losses on loans, derivatives, financial instruments , intangibles taxed income. basic rule calculating case iii profits follow accounts, although there detailed anti-avoidance rules stop obvious abuses. direct expenses, such costs incurred in obtaining loan, deductible in case iii computation. if result negative, case iii profits taken nil, negative result being treated non-trading debits. similar calculation rules apply loans, derivatives, financial instruments , intangibles taxed under case (although losses treated case expense rather non-trading debits).

case v of schedule d

overseas property income , income of wholly overseas trade calculated in same way schedule , case of schedule d income respectively. overseas dividend income accounted , taxed on receipts basis. double tax relief (see below) may available overseas income has suffered foreign tax.

case vi of schedule d

where case vi charge relates casual annual income, taxed on cash basis, though hm revenue , customs accept accruals basis. relief available direct expenses if have been allowable in case computation.

chargeable gains

chargeable gains (or allowable losses) calculated gross proceeds, less direct selling costs, less base cost, less indexation allowance. indexation allowance base cost multiplied change in retail prices index movement between month of purchase , month of sale. indexation allowance cannot create or increase loss. losses may set off against chargeable gains of same or future accounting period (except allowable losses of life assurance companies (see: minus e basis).

the uk operates participation exemption called substantial shareholding exemption . assuming relevant entities or groups trading companies , groups, if company fellow group companies has shareholding of on 10% in company, , has held shares more twelve months, disposals of shares exempt chargeable gains. figure of 10% increased 30% shares held long-term insurance fund of life assurance company. detailed rules, however, complex, , companies need study them closely see whether substantial shareholding exemption applies.

there other exemptions , holdover , rollover reliefs apply: example, business property sold , new business property acquired proceeds, no chargeable gain arise. these such companies have chargeable gain. main exception being life assurance companies taxed on minus e basis: these companies pay bulk of tax paid on chargeable gains.

controlled foreign company (cfc) charge

in addition being taxed on own profits, uk company may taxed on profits controlled foreign company (cfc) in has interest. anti-avoidance provision. there wide range of exemptions, , groups arrange affairs cfc charge not arise. when arise equal overseas company s uk taxable profits have been on assumption overseas company uk resident, , ignoring chargeable gains. relief available uk tax paid on dividends received cfc cfc charge or payable , overseas tax suffered.