Article 2 Amendment of the Income Tax (Trading and Other Income) Act 2005

Section 539 of the Income Tax (Trading and Other Income Act) 2005^f1 (relief for deficiencies) is amended as follows.

In subsection (1)(b), for “of the higher rate, the Scottish higher rate, the Welsh higher rate or the dividend upper rate” substitute “relevant rates”.

For subsection (5) substitute—

“(5)

The amount of the tax reduction is calculated as follows.

• Step 1

  Determine the amount of the individual’s income for the tax year that is liable at each relevant rate.

• Step 2

  Attribute the amount or amounts determined at Step 1 to the deficiency, so far as possible.

• Step 3

  Calculate the amount of the individual’s preliminary income tax liability for the tax year (see subsection (6)).

• Step 4

  Calculate the amount of the individual’s preliminary income tax liability for the tax year again, on the assumption that each amount determined under Step 1, so far as attributed to the deficiency at Step 2, is liable at the appropriate lower rate.

• Step 5

  Deduct the amount found at Step 4 from the amount found at Step 3. The result is the amount of the tax reduction.”

For subsection (7) substitute—

“(7)

In this section—

(a)

“relevant rate” means a rate mentioned in the first column of the Table;

(b)

“the appropriate lower rate”, in relation to an amount of the individual’s income for the tax year that is liable at a relevant rate, means the rate mentioned in the second column of the Table in the same row as that relevant rate.

(8)

Here is the Table referred to in subsection (7)—

Relevant rate	The appropriate lower rate
the higher rate	the basic rate
the default higher rate	the default basic rate
the savings higher rate	the savings basic rate
the dividend upper rate	the dividend ordinary rate
the Scottish higher rate	the Scottish basic rate
the Scottish advanced rate	the Scottish basic rate
the Welsh higher rate	the Welsh basic rate

(9)

Where—

(a)

it is possible to carry out Step 2 in subsection (5) by attributing amounts in more than one way, and

(b)

the tax reductions, calculated under that subsection by carrying out that Step in those ways, are of different amounts,

Step 2 is to be carried out in the way that results in the highest tax reduction.”