# The Income Tax (Trading and Other Income) Act 2005 (Consequential Amendments) Order 2006, Note: Explanatory note


(This note is not part of the Order)
Section 882(2) of the Income Tax (Trading and Other Income) Act 2005 (c. 5) (“the 2005 Act”) provides that the Treasury may by order make such modifications of any enactment as the Treasury consider appropriate in consequence of that Act. This Order exercises the powers contained in section 882 of the 2005 Act in relation to the provisions of paragraph 3 of Schedule 12 to the Finance (No. 2) Act 1992 (c. 48), sections 143 and 161 Taxation of Chargeable Gains Act 1992 (c. 12) and Schedule 3 to the Finance Act 2002 (c. 23).
The consequential amendments made in this Order were inadvertently omitted from Schedule 1 (consequential amendments) to the 2005 Act. They result from the abolition of Schedule D for income tax purposes, and the enactment of equivalent rewritten provisions, in the 2005 Act. They ensure that, where Schedule D previously applied for income tax purposes, the equivalent provision in the 2005 Act will apply instead.
The continuity of the law provisions in Schedule 2 to the 2005 Act ensure that the omission of these amendments has had no effect on the law. The amendments made in this Order are made for the purpose of clarifying the law. They take effect retrospectively as if they had been made in Schedule 1 to the 2005 Act. This is to ensure that users of the Act are in no doubt that the law continued unchanged after the 2005 Act came into force.
Schedule 12 to the Finance (No. 2) Act 1992 Act applies where an insolvent company, whose trade involved the carrying on of deposit-taking business, is being wound up by the court in the United Kingdom. It operates by charging loan interest to tax under Case VI of Schedule D, and by permitting expenses and losses to be deducted from the sums brought into charge in this way. The abolition of Schedule D for income tax purposes, by the 2005 Act, however, meant that Schedule D ceased to apply to foreign companies for income tax purposes. This Order makes amendments which show that Schedule 12 continues to apply to foreign companies for income tax purposes following the enactment of the 2005 Act (see Articles 2 and 4).
Section 143(1) of the Taxation of Chargeable Gains Act 1992 (“TCGA”) was enacted in order to provide that futures and options whose profits and gains were exempted from either income tax or corporation tax, by section 128 ICTA, would come within the rules relating to chargeable gains. As a result of the abolition of Schedule D for income tax purposes, by the 2005 Act, section 128 now only applies to corporation tax. This Order makes amendments which show that section 143(1) continues to apply in respect of futures and options the profits and gains of which are exempt from income tax (as well as those exempt from corporation tax) following the enactment of the 2005 Act (see Article 3(2)).
Section 161(3) of the TCGA imposes a charge when a person appropriates an asset to use as trading stock. If such a person is chargeable to tax under Case I of Schedule D he may elect that any such asset should feature in the calculation of his profits. But the 2005 Act abolished Schedule D for income tax purposes. This Order makes amendments which show that section 161 continues to apply to persons chargeable to income tax following the enactment of the 2005 Act (see Article 3(3)).
Schedule 12 to the Finance Act 2002 is intended to enhance the income and corporation tax relief given to companies in respect of qualifying expenditure on research and development where certain conditions apply. One such condition is that where a person contracts out research and development in certain circumstances the contractor’s profits are not chargeable to tax under Case I or II of Schedule D. But the 2005 Act abolished Schedule D for income tax purposes. This Order contains amendments which show that the above condition continues to apply for income tax purposes following the enactment of the 2005 Act (see Article 5).
A full regulatory impact assessment has not been made for this Order as it has no impact on the costs for business.

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Source: https://www.legislation.gov.uk/uksi/2006/959/note (the official version)
Page: https://openlegislation.uk/income-tax-trading-and-other-income-act-2005-consequential-amendments-order-2006/note
Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives.