BIM74045 - Abolition of the cash basis: election to accelerate taxation of the ’catch-up’ charge: FA98/SCH6/PARA5 (2)

Ambit and form of election

Taxpayers can elect under FA98/SCH6/PARA5 (2) to be charged on more than the normal instalment for any year. They may wish to do this if, for example, they have large losses from elsewhere, perhaps as a Lloyd’s ‘name’, which they could set against this income. The election must be made (FA98/SCH6/PARA5 (2):

1. by notice in writing,
   
   
2. to an officer of HMRC, and
   
   
3. before 31 January following the year of assessment in question.

The election must specify the amount to be treated as income arising, which may be up to the whole of the catching up charge so far as not previously charged to tax - FA98/SCH6/PARA5 (3).

Where a taxpayer has elected to accelerate payment of the catch up charge in a particular year the charge in each subsequent year is reduced. The legislation ensures that over the ten years the amount of the catching up charge is assessed - FA98/SCH6/PARA5 (4).

Example

Suppose, as in the example in BIM74040, the catching up charge at 1 May 1999 is £80,000 and that profits for each of the succeeding years exceed £80,000. Without an election the taxpayer will be charged under Case VI of Schedule D (or on adjustment income for 05/06 and following) on £8,000 for the years of assessment 1999/00 to 2008/09 inclusive. Suppose that the taxpayer elects under FA98/SCH6/PARA5 to be charged in 2004/05 on an additional amount of £20,000. The charge for 2004/05 becomes £28,000. For 2005/06 and subsequent years the charge will be reduced to £3,000 per year (the amount required to tax all of the charge). The charge is taxed as follows