BIM14110 - Schedule D: Statute: Main charging provisions

The general charging provisions are in ICTA88/S18 and ICTA88/S60.

ICTA88/S18 (1) supplies the basic Schedule D charge. That part which is relevant to Cases I and II provides that “Tax under this Schedule shall be charged in respect of”:-

• the annual profits or gains arising or accruing,
• to any person residing in the United Kingdom from any kind of property whatever, whether situated in the United Kingdom or elsewhere, and
• to any person residing in the United Kingdom from any trade, profession or vocation, whether carried on in the United Kingdom or elsewhere.

ICTA88/S18 (2) directs that tax under Schedule D shall be charged under the six Cases provided in ICTA88/S18 (3) which include:-

• Case I: tax in respect of any trade carried on in the United Kingdom or elsewhere but not contained in Schedule A.
• Case II: tax in respect of any profession or vocation not contained in any other Schedule.

ICTA88/S60 directs that:-

“subject to the provisions of this section and Sections 61 to 63 income tax under Cases I and II shall be charged on the full amount of the profits or gains of the year preceding the year of assessment.”

The important words in Section 18 are " the annual profits or gains arising or accruing". These words, with the reference in Section 60 to "the full amount of the profits or gains", have been interpreted by the Courts as requiring the consideration of 'profits' as that word would be understood in its ordinary sense in commercial life. This involves setting against the receipts of a trade etc in any given period the expenses incurred to earn those receipts. Initially, the profits are to be those calculated in accordance with the correct principles of commercial accountancy. That result is not, however, conclusive of the quantum of the profits for tax purposes; the Taxes Acts may still require specific adjustments.

Commercial accountancy principles are considered at BIM31000 onwards and specific adjustments at BIM42050 onwards.