PG电子

S23 of Income Tax Act 2007 sets out the calculation of income tax liability.

To calculate the income tax liability for a tax year where an amount of the transition profits has been treated as arising, the steps in section 23 ITA 2007 are modified. This will apply for tax years 2023-24 to 2027-28.

The transition profits are excluded from the net income amount to reduce the impact on benefits and allowances. However, the tax that would have been charged on them had they been included in the net income amount is added to the tax calculation instead.

The calculation must be amended as outlined below:

i)	At Step 1 of the s23 calculation, transition profits are to be identified and treated as a separate component of total income, 鈥渢he transition component鈥�.
ii)	Apply Step 2 as normal by deducting from the components, including the transition component, the amount of any relief under a provision listed in section 24 to which the individual is entitled for the tax year. However, you should then exclude the transition component from the sum of the amounts of the components left after this step. This total is the 鈥渘et income鈥�. Follow Steps 3 鈥� 5 of the s23 calculation as normal to give amount A.
iii)	Prepare a notional calculation with the same amounts of income at Step 1, and the same deductions made at Step 2. For this notional calculation only, include the amount of transition profits in 鈥渘et income鈥�. Follow Steps 3 鈥� 5 of the s23 calculation as normal to give amount B. Note that the amounts of allowances given at Step 3 may be different, as these will be based on this notional value of 鈥渘et income鈥�.
iv)	Calculate the difference between amounts A and B, amount C. Treat amount C as an amount of tax calculated at Step 4 of the s23 calculation.

Example 23 鈥� calculating tax on transition profits

A trader has standard profits of 拢20,000 and transition profits of 拢8,000 for 2023-24. The amount of transition profits treated as arising in each of the tax years from 2023-24 onwards is 拢1,600 (拢8,000 x 20%). They also have 拢3,000 of trade losses carried forward from the previous year. The trader is entitled to their personal allowance of 拢12,570. They have no other income.

The income tax liability on the transition profits is calculated as follows:

i): The two components of 鈥渢otal income鈥� are:

Standard profits 拢20,000
Transition profits 拢1,600

ii): Calculate A 鈥� do not include transition profits in net income

Component of total income	Standard profits	Transition profits
Profits	拢20,000	拢1,600
Less trade losses c/f	(拢3,000)	听
Revised profits	拢17,000	拢1,600
Net income	拢17,000 (Not including transition profits)	听
Deduct personal allowance	拢17,000 - 拢12,570 = 拢4,430	听
Calculate tax liability at 20%	拢4,430 x 20% = 拢886 (A)	听

iii): Calculate B 鈥� include transition profits in net income

Component of total income	Standard profits	Transition profits
Profits	拢20,000	拢1,600
Less trade losses c/f	(拢3,000)	听
Revised profits	拢17,000	拢1,600
Net income	拢18,600	听
Deduct personal allowance	拢18,600 - 拢12,570 = 拢6,030	听
Calculate tax liability at 20%	拢6,030 x 20% = 拢1,206 (B)	听

iv): Calculate the difference between amounts A and B to give amount C. Treat amount C as an amount of tax calculated at Step 4 of the s23 calculation.

The difference is 拢1,206 - 拢886 = 拢320. This is the tax liability for the transition profits.

Example 24 鈥� calculating tax on transition profits, notional net income above 拢100,000

A trader has standard profits of 拢98,000 and transition profits of 拢20,000 for 2023-24. The amount of transition profits treated as arising in each of the tax years from 2023-24 onwards is 拢4,000 (拢20,000 x 20%). The trader is entitled to their personal allowance of 拢12,570. They have no other income.

The income tax liability on the transition profits is calculated as follows:

i): The two components of 鈥渢otal income鈥� are:

Standard profits 拢98,000
Transition profits 拢4,000

ii): Calculate A 鈥� do not include transition profits in net income

Component of total income	Standard profits	Transition profits
Profits	拢98,000	拢4,000
Net income	拢98,000 (Not including transition profits)	听
Deduct personal allowance	拢98,000 - 拢12,570 = 拢85,430. The full amount of the personal allowance is deducted as net income is below 拢100,000.	听
Calculate tax liability at 20% for the first 拢37,700 above the personal allowance	拢37,700 x 20% = 拢7,540	听
Calculate tax liability at 40% for the remaining income	拢47,730 x 40% = 拢19,092	听
Total tax liability	拢7,540 + 拢19,092 = 拢26,632 (A)	听

iii): Calculate B 鈥� include transition profits in net income

Component of total income	Standard profits	Transition profits
Profits	拢98,000	拢4,000
Net income	拢102,000	听
Deduct personal allowance	拢102,000 - 拢11,570 = 拢90,430. The personal allowance is reduced as the net income is above 拢100,000.	听
Calculate tax liability at 20% for the first 拢37,700 above the personal allowance	拢37,700 x 20% = 拢7,540	听
Calculate tax liability at 40% for the remaining income	拢52,730 x 40% = 拢21,092	听
Total tax liability	拢7,540 + 拢21,092 = 拢28,632 (B)	听

iv): Calculate the difference between amounts A and B to give amount C. Treat amount C as an amount of tax calculated at Step 4 of the s23 calculation.

The difference is 拢28,632 - 拢26,632 = 拢2,000. This is the amount of tax due on the transition profits.