What is modified net income under section 1025 of the Income Tax Act 2007?

Modified net income is a specially adjusted version of a person's net income for a given tax year. It starts with net income calculated under section 23 and then excludes non-qualifying income, trade loss relief relating to later tax years, annual payments and patent royalties relief, profit averaging adjustments, and certain out-of-time claims.

What items are excluded when calculating modified net income?

The calculation excludes non-qualifying income as defined in section 1026, trade loss relief under Chapter 2 of Part 4 for losses incurred in later years, relief for annual payments and patent royalties under Chapter 4 of Part 8, profit averaging adjustments for farmers and creative artists, elections to carry back post-cessation receipts, and relief from claims permitted by extended deadlines.

How does modified net income differ for gift aid purposes under section 427?

When modified net income is calculated for gift aid purposes under section 427, the exclusion of annual payments and patent royalties relief does not apply. This means the annual payments relief is retained in the figure, resulting in a higher modified net income for gift aid calculations than for other purposes.

What does the term 'claim' mean in the context of section 1025?

For the purposes of section 1025, the word 'claim' is given a broad meaning and includes an election or a notice. This wide definition ensures all exclusions apply regardless of the precise procedural mechanism used by the taxpayer to obtain the relevant relief or adjustment in question.

Income Tax Act 2007 section 1025

Meaning of "modified net income"

Section 1025 defines how to calculate a person's "modified net income" for a tax year, a figure used in determining entitlements to gift aid relief, deductions for annual payments and patent royalties, and certain trust-related calculations.

Modified net income starts with a person's net income for the year and then strips out certain items such as non-qualifying income and reliefs relating to later tax years
Adjustments from profit averaging claims (for farmers and creative artists), elections to carry back post-cessation receipts, and out-of-time claims permitted by extended deadlines are all excluded from the calculation
Relief for annual payments and patent royalties under Chapter 4 of Part 8 is ignored in the standard calculation, but is not ignored when computing modified net income specifically for gift aid purposes under section 427
The term "claim" in this context includes elections and notices, broadening the scope of the exclusions

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