Income Tax (Trading and Other Income) Act 2005 section 23C

Meaning of "qualifying third party payment"

Section 23C defines what counts as a "qualifying third party payment" for the purposes of the rules on trading income, by setting out two key tests — the deduction condition and the trade connection condition — either of which can bring a third party payment within scope.

• A "third party payment" is any payment made (by the trader or someone else) either to the trader acting as trustee or to any person other than the trader.
• A third party payment becomes a "qualifying third party payment" if it meets either the deduction condition or the trade connection condition.
• The deduction condition is met where the payment has been deducted in calculating the profits of the relevant trade, including where the trader's share of partnership trading profits has been reduced by such a deduction.
• The trade connection condition is met where it is reasonable to suppose that the payment is essentially consideration for goods or services provided in the course of the trade, or that there is some other direct or indirect connection between the payment and the provision of goods or services in the trade.