Income Tax (Trading and Other Income) Act 2005 section 31

Relationship between rules prohibiting and allowing deductions

Section 31 establishes the priority rules that apply when a provision allowing a deduction in calculating trade profits conflicts with a provision that prohibits or restricts such a deduction.

• Rules that allow deductions generally take priority over rules that prohibit or restrict deductions when calculating trade profits.
• Four specific restrictions always override permissive rules: unpaid remuneration (section 36), employee benefit contributions (section 38), car hire (section 48), and crime-related payments (section 55).
• Where a deduction arises from tax avoidance arrangements, the permissive rule loses its priority and becomes subject to any prohibitive rule as well as the four specific restrictions.
• Tax avoidance arrangements are those to which the trader is a party and where obtaining a tax advantage is the main purpose, or one of the main purposes.