schedular system

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A system formerly used to classify various sources of income for income tax purposes and still applicable for corporation tax. The Finance Act 1803 established a set of five schedules for the taxation of income. Tax was only imposed if the income fell within one of the specified schedules, each of which contained its own rules for the assessment of that income. The principles of this system were described by Lord Radcliffe in his ruling in Mitchell and Edon v Ross [1961] 40 TC 11 (CA) 61: “Before you can assess a profit to tax you must be sure that you have properly identified its source or other description according to the correct Schedule: but, once you have done that, it is obligatory that it should be charged, if at all, under that Schedule and strictly in accordance with the rules that are there laid down for assessments under it. It is a necessary consequence of this conception that the sources of profit in the different Schedules are mutually exclusive”.

This basic scheme continued until 2002, there then being tax charges imposed under Schedule A, Schedule D, Schedule E, and Schedule F (Schedule D was subdivided into six separate cases and Schedule E into three cases). The Income Tax (Earnings and Pensions) Act 2003 abolished Schedule E and replaced it with three categories of income: “employee income”, “pension income”, and “social security income”. The Income Tax (Trading and Other Income) Act 2005 likewise abolished Schedules A, D, and F for income tax, replacing them with four categories: “trading income”, “property income”, “savings and investment income”, and “miscellaneous income”. Nevertheless, the two Acts of 2003 and 2005 specify an income tax charge applying to categories of income that look remarkably like subdivisions of the old schedules. In the Revenue view, the principle of exclusivity of income tax schedules continues to apply to the new categories of income. Schedules A, D, and F have been retained for corporation tax purposes.

Subjects: Law.

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