2 - Trading Profits

Question 1

What is considered to be allowable expenditure?

Answer 1

Expenditure that is incurred wholly and exclusively for the purposes of trade

Question 2

What is considered to be non-trading income?

Answer 2

Investment income (interest, dividends or property rental income)
Interest on overpaid tax
Profits from sell of asset

Question 3

Are drawings/salary/income tax/NICs of owner allowable?

Answer 3

No these are dissallowable so add on

Question 4

Are staff costs allowable?

Answer 4

Yes

Question 5

Are entertaining costs allowable?

Answer 5

Only if entertaining staff

Question 6

Are gifts to customers allowable?

Answer 6

Only allowable if have advertsing on, cost less than £50 and are not food or tobacco. If not, full amount is added as this is dissallowable

Question 7

Are car leases allowable?

Answer 7

Fully allowable if <50g (if over 50g then we add on 15% of lease)

Question 8

Are legal fees to do with capital expenditure allowable?

Answer 8

No dissallowable

Question 9

Are legal fees to do with short term leases allowable?

Answer 9

No dissallowable UNLESS it is to do with a renewal of a SHORT TERM LEASE then it is allowable

Question 10

Are costs to do with setting up a website allowable?

Answer 10

No dissallowable as considered asset so capital expenditure

Question 11

Are advertsing and marketting costs allowable?

Answer 11

Yes

Question 12

Are fines to the owner allowable?

Answer 12

No

Question 13

Are fines to staff allowable?

Answer 13

Yes if do with business

Question 14

Are write off of loans to staff allowable?

Answer 14

No

Question 15

How many years is pre trading expenditure allowed?

Answer 15

7 years prior and is treated as incurred on the first day of trading if allowable

Question 16

What is capital expenditure is pre trading - is this allowed?

Answer 16

Yes will be added to capital allowances

Question 17

For capital allowances what section(s) of the table must we time apportion if short/long period?

Answer 17

The AIA and the WDA %

Question 18

What is the max annual allowance for AIA?

Answer 18

£1,000,000

Question 19

Can cars go in the AIA?

Answer 19

No

Question 20

Can lorries/vans go in the AIA?

Answer 20

Yes

Question 21

For capital allowances what is meant by a related business?

Answer 21

This is where the owner has multiple companies and therefore the AIA is split between these companies so they do not all get £1m allowance per annum. Can split anyway they like however.

Question 22

What do we fill up the AIA pool with first?

Answer 22

Special rate pool as this is at 6% so we get less CA each year, we can use the AIA to get instant 100% relief

Question 23

What is the main pool for and what is the WDA %?

Answer 23

This is for general plant and machinery + costs to get it in the building
This is also for cars <50kgm (as they go to the special pool if over 50g)
Lorries and vans go in main pool regardless (but AIA first)
18% WDA

Question 24

What is the special rate pool for and what is the WDA %?

Answer 24

This is for intengral features (heating systems/partitionwalls/lifts/moving floors
Dirty cars over 50g
Assets with life 25 years
6%

Question 25

What is the first year allowance pool?

Answer 25

For cars that have 0 emissions or are brand new

Question 26

What is the building and structure allowance?

Answer 26

If construction of a building goes ahead after 2018 the costs associated can go as an allowable expense in the TATP not in CA calcualtion.
Does not include professional costs
Pro rata.
Must be non residential building!!!
Rate is at 3% per annum to put as allowable

Question 27

What is the opening year loss rules?

Answer 27

If there is a loss in the first 4 years of trading we can allocate the loss beyond the normal current/prior year. We can allocate to the 3 previous years against total income.

Question 28

For normal trade losses where can we allocate these?

Answer 28

In current year all or nothing and against chargebale gains too all or nothing
same for prior year too = both of these are agaisnt total income
if carried forward goes against trading profits only

Question 29

How long can a trading loss be carried forward?

Answer 29

4 years

Question 30

What is the short life asset pool for?

Answer 30

Assets with life less than 8 years

Question 31

What is the WDA % of short life asset pool?

Answer 31

18%

Question 32

What is the perk of the short life asset pool whereby is the WDV is below a certain amount we can do something?

Answer 32

If WDV is below £1000 the tax payer can elect to write off the remaining balance. Theis £1,000 is pro rata for the period.

Question 33

What do 2 things do we exclude from the SBA allowance?

Answer 33

Land and anything that is used for living in (dwelling house)

Question 34

As there is no balancing charge for buildings that qualify for SBA when sold how do we deal with the disposal?

Answer 34

The person purchasing the building can claim the remaining 33 1/3 period of the SBA at 3%. When that is sold that amount is claimed back when a chargeable gain arises.

Question 35

If the business is VAT registered do we include the additions / disposal salesincluding VAT or excluding?

Answer 35

excluding VAT so the net figure. The only time we do not do this is if it is a new car, we do the vat inclusive figure as this type of vat is not recoverable.

Question 36

What is the max amount of trading loss that can be applied against total income in current/previous year?

Answer 36

Max loss is higher of £50,000 or 25% of ANI