All Flashcards
What are capital allowances?
Form of depreciation for tax purposes. They are standard rates so less subjective than depreciation.
What are capital allowances deducted from?
Tax adjusted trading profits in place of deoreciation
What are capital allowance available on?
Plant and machinery- assets with which the business operates
Machinery- machines, motor vehicles, computers
Plant- fixtures and fittings
From case law what can capital allowances be applied to?
- Building alterations incidental to installation of plant and machinery
- licences to use computer software
Would a permenant wall between two room class as plant and machinery for capital allowances?
No
What are the 2 pools for capital allowances?
Private use asset pool and main/general pool
What is included in the private use pool for capital allowances?
For assets that are partly privately used by the business owner I.e. cars
- only business proportion can be claimed
What is included in the main/general pool for capital allowances?
All other assets not used privately by the business owner. This includes cars with CO2 50g/km and under purchased on for after 6 April 2021
What is the balance on each pool for capital allowances called?
Tax written down value (TWDV)
What are the 4 types of capital allowances?
- written down allowance (WDA)
- annual investment allowance (AIA)
- first year allowance (FYA)
- balancing adjustments
What is the WDA allowance value and how often is it available?
Available annually at 18%
- TWDV x 18%
- needs to be apportioned if it’s a short accounting period
What is the annual adjustment allowance (AIA) value and how often is it available?
- available on certain assets in the period of acquisition
- £1 million can be used for new / secondhand machinery
- cannot be used for cars
- £1 million would need to be apportioned if less or more than 12 months
- unused AIA is not carried forwards
What is the first year allowance and how often is it available?
- available on certain assets in the period of acquisition
- 100% on zero emission cars and charging points
What is the balancing adjustments capital allowance?
A balancing allowance or charge may arise in the period of disposal
What value will the capital allowances calculations give you?
- total allowances and these are deducted from the trading profit
What is important to remember when calculating WDAs and AIAS?
They are apportioned for short accounting periods
They are not apportioned by the length of ownership
If an item is sold from the main pool before giving, writing down allowances (WDA) for the period, deduct the lower of:
- disposal proceeds
- original cost
What is the small pool rules? (Capital allowances)
Balance in main pool is less than £1000 whole amount can be claimed
- not available for private use assets
Who can claim private use assets capital allowances?
Sole traders only
How is the private use assets capital allowance shown in the pro forma?
Separate column with the normal capital allowance calculate but only with the business proportion claimed
When a private asset is sold which value should you deduct?
The lower of:
1. Disposal proceeds
2. Original cost
What happens when the disposal value of a private asset is equal to the TWDV b/f when calculating capital allowances?
Disposal value exceeds TWDV b/f= balancing charge will apply
TWDV b/f exceeds disposal values= balancing allowances is given
In terms of capital allowances what happens when a business is permenantly discontinued?
No AIA, WDA, FYA is available in the final year of account
Instead of the normal capital allowances computation:
- add in any additions made in final period
- deduct any disposals made in final period
- calculating a balancing adjustment (bring down to 0)
Who pays class 2 and 4 national insurance?
Sole traders and partners
- aged 16 to pension age (66)
How is class 2 national insurance calculated?
Flat rate £3.45 per week (in tax tables)
What is class 4 national insurance on?
Tax adjusted trading profits assessed for income tax
When must a trader register with HMRC for class 2 to NIC?
By 31 January following the end of the tax year
When must a trader register for class 4 NIC?
By 5 October following end of tax year
How do you round the numbers when calculating NIC?
To the nearest pound at every stage of workings
Who needs to make payments on account?
Self employed need to make payments on account for income tax and class 4 NICS
What are the relevant payments on account dates for the 2023/24 tax year?
31 January 2024
31 July 2024
31 January 2025- final payment plus fist POA for 2024/25 (also the filing date)
How are POA (payment on account) calculated?
50% of the previous year payable by self assessment. Eg. 2023/24 POA is based on 2022/23 tax year
When penalties relate to balancing payments?
Penalties can be charged on the late payment of balancing payments under self assessment (but not payments on account)
- interest can also be charged from due date to when payment is made
What to remember when calculating late payments in February 2024
It’s a leap year so 29 days
Who pays class 1 primary national insurance and what is it on?
Employees aged 16-66
Paid on cash earning before deductions, plus vouchers exchangeable for cash, good or services
Who pays class 1 secondary national insurance and what is it on?
Employers aged 16 onwards
Paid on cash earnings (before deductions) plus vouchers exchangeable for cash, goods or services
When is class 1 NIC payable?
- payable under PAYE 19th of each month
- this is extended to 22nd for electronic payments
- 250 + employers must pay electronically
- can be paid quarterly if average monthly total PAYE is less than 1500
What is the employment allowance and who is it available to?
Employers receive 5000 to reduce their class 1 secondary NIC liability
This is per employer not per employee
Who is the employment allowance not allowed to? (NIC)
- companies with a single director
- those with a class 1 secondary NIC liability greater than £100,000 in the previous tax year
What is Class 1A NIC paid on?
By employers only on value of taxable benefits excluding vouchers exchangeable for goods and services (which are liable for class 1)
What are the 3 tax year basis rules for taxing a sole trader?
- commencement of trade
- ongoing business
- cessation of trade
When a sole trader begins trading when are they taxed?
- tax year in which the trade starts
- tax adjusted profits are apportioned from date business starts trading to end of tax year
- if they trade starts close to start of next tax year (1-5 April) trade is treated as starting in following year
When calculating when taxable trading profits for a sole trader what do you need to remember
Calculate it using the tax year 6 April 2023- 5 April 2024 and adjust the trading profits accordingly
From what dates will a sole trader be taxed in the year they stop trading?
From 6 April in the tax year to when they stop trading
When adjusting sole traders accounting periods to calculate the tax year what dates can be used?
Usually from 6 April to 5th April
But if accounting period ends between 31 march - 4 April this is allowed without having to adjust
How should you think of partnerships when taxing them
Treat them like sole traders but each of them must be taxed indivually
Do companies pay class 4 NIC
No
Are secondary class 1 NIC paid on cars
No
What makes a company a resident in the UK
Incorporated in the UK or centrally managed and controlled in the UK
What is the total income and gains of a company known as
Taxable total profits (TTP)
What is the accounting period for corporation tax purposes
Usually companies period of accounts (cannot exceed 12 months)
When does an accounting period start for corporation tax purposes?
When company starts to trade (or received income chargeable to corporation tax) OR
When the previous accounting period ends
When does an accounting period end for corporation tax purposes?
12 months after beginning of the accounting period or if sooner
- end of company’s period of account or
-when the company stops trading
how are dividends treated when calculating corporation tax?
not allowable deductions form profit
how do you calculate adjusted trading profit for corporate tax purposes?
1 net profit per accounts
add back- disallowed expenditure (i.e. depreciation)
take off- capital allowances and income in accounts not taxable as trading income
what adjustment would be made when calculating corporation tax on appropriatetion of profits to directors?
no adjustments need to be made
When calculating adjusted trading profits for corporation tax what would need to be added back in this situation:
-Legal charges which include:
- debt collection
- staff service agreements
- in connection with lease of new office premises
in connection with lease of new office premesis would need to be added back
When calculating adjusted trading profits for corporation tax what would need to be added back in this situation:
Impaired debts which includes:
- loan to form employees written off
increase in provision of impaired debts
Loan to former employee written off would need to be added back as this is not a trade debt
When calculating adjusted trading profits for corporation tax what would need to be added back in this situation:
in relation to Repairs:
- repainitng
- new office furniture
new office furniture would need to be added back as capital allowances is claimed instead
what are capital allowances?
capital allowances are deducted from tax adjusted trading profits to give trading income which is included in the corporation tax computation
- depreciation add back
- capital allowances deducted
is there a private use adjustment for capital allowances?
No
how are capital allowances given to companies
given for an accounting period
- if longer than 12 months needs to be apportioned WDA and AIA for period after 12 months
when calculating capital allowances what would qualify for AIA?
- second hand machinary
when calculating capital allowances what would qualify for FYA
zero emission car
new and unused plant and machinery from 1 April 2023 to 31 March 2026
what happens when a company is disposing of an asset which was subject to full expensing?
a balancing charge will arise equal to the disposal value of the asset
(non trading income and trades)
How is rental income on UK properties taxed?
taxable on an accrual basis (period it relates to rather than when it is paid)
is interest payable on a load to acquire a new or improve a proerty allowable expenditure?
No- so needs to be added back
- it follows the loan relationship rules instead
what is the loan relationship rule
determines whether interest payable/ receivable is classified as trading or non trading
how do you treat allowable expenditure
deduct it (this is usually deduced unlesss the question says nothing has been deducted)
how do you treat disallowable expenditure
add back
how is interest which is trading or non treading treated?
Trading= allowable expenditure (part of trading income)
Non-trading= allowable or taxable as part of NTLR (non trade loan relationships)
What are the three steps to calculating corporation tax?
- Calculate TTP
- calculate argumented profits
- decide what rate to tax at
How do you calculate argumented profits?
TTP + exempt ABGH distributions= argumented profits
When applying corporation tax what number are you taxing?
TTP (total taxable profit)
What are exempt ABGH distributions?
Dividends received from other companies (UK and overseas). Dividends received from 51% subsidiaries are not included
What we the rules with charity donations and corporation tax?
Deduct them
Called qualifitinv charitable dontations (QCD)
no grossing up is required.
What happens when calculating corporation tax and argumented profits are between the upper (250,000 @ 25%) and lower (50,000 @ 19%) limit?
Marginal relief calculation
(250,000 - AP) X (N/AP) X SF
AP= augmented profits
N = taxable total profits
SF = standard fraction for marginal relief ( 3/200)
What must you remember for the corporation tax upper and lower limits.?
They need to be adjusted for accounting period longer or shorter than 12 months
What do I need to remember about associated companies when calculating corporation tax?
When a company is under control of another (control equal 50% or more shares)
- if a company is brought or sold in an accounting period it is associated for the whole 12 months for tax purposes
- uk and overseas companies are included (dormant aren’t)
- when calculating corporation tax divide upper and lower limited by number of associated companies
What is the argumented profits limited when calculating corporation tax payment dates?
1.5 mil- need to remember to divide this number by number of associated companies
When must a company register with HMRC for corporation tax?
Within 3 months of the start of its first accounting period
Corporation tax: HMRC have the right to amend obvious errors within how long of actual filing date?
9 months
Corporation tax: how long do HMRC have to submit an enquiry?
- 12 months after actual filing date if on time
- 12 months plus quarter day following submission if late
- quarters are 31 jan, 30 April, 31 July and 31 oct.
Corporation tax: how long does a company have to amend a return?
12months of due filing date
Corporation tax how long does a company have to claim overpayment relief
4 years of end of accounting period
How long must corporation tax records be kept?
6 years from end of accounting period
How long must income tax and capital gains tax records be kept for?
5 years from 31 January following the end of the tax year for business records
How long must income tax and capital gains tax records be kept for (personal)?
1 year from 31 January following the end of the tax year
How long must VAT records be held for
6 years
Who is responsible in large companies for certifying each year that the companies accounting systems can produce accurate tax information?
Senior accounting officer (SAO)
Penalty of £5000
What the remember with interest overpaid corporation tax and late corporation tax?
Repayment interest (paid by HMRC on overpaid CT)
- interest runs from later of due date, actual payment to date of repayment
- taxable as non trading loan relationship income
Late payment interest
- automatically charge
- deduct table as non trading loan relationship
- runs from day after due day to day paid
