BL - 7 Trading profits and VAT

Question 1

What is the basic formula to calculate trading profits?

Answer 1

TRADING PROFITS =
Chargeable receipts - deductible expenses - capital allowances

Question 2

What are chargeable receipts?

Answer 2

Income form sales or services

Question 3

What are deductible expenses?

Answer 3

Expenses can be deducted when they are:
- not prohibited by statute (e.g. business entertainment)
- an income of nature (not capital)
- incurred wholly and exclusively for the purposes of the trade

Question 4

What are capital allowances?

Answer 4

Deductible costs of plant and machinery

Question 5

What are plant and machinery?

Answer 5

Assets used to help carry on the business (e.g. office equipment)

Question 6

What types of capital allowances may be claimed?

Answer 6

(a) writing down allowance
(b) annual investment allowance

Question 7

What is the writing down allowance?

Answer 7

18% of the total value of plant an machinery in each financial year may be deducted from chargeable receipts

Question 8

What is pooling?

Answer 8

It means grouping all the writing down allowance together.

Question 9

What is the benefit of pooling?

Answer 9

It allows for simpler calculation. When an asset is sold, the proceeds are deducted from the total value of the pool.

Question 10

What is the annual investment allowance?

Answer 10

Up to a cap of 1M, a business can deduct the entire cost of newly purchased plant and machinery in that accounting period from chargeable receipts

Question 11

What tax will be chargeable if a business makes a trading loss during an accounting period?

Answer 11

Nil

Question 12

What tax reliefs are available when a company incurs a loss?

Answer 12

• Start-up loss relief/early trade relief
• carry across/back one year relief / trade loss relief against general income
• carry forward relief
• terminal loss relief
• carry forward relief on incorporation of business

Question 13

What is start-up loss / early trade losses relief?

Answer 13

Losses made during the first four years of trade may be set off against any other income in the three tax years before the loss

Question 14

Is there a cap to start-up loss / early trade losses relief?

Answer 14

Yes

Question 15

What is carry across/back one year relief / trade loss relief against general income?

Answer 15

A loss made from a business may be deducted from any other income taxable
(a) in that year (carry across)
and/or
(b) in the preceding tax year

Question 16

Can a business that only sell zero-rated supplies deduct VAT for items they purchase?

Answer 16

Yes

Question 17

Is there a cap on carry across/back one year relief / trade loss relief against general income?

Answer 17

Yes

Question 18

What is the carry forward relief?

Answer 18

A loss may be deducted from future income profits of the same trade

Question 19

Is there a cap for carry forward relief?

Answer 19

No

Question 20

What is a terminal loss relief?

Answer 20

A loss made during the last year of trade may be set off against trading profits connected to the same trade in the final tax year and in the three tax years prior to that final tax year.

Question 21

What is carry forward relief on incorporation of business?

Answer 21

Trading losses can be set off against any income received from the company when an unincorporated business is transferred to a company wholly or mainly in return for shares (shares at least 80%)

Question 22

What is VAT?

Answer 22

It is a tax charged on any supply of goods or services made in the UK

Question 23

What is a taxable supply?

Answer 23

Any supply unless it is tax exempt

Question 24

Can a business that only sell exempted goods/services deduct VAT for items they purchase?

Answer 24

No

Question 25

What are examples of tax exempt supplies?

Answer 25

• education
• health services
• residential land
• insurance

Question 26

Who is a taxable person?

Answer 26

It is someone who makes taxable supplies and he must register for VAT with HMRC

Question 27

What is the threshold for VAT registration

Answer 27

85k in the previous year

Question 28

Is voluntary VAT registration possible?

Answer 28

Yes

Question 29

What are zero-rated supplies?

Answer 29

Goods, for which the VAT rate is

(a) 0% (e.g. non-catering food, books, water)

(b) 5% (e.g. domestic fuel)

Question 30

Can a business that only sell exempted goods/services register for VAT?

Answer 30

No

Question 31

Can a business that only sell zero-rated supplies register for VAT?

Answer 31

Yes

Question 32

What is the time limit for a VAT return?

Answer 32

One month from the end of each quarter