Business income

Question 1

Badges of trade?

Answer 1

Profit seeking motive, frequency/n.o similar transactions, modifcation of asset to sell, nature of asset, financing arrangements, connection with existing trade, reason for acq/sale etc etc

Question 2

Which sort of legal fees are disallowed?

Answer 2

in relation to acqn/disposal of a capital asset (NOT a short lease)

Question 3

replacing part of an asset is what?

Answer 3

A repair

Question 4

when do wage costs need to be added back?

Answer 4

if not paid within 9 months of the YE

Question 5

if income exceeds 1,000?

Answer 5

Would in the first instance be taxed as normal (would need to elect for the trading allowance to apply).

Question 6

Max amount of termination payment deductible for a business?

Answer 6

4x statutory redundancy level

Question 7

when are ‘training costs’ not allowable?

Answer 7

when they provide an enduring benefit (e.g training to be an account because is the start of the business)

Question 8

Is travel to ‘any place of work’ allowable?

Answer 8

not for sole traders-inly business travel is allowable

Question 9

If income/expenses arise post-cessation?

Answer 9

relief available for them as if trade had continued and income taxed as usual (only up to 6 years following cessation of trade)

Question 10

Change under basis period reform?

Answer 10

Must apportion so that profits are for the tax year (not the accounting period)

Question 11

Under basis reform if CANNOT get the additional profit to apportion (i.e think andrew nealon)?

Answer 11

Use provisional figures and then amend by the amendment deadline

Question 12

What must be deducted in the final year of trade?

Answer 12

Overlap profits (they would be given to you in the question)

Question 13

how long with transition profits be spread over?

Answer 13

5 year period commencing 2023/24 (see page 276 for steps and to highlight in the ledge) If cease trading they will all be treated as arising in last year. Can elect for more than 1/5th of the profits to be elected in each year (should elect by anniversary of 31 an following tax year)

Question 14

Practical rules with transition profits?

Answer 14

need to prepare a tax comp with and without them to get the tax on those profits and then add this to the tax comp (this is so that means testing benefits etc wont be impacted)

Question 15

where to current year losses get deducted from?

Answer 15

AFTER deductible payments but before PA is deducted. REMEMBER loss can be set back 1 year. REMEMBER cannot save personal allowances. Need to think about the best way to relieve losses to be tax efficient.

Question 16

What are things to consider in loss planning?

Answer 16

marginal rates of tax it will be set against, whether a PA will be wasted, timing (set back or CY better than future as cashflow advantage).

Question 17

what can happen to losses?

Answer 17

can be set against capital gains if not fully relieved against income

Question 18

what can profits be set against?

Answer 18

future profits of the same trade (this type of relief is a ‘last resort’ as delays the reliev

Question 19

what is the restriction for using losses in the CY/CB?

Answer 19

greater of:
50k or
25% of adjusted total income (adjusted income is their total income less the amount of personal pension contributions paid). Also applies to qualifying loan interest.

Question 20

What is ‘early trade loss relief claim’?

Answer 20

Available in first 4 years of trading: carry back to the three preceding tax years on a FIFO basis. Claim must be made by anniversary 31 jan. NO EXTENSTION can be made in respect of capital gains for those years. This is a NET INCOME CLAIM= losses set against net income rather than just trading profits

Question 21

How can closing year losses be relieved?

Answer 21

‘terminal loss relief’=losses carried back for 3 preceding tax years from year of cessation. this is NOT a net income claim=only against trading profits. Overlap profits are added to any losses arising in the final tax year.