business income tax

Question 1

List the 9 badges of trade

Answer 1

• profit seeking motive
• number of transactions
• nature of the asset
• existence of similar trading transactions or interests
• changes to the asset
• the wasy the sale was carried out
• source of finance
• method of acquisition
• interval of time between purchase and sale

Question 2

when is pre trading expenditure allowed…

Answer 2

incurred within 7 years of commencement of trade and (obv) would’ve been allowance at the time

Question 3

a change of accounting date wthin the first _______ years of trading will be automatically accepted

Answer 3

3 years

Question 4

conditions for change of accounting date

Answer 4

notify hmrc by the 31 jan following the end of the tax year of change
period of accoutning reuslting from the trade must not exceed 18 months
normally not allowed if there has been a change in the last 5 years unless for geniune commercial reasons

Question 5

what is a cfwd loss set against

Answer 5

future profits of the same trade

Question 6

what is automatic?

Answer 6

cfwd

Question 7

condition for current yr and prior year?

Answer 7

must carry on with view to making profit

Question 8

what must be offset before gains losses can be used against gains

Answer 8

current year/pervious year

Question 9

loss in first four tax years

Answer 9

carry back to previous 3 years on a fifo basis

Question 10

terminal loss relief on cessation

Answer 10

set against trading profits of same trade

carry back previous 3 years in LIFO basis

Question 11

time limit for claim to terminal loss relief

Answer 11

within 4 years of the end of the last tax year that the company operated

Question 12

cfwd claim

Answer 12

need to agree the amount of loss wihtin 4 years of the end of the tax year in which loss arose

Question 13

current/prior year, gains, loss in first 4 tax years- deadline for claims

Answer 13

within 12 months from 31 jan following the end of the tax year in which the loss arose- jan 23 for 20/21

Question 14

which two losses have restrictions?

Answer 14

any set against total income- loss in first 4 tax years and

current/prior year.

Question 15

what is the loss restriction against non trading income?

Answer 15

50000 and 25% of ANI (ani is total income plus amounts deducted under payroll giving scehmes less grossed up pension contributions)

Question 16

what is a non active trader?

Answer 16

someone who spends less than 10 hours per week working in the business- restricted to 25,000 against total income

Question 17

whats different about partnerships?

Answer 17

each partner is dealt with separetely= e.g if a partner is leaving they get terminal loss relief

Question 18

non active traders in partnerships

Answer 18

sideways loss relief restricted to… (in first 4 years) partners capital contirbution subject to a maximum of 25000 per annum

Question 19

salaried members of an llp

Answer 19

treated as employees rather than partners

Question 20

restriction for LLP partners…

Answer 20

loss cannot exceed amount of capital contribution

Question 21

what is preferred method of loss relief?

Answer 21

carry back as immediate cash benefit

Question 22

who can use cash basis?

Answer 22

receipts for tax year which do not exceed 150000

must leave when receipts exceed 300000

Question 23

what must a trader using cash basis use?

Answer 23

vat cash accounting scheme

Question 24

rule for loans under cash basis

Answer 24

interest deductible up to 500 for 12 month period

Question 25

car leasing rules under cash basis

Answer 25

fully deductible

Question 26

if trading ceases to trade using cash basis

Answer 26

value of stock and wip is treated as a taxable receipt in the final period of account

Question 27

drawings -cb

Answer 27

just and reasonable amount

Question 28

difference between cb for prop income and t income

Answer 28

prop income is automatic, trading income need to be an election

Question 29

adjustment when beginning to use the cash basis:

Answer 29

• an adjustment income/expense must be calced so that things are not double-counted
  deduction from trading profits given for the balance on ca pool at the end of the previous year (not cars, land and non depn assets)
  fixed rate mileage scheme must continue to be used

Question 30

adjustment when leaving cash basis

Answer 30

• adjustments to income and expenditure to prevent double counting
• unrelieved capital expenditure (e.g assets acquired under hire purchase where payment is still to be made)- allocated to ca pool in the next accounting period