business income tax Flashcards
List the 9 badges of trade
- 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
when is pre trading expenditure allowed…
incurred within 7 years of commencement of trade and (obv) would’ve been allowance at the time
a change of accounting date wthin the first _______ years of trading will be automatically accepted
3 years
conditions for change of accounting date
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
what is a cfwd loss set against
future profits of the same trade
what is automatic?
cfwd
condition for current yr and prior year?
must carry on with view to making profit
what must be offset before gains losses can be used against gains
current year/pervious year
loss in first four tax years
carry back to previous 3 years on a fifo basis
terminal loss relief on cessation
set against trading profits of same trade
carry back previous 3 years in LIFO basis
time limit for claim to terminal loss relief
within 4 years of the end of the last tax year that the company operated
cfwd claim
need to agree the amount of loss wihtin 4 years of the end of the tax year in which loss arose
current/prior year, gains, loss in first 4 tax years- deadline for claims
within 12 months from 31 jan following the end of the tax year in which the loss arose- jan 23 for 20/21
which two losses have restrictions?
any set against total income- loss in first 4 tax years and
current/prior year.
what is the loss restriction against non trading income?
50000 and 25% of ANI (ani is total income plus amounts deducted under payroll giving scehmes less grossed up pension contributions)
what is a non active trader?
someone who spends less than 10 hours per week working in the business- restricted to 25,000 against total income
whats different about partnerships?
each partner is dealt with separetely= e.g if a partner is leaving they get terminal loss relief
non active traders in partnerships
sideways loss relief restricted to… (in first 4 years) partners capital contirbution subject to a maximum of 25000 per annum
salaried members of an llp
treated as employees rather than partners
restriction for LLP partners…
loss cannot exceed amount of capital contribution
what is preferred method of loss relief?
carry back as immediate cash benefit
who can use cash basis?
receipts for tax year which do not exceed 150000
must leave when receipts exceed 300000
what must a trader using cash basis use?
vat cash accounting scheme
rule for loans under cash basis
interest deductible up to 500 for 12 month period
car leasing rules under cash basis
fully deductible
if trading ceases to trade using cash basis
value of stock and wip is treated as a taxable receipt in the final period of account
drawings -cb
just and reasonable amount
difference between cb for prop income and t income
prop income is automatic, trading income need to be an election
adjustment when beginning to use the cash basis:
- 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
adjustment when leaving cash basis
- 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
