Business Income Tax

Question 1

Indicate whether the following business expenses are allowable or disallowable;

• Capital Expenditure
• Depreciation
• General Provisions
• Client entertaining
• Staff entertaining
• Small donations to local charities
• Donation to national charities
• Interest on late payment of tax
• Leased cars with CO2 emissions <50g/km
• Leased cars with CO2 emissions >50g/km

Answer 1

Allowable

• Staff entertaining
• Small donations to local charities
• Leased cars with CO2 emissions <50g/km

Disallowable

• Capital Expenditure
• Depreciation
• General Provisions
• Client entertaining
• Donation to national charities
• Interest on late payment of tax
• Leased cars with CO2 emissions >50g/km (15% lease price is disallowable)

Question 2

Is pre-trading expenditure allowable

Answer 2

Yes, if it was incurred within 7Y of starting to trade and is not disallowable

Question 3

What are the opening year rules?

Answer 3

Date of commencement -> End of tax year

Question 4

What is the current year basis?

Answer 4

Tax the profits of the 12 month accounting period ending in the tax year

Question 5

What are the second year rules regarding basis period and TTP?

Answer 5

1. If period ends in tax year and is 12 m long, apply CYB
2. If period ends in tax year and is < 12m long, tax first 12m from starting to trade
3. If period ends in tax year and is > 12m long, tax 12m to AP end date
4. If no period ends in tax year, tax 12m during tax year

Question 6

a) When will a change of accounting date be automatically accepted by HMRC?

b) If outside of this, what conditions need to be fulfilled before HMRC will change an accounting date?

Answer 6

a) A chnage of accounting date will be automatically accpeted by HMRC within the first three tax years of a business

b)
1. Notify HMRC of change by 31 Jan following the end of the tax year of change
2. POA resulting from the change must not > 6m
3. No prior change within 5Y, unless genuine reasons for change

Question 7

What would happen if there was a change in accounting date, so that the period ended in tax year 22/23 was 5 months long?

Answer 7

5 months of that profit would be taxed + 7 months of PY profit (overlap profit) as 12 moths of profit needs to be taxed in an accounting period

Question 8

What would happen if there was a change in accounting date, so that the period ended in tax year 22/23 was 13 months long and there was 3 moths of overlap profit from OY rules?

Answer 8

1 month of overlap profit could be deucted from the 13m profit figure in 22/23

Question 9

What would happen if there is no period of account ending in the tax year 22/23? Imagine period of account is 17m long
How will this impact 23/24?

Answer 9

There will be a long period of account that ends in 23/24. 12/17 of this should be taxed in 23/24

For 22/23 the remaining profit is taxed in this year (5/17). As 12m needs to be taxed each tax year, the 7m needs to be taxed out of 21/22 profit, creating overlap

Question 10

What is the maximum AIA within (capital allowances calculations) per year?

Is it time apportioned?

Answer 10

£1,000,000

Yes, it is time apportioned

Cannot be used against cars

Question 11

When should something be placed in the special rate pool for capital allowance calculations?

What is the WDA on the special rate pool?

Answer 11

Something is placed in the 6% special rate pool if;
* Cars with emissions of > 50g/km
* Integral features (List in hardmans)
* Long life assets (> 25Y and expenditure > £100,000/12m)

Question 12

If a business is VAT registered, should the VAT inclusive or excusive amount be included in the capital allowances computations?

Answer 12

Exclusive as the VAT is recoverable

Unless VAT is blocked on that item, such as cars

Question 13

Are WDA time apportioned? (Sole traders and partnerships)

Answer 13

Yes

Question 14

When can cars go into main pool?

Answer 14

If emissions are 1 - 50g/km
Cars with 0 emissions would get FYA