Business Law And Practice: Calculating Profits And paying Tax

Question 1

What are the two kinds of profit a business can make?

Answer 1

-income (trading profit)
- capital (increase in asset value for example company building)

Question 3

Where are companies income profits taxed to?

Answer 3

• corporation tax

Question 4

Where are sole traders and general partnerships income profits taxed to?

Answer 4

• income tax

Question 5

What trading period must a business prepare accounts to show profit or loss?

Answer 5

• 12 months

Question 6

How are trading profits or losses calculated?

Answer 6

• £chargeable receipts - £deductible expenditure - capital allowances = trading loss or profit

Question 7

What are chargeable receipts?

Answer 7

• money received for a business providing services or sale of goods

Question 8

What is a deductible expenditure?

Answer 8

• an income nature incurred wholly and exclusively for trade, example (laptop purchased for work)

Question 9

What is income in nature?

Answer 9

• a cost a company incurres to sell at a profit for example stocks

Question 10

What are capital allowances?

Answer 10

• purchases made that are not considered income in nature can be purchased under capital allowances for example machinery as it’s not a monthly
  Purchase they would be making so it would not be income in nature

Question 11

What is a writing down allowance?

Answer 11

• a WDA allowance refers to the amount available to businesses to claim back on capital allowances this is 18% per year for each asset

Question 12

What is pooling?

Answer 12

• combining the overall value of the capital items to work out the value of the WDA allowance which is 18% a year

Question 13

What is the annual investment allowance for businesses?

Answer 13

• it allows businesses to claim back the entire cost of capital items up to £1million in one financial year anything over this will need to be claimed back under the WDA allowance of 18% per year

Question 14

What percentage of the cost of an asset can be deducted under the annual investment allowance?

Answer 14

• 100%

Question 15

What is start up tax relief?

Answer 15

• if business makes a loss the taxpayer can claim back that loss if there earnings it is available for the first four years

Question 16

What is Carry back relief?

Answer 16

• it allows the taxpayer to use any business loss from the current year to reduce taxable income from the previous year

Question 17

When must start up loss relief be claimed by?

Answer 17

• 31st of January following the end of the tax year

Question 18

What is Start-Up Loss Relief?

Answer 18

• Tax relief letting new businesses offset early losses against previous 4 year’s income for a tax refund.

Question 19

What rate is start up loss relief paid at?

Answer 19

• the same rate in which you paid on your tax that you are offsetting

Example: you made a loss of £10,000 in 22/23 tax year and paid 20% on earnings of £50,000 in 2021/22 tax year after carry back relief is applied you can claim a tax refund of £2000

Question 20

How quickly must anyone registered for vat pay it?

Answer 20

• must submit a return to HMRC and pay it within one month from the end of each quarter