Business tax Flashcards
Legal difference in ownership between assets on finance lease, operating lease, and HP
Finance and operating leased assets have no legal ownership. However, in a finance lease, lessee bears all risks/rewards but in operating it is a short term rental agreement only.
HP assets have legal ownership and capable of being acquired (after period of Hire).
Capital Allowances implications on cessation of a business
Balancing adjustments arise in each pool; assets kept for private use are ‘disposed’ at their market value;
no WDAs, FYAs or AIAs in final AP.
Is CA allowable on operating, finance and HP leased assets?
Only on HP assets on the cash price (18% / 6% for cars).
What is the CAA s.266 election and impact?
Where on a cessation of trade the vendor sells their business to a ‘connected person’, the two parties can jointly elect to transfer all plant and machinery at TWDV (avoiding balancing charge). Commonly seen when a sole trader incorporates their business by transferring it to a company they control.
Effect is no AIA can be claimed by the company acquiring or FYA as assets have been used.
What is a partnership?
- Strict definition can be found within Partnership Act 1890 ‘the relationship which exists between persons carrying on a business in common with a view to profit’
-Working together in business, share profits and losses.
-Joint ownership is not sufficient, must be carrying on business in common.
-Partnership agreement should lay out how partnership should be governed.
What is the restriction on losses relieved against non-trading income for sole traders/partners?
Total relief which can be deducted cannot exceed:
- 50,000
- 25% of the adjusted total income (total income less gross pension contributions).
What claim is made to elect to transfer assets at TWDV rather than balancing charges? (partnership to company/cessation of trade)
s.266 CAA claim - elect to transfer assets at their TWDV.
No need to do this for LLP as no cessation of trade.
What are the 3 tests for disguised employment?
Disguised income - at least 80% of income is ‘disguised’ i.e fixed or not dependant on profitability of the firm.
No significant influence - member does not have control or influence over decisions.
No significant contribution - if at least 25% of the ‘disguised income’ is contributed to the firm, then test not met.
What is a s.72 loss relief claim?
Early trade loss relief; can carry back loss against net income of three preceding tax years (FIFO).
What is a s.71 loss relief claim?
Claim against capital gains, only AFTER s.64 CY/PY claim against net income
What is a s.83 loss relief claim?
Carry forward losses and set against future profits of the same trade.
What are the s.266 and s.198 elections for (incorporation)?
s.266 - on incorporation, an election can be made by connected persons in writing to HMRC (2 years from transfer) for the assets to be transferred at TWDV. Avoids balancing charges/
s.198 - election made in addition to s.266 where there are fixtures qualifying for CA - fixes the value of fixtures.
What is the stock election upon incorporation?
s.178 ITTOIA - transfer between connected persons for stock to be tf at higher of; acquisition value and amount stock was sold for.
Must be made anniversary of SA filing date.
When are Class 2 NICs payable?
31 Jan with the balancing payment from income tax via self-assessment
Pros and cons of receiving income as dividends?
Pro: no NICs, no PAYE withholding, dividend allowance of £1k tax free, rates lower than non-savings income
Cons: dividends not deductible, do not count as ‘earnings’ for pension purposes, no NICs reduces entitlement to state retirement (could pay voluntary Class 3); only payable if profit making
Legal fees for short lease - treatment in adj profits for sole traders?
Renewable: Allowable for short leases <50 years
New lease: capital so not allowed
Formula for working out employment income from lease premium?
Premium LESS 2% x premium x (n - 1) = employment income
Allowable deduction for trader = employment income / lease years
Rule on restricting lease payments on high emission cars for sole trader?
Disallow 15% of lease costs where emissions >50g/km.
NOT vans
Case for sole trader travel from home to office?
Samadian case - home is one of several places of business therefore costs of travel not deductible between home and office.
What is a sole trader taxable on?
Receipts of money or moneys worth
What are the 3 conditions that must be fulfilled to amount to ‘disguised employment’?
-80% of the income must be ‘fixed’ and independent on performance of company
-individual does not have control/influence over the LLP / or equal voting share in management
-no personal risk - contribution to LLP is less than 25% of the fixed income
Who do the disguised employment conditions apply to?
LLPs
Impact of reaching retirement age for NICs?
Do not pay Class 2 NICs after reaching retirement age.
Liable for Class 4 throughout entire tax year if not reached retirement age at beginning of year.
What is the standard basis for accounts preparation for businesses
The ‘going concern’ accruals basis (both sole trader and limited company).
Takes account of amounts received and paid, as well as future amounts receivable and payable within the year (not actually paid)
Business receipts threshold for cash basis to apply?
Less than 150k in a tax year, if over 300k then no longer applies
Impact of CAs under cash basis?
No CAs other than for cars purchased by business.
Expenses allowable where wholly and exclusively test met; subject to any personal use restriction
Treatment of following under the cash basis:
-goods taken for own use
-interest costs
-car leasing costs
Goods taken - the COST of good is disallowed
Interest costs - maximum of £500 of loan/interest can be deducted each period
Car leasing - all car leasing deductible without emission based restriction
Restriction on losses under cash basis?
Only carried forward against FUTURE trading income
What is the marginal relief fraction?
3/200 x (UL - Aug) x TTP/Aug
When should the SBA be applied from?
The later of the date the building is brought into use (production commences) or where the expenditure is incurred
What is the impact of duality of purpose?
The whole expense will be disallowed unless an apportionment can be made between the personal and business costs
Impact of McQueen case (sponsorship)?
Sponsorship is allowed where there is a direct correlation between sponsorship costs and gaining new clients.
Marketing advantage must be clear and successful (not vague)
When is staff entertaining allowable?
Where function is an annual party, all employees are invited, and the cost per head does no exceed £150
Acts for company and sole trader expenses in considering allowable deductions?
Company - CTA 09
Sole trader - ITTOIA 05
Costs for setting up share schemes - allowable?
Share schemes - not deductible as capital (enduring benefit)
Approved schemes (SIPs, CSOPs) allowable.
When must an appeal be made in response to a discovery assessment?
Within 30 days of the DA date of issue
When are business gifts allowed for a sole trader?
Total cost of all assets to same person in a year is not more than £50, bears business name and logo, and gift does not include food, drink or tobacco.
When is R&D relief available?
Where a project seeks to make a recognisable advance in science or technology, through the resolution of an uncertainty.
When does Test 1 of the annual maxima rules apply?
When the taxpayer either has more than one employment or has a self-employed trade (both Class 1 and 2 NICs).
As Class 2 is weekly - USE WEEKLY LIMITS first
What is the annual maximum compared to? (NICs)
Test 1 - the class 1 NICs actually paid to determine the amount of any Class 2 NICs payable or whether a refund of Class 1 is due.
Test 2 - the class 4 NICs payable
When does Test 2 of annual maxima apply?
When a taxpayer is both employed and self-employed so is liable o Classes 1,2,4. Determines the amount of Class 4 NICs payable. USE ANNUAL LIMITS first
Implications of entering into a PSA?
Allows employer to settle employee tax liability for minor or irreg benefits.
Class 1B is charged on grossed-up value of benefits included in PSA (benefit + income tax included in PSA) @ 13.8%
Due date for Class 1B NICs?
22 October following end of tax year if made electronic (or 19 Oct). Income tax payable same ime
How long does a long service award have to be to be exempt?
min 20 years
