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