Business Tax - Chapters 1 - 12 Flashcards
What is the definition of a trade?
Legislation defines this as “any venture in the nature of trade”
CTA 2009, s.35
What are the eight “badges of trade”?
- Profit seeking motive
- Frequency of transactions
- How was the asset acquired
- How long was the asset held
- Was there any modifications to the asset
- Are there any financing arrangements
- What is the nature of the asset
- Is there a connection to an existing trade in the business
What questions should we ask in regards to land transactions?
- Is the taxpayer investing or dealing?
- Is the taxpayer a resident in the property or a developer?
What are the three conditions to meet for provisions to be an allowable expense?
- Obligation to make a payment as a result of a past event.
- It is probable that a payment will be required to settle the obligation.
- A reliable estimate can be made of the amount of the obligation.
When can rental income from the temporary letting of surplus business accomodation be treated as trade?
(3 conditions)
- The premises being let are temporarily surplus to requirements;
- The let premises are part of a building bin which another part is being used in the trade;
- The letting receipts are relatively small.
When are legal fees an allowable trading expense?
On renewal of a short lease (i.e <50 years)
Are there any restrictions on redundancy payments? If so, what are they?
There are no restrictions where the trade continues.
Where a trade ceases, only 4 x statutory redundancy payments are allowable.
When does pension spreading apply? And how do you calculate the amount that needs spreading?
Spreading will apply where contributions paid in the current period exceed 210% of contributions paid in the previous period.
The amount subject to spreading is the amount of contributions that exceed 110% of the contributions in the previous period.
What is the summarised relevant excess contribution table?
Less than £500k - No spreading
Between £500k and £999,999 - 1/2 in current period, 1/2 in next period
Between £1m and £1,999,999 - 1/3 in current period and each of next two periods
More than 2m - 1/4 in current period and each of next three periods
FA 2004, s.197
If stock is sold on the cessation or transfer of a trade to a:
1. Non-UK Trader
2. Unconnected UK Trader
3. Connected UK Trader
How should the stock be valued?
- For a non-UK trader stock should be valued at market value.
- For an unconnected UK trader stock should be valued at the actual sales consideration.
- For a connected UK trader stock should be valued at market value. However in this case, a joint election can be made by the buyer and seller to substitute the higher of either cost or actual consideration in place of market value.
Which of the following need to be apportioned for short and long period of accounts:
1. Annual Investment Allowance (AIA);
2. First Year Allowances (FYA);
3. Writing Down Allowances (WDAs).
Both AIA and WDAs need to be apportioned by n/12 (where n is the number of months in accounting period).
FYAs do not get apportioned.
When is expenditure normally “incurred” for capital allowances purposes?
What is the exeptiontion to the rule?
When the obligation becomes unconditional (usually the delivery date).
The exeption is when there is a gap of more than four months between delivery and payment, then the expenditure is not “incurred” until the date on which payment is required to be made.
What date is expenditure “incurred” where plant & machinery is constructed?
What is the exeption to this rule?
Expenditure is “incurred” on the date the work is certified.
The exeption is when P&M is constructed before the year end and the work is certified within one month after the year end, the expenditure is treated as immediately before the year end.
Name examples of expenditure allocated to special rate pool?
- Integral features
- Long-life assets
- Thermal insulation
- Cars (CO2 emissions > 50 g/km)
- Solar panels
Define of a long-life asset?
Assets with a life of at least 25 years where more than £100k is spent on such assets in a 12 month period.
£100k is time-apportioned for the length of accounting period and also adjusted for the number of associated companies.
What is a long-funding lease?
Where a leasee takes out a funding lease of P&M for more than 7 years then capital allowances can be claimed as if they own the P&M.
What is a funding lease?
A funding lease is one that meets one or more of the following tests:
- The finance lease test (i.e. is accounted for as a finance lease);
- The lease payments test (P.V of minimum lease payments is 80% or more of market value of the P&M);
- The useful economic test (The length of the lease exceeds 65% of the remaining UEL of the P&M).
What buildings qualify for SBAs?
- New buildings and structures;
- Renovation/conversion of an existing building.
Where construction takes place on/after 29 October 2018 and the building is used for non-residential purposes.
What is the SBA calculation?
Qualifying expenditure x 3% per annum
Time-apportioned in AP of contruction/purchase, sale and short APs.
What does qualifying expenditure include and exclude for SBAs?
Includes:
- Construction costs;
- Land preparation costs;
- Demolition costs.
Excludes:
- Cost of the land (Including legal fees and stamp duty land tax);
- Cost of planning permission.
What is eligible for SBA when a building is purchased unused from a developer?
What is eligible for SBA when a building is purchased unused from someone other than a developer?
If purchased from a developer, the purchase price is used.
If purchased from someone other than the developer, then the lower of the price paid for the building (excluding land) and the qualifying construction costs are used.
What date is the SBA given from?
The later of:
- The date the expenditure is incurred; or
- The date the building is first brought into business use.
How do we calculate a gain/loss on the sale of a building qualifying for SBAs?
We must add the total SBAs claimed to the consideration received in the calculation of the chargeable gain/loss.
What are the four conditions that must be met for capital allowances anti-avoidance legislation to apply?
- A company must carry on a qualifying activity either on its own or in partnership with others.
- That company (or partnership) must have an excess of capital allowances.
- There must be a ‘qualifying change’ in relation to the company.
- The ‘qualifying change’ meets one of the limiting conditions.
