Calculating profits + VAT

Question 1

Who calculates trading profits?

Answer 1

Companies, partnerships, sole traders

Question 2

Formula for trading profits

Answer 2

Trading profit = chargeable receipts - deductible expenditure - capital allowances

Question 3

Chargeable receipts definition

Answer 3

Income from trading (sale of goods/services)- must be recurring, NOT capital

Question 4

Deductible expenditure definition

Answer 4

Expenditure of income nature incurred wholly and exclusively for trade (essentially anything that’s a repeat expense)

Question 5

Deductible expenditure examples

Answer 5

• salaries,
• rent on premises,
• utility bills,
• stock purchases,
• contributions to employee pension schemes,
• interest payments on loans…

Question 6

Capital allowances definition + types

Answer 6

Allowed deduction of proportion of cost of capital items
1. writing down allowance (WDA)
2. annual investment allowance (AIA)
3. full expensing- companies only!

Question 7

Writing down allowance (WDA)

Answer 7

WDA = 18% of value of plant + machinery at start of financial year

So, subtract written down value from chargeable receipts!

Question 8

Annual investment allowance (AIA)

Answer 8

AIA = whole cost of plant + machinery bought in that accounting period (new/2nd hand)
BUT: AIA max. 1m

Question 9

Full expensing

Answer 9

= deducting whole cost of plant + machinery bought in that accounting period
ONLY applies to COMPANIES
Assets must be brand NEW

Question 10

Reliefs for trading losses for unincorporated businesses: list

Answer 10

• start-up loss relief (if loss made in first 4 years)
• carry-across/1-year carry-back relief,
• set-off against capital gains
• carry-forward relief (can carry forward indefinitely)
• carry-back of terminal trading losses (losses in final 12 months carried back for max. 3 years)
• carry-forward relief on incorporation of business (can carry forward indefinitely)

Question 11

Standard rate of VAT

Answer 11

20%

Question 11

Caps on start-up + carry-across reliefs

Answer 11

Capped at either 50,000, or 25% of person’s income in tax year for which relief claimed (whichever is larger)

Question 12

VAT is charged on…

Answer 12

any supply of goods/services made in the UK where it’s a taxable supply made by a taxable person in the course/furtherance of any business carried on by him

Question 13

When to pay VAT + how much

Answer 13

Pay max. 1 month after end of quarter

VAT to be paid = output tax - input tax

Question 14

Zero-rated vs exempt VAT supplies

Answer 14

Zero-rated: supplier can claim input tax
Exempt: supplier cannot reclaim input tax

Question 15

Who must register for VAT?

Answer 15

Anyone making taxable supplies worth over 90,000 in last 12 months (anyone else can register voluntarily)