Ch 21- New & Ongoing Unincorporated Businesses

Question 1

Disallowable expenditure (to add back)

Answer 1

-Private use % of expenses, depreciation etc.
-Client entertaining
-Client gifts (unless <£50, not food, drink, alcohol, tobacco, and must carry clear advertising)
-Donations to national charities (small local charities allowable)
-Fines (unless incurred by employee on business activities)
-Pre-trading expenditure Disallowable (unless could be used if trading and is incurred 7 yrs prior)

Question 2

Capital allowances- Differences between inc & unincorporated businesses

Answer 2

1) Private use assets- Adj WDA’s if (personal/business split. No private use adj in incorporated.
2) No enhanced CA’s (e.g super deductions & FYA’s for special rate pool assets). Allowable in inc.
3) Accounting period has to be 12 months. (Incorporated business can have a long period)

Question 3

Capital allowances for unincorporated businesses

Answer 3

100% FYA for NEW 0% emission cars and R&D capital expenditure
AIA- £1,000,000 (Allocate to SR pool,then short life assets, then Main pool
18% WDA (On Main pool)= P&M, F&F, All vehicles except high emission cars.
6%. WDA (On SR pool) = Long life assets >£100,000 with expected life >25 years (e.g lifts, systems)
SBA- New non-residential structures & buildings æ 3% SL each year. (Time apportion)

Allowances NOT ALLOWABLE in final accounting period

Question 4

Basis period of tax:
1st year (opening year rules)
2nd year
3rd year
4th year onwards

Answer 4

1st year= Start of trade to 5th April
2nd year= POA end in 2nd year? No (Actual year)/ Yes less 12m (1st 12 months) or more, last 12m.
3rd year= Tax last 12 months of long period
4th year= CYB

Question 5

Change of accounting date

Answer 5

HMRC will accept change of accounting date within 1st 3 years of trading.
Will also accept at any point after 3 years if no previous change within 5 years prior, and period not to exceed 18 months.

Question 6

Use of trading losses

Answer 6

Automatically carry forward loss to offset against first available trading profits (max- may lose PA)
Offset loss against total income in current &/or prior tax year.

Question 7

Opening year loss relief against total income

Answer 7

Losses arising in first 4years of trade can be carried back 3 years
May generate a refund and is an all or nothing relief so may waste personal allowance.