Ch.11 - Unincorporated businesses

Question 1

What are tax implications of succession election?

Answer 1

If sale of business is to a connected party (e.g. incorporation or transfer to a close relative), a joint election can be made to transfer at TWDV.

• no balancing adjusted to be made
• no WDAs, AIAs, FYAs in final period of account of original owner
• must elect within 2 years of succession date

Question 2

How can losses me relieved under unincorporated businesses?

Answer 2

1. carry forward claim
   - against first available future trading profits of the same trade
   - must offset as much as possible
   - automatic and indefinite
2. PY/CY claim
   - offset los against general (net) income (in any order)
   - optional claim (must be made within 12 months from 31 January following end of tax year of loss)
   - all or nothing claim (may waste PA)
   - restriction on the amount used against other income is greater of:
   a) £50,000
   b) £25% of adjusted total income (total income plus payroll giving donations less grossed up PPS contributions)

Question 3

What are tax implications of incorporation relief?

Answer 3

• available to offset trading losses brought forward from sole trader against income derived from the company (salary/dividends)
• sole trader must receive at least 80% of consideration in the form of shares
• first set off against employment income, then dividends

Question 4

What are restrictions of offset losses for traders that spend less than 10h per week in running the business?

Answer 4

• restriction of losses offset against other income is up to £25k
• remaining losses can be carried forward

Question 5

What are restriction of offset losses for partners in LLP?

Answer 5

• may only claim a relief up to a maximum of their capital contributions into the partnership
• remaining losses can be carried forward