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Business Tax > Fundamental Points > Flashcards

Fundamental Points Flashcards

1
Q

What are the 3 methods of operating a business?

A

Sole trader
Partnership
Limited company

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2
Q

What is income?

A

Receipt that is expected to recur

Eg trading income.

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3
Q

What is a gain?

A

A one off profit on the disposal of an asset

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4
Q

What must individuals in sole traders and partnerships pay?

A

Income tax on trading income
Class 2 and class 4 national insurance
Capital gains tax on disposal of assets

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5
Q

What does statute law consist of?

A

Acts of parliament and statutory instruments

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6
Q

What is an act of parliament?

A

Tax legislation created directly by the government that is amended annually by the finance act for the year.

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7
Q

What are statutory instruments?

A

Detailed rules created on behalf of the government and civil servant s to amend or alter an act without going through parliament.

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8
Q

What is tax evasion and what are the penalties?

A

When people or business deliberately do not declare and account for the taxes that they owe. It can lead to fines and imprisonment

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9
Q

What is tax avoidance?

A

Bending the rules of the tax system to try and gain a tax advantage.

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10
Q

What are the steps for reporting tax evasion?

A

Accountant must ask the client to correct the misstatement.

If client refuses to act, the accountant must cease working for the client.

Then inform HMRC, and MLRO for their company (NCA of self employed)

Do not ‘tip off’ the client to the report

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11
Q

What does the tax computation start with?

A

Adjustment of profits.

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12
Q

What is the trading allowance for a sole trader?

A

£1000

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13
Q

Does a sole trader always use the £1000 allowance?

A

If expenses are less than 1000, they should use the allowance.

If greater than £1000, they should use actual expenses to adjust profit.

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14
Q

What do you add back to net profit before tax?

A

Depreciation
Goods taken by owner for use

Items charged in accounts but not deductible from trading profit

Income taxable as trading profits what have not been included in accounts

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15
Q

What should be deducted from net profit before tax?

A

Profit / loss of disposal of fixed assets
Capital allowances
Expenses that have not been charged in the accounts but are deductible from trading profits.

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16
Q

Is capital expenditure allowable?

A

No

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17
Q

Is revenue expenditure allowable?

A

Yes - usually

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18
Q

Is repairs to maintain the condition of an asset allowable?

A

Yes

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19
Q

Are repairs to improve an asset allowable?

A

No

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20
Q

Is bringing an asset up to date with what would be considered industry norm allowable or not?

A

Yes

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21
Q

Are repairs to make the asset useable allowable?

A

No

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22
Q

Are repairs to merely improve the appearance allowable?

A

Yes

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23
Q

Are doubtful debts allowable?

A

Only irrecoverable debts incurred wholly and exclusively for the purposes of trade

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24
Q

Are increased and decreases in general provisions allowable?

A

No an adjustment must be made.

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25
Q

Are specific provisions allowable?

A

Yes

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26
Q

Are fines and penalties allowable for disallowed?

A

Disallowed except for parking fines in the employees car while the employee is on business.

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27
Q

Are the costs of registering trade marks and Patents allowable?

A

Yes

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28
Q

Are incidental costs of obtaining loan finance allowable?

A

Yes

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29
Q

Is depreciation / amortisation allowable?

A

No

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30
Q

Are salaries / interest paid to the partner or sole trader allowable?

A

No

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31
Q

Are private expenses for sole trader / partner allowable?

A

No

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32
Q

Are irrecoverable debts and specific provisions allowable?

A

Yes

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33
Q

Are general provisions allowable?

A

No

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34
Q

Are parent and copyright royalties allowable?

A

Yea

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35
Q

Is staff entertaining allowable?

A

Yes

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36
Q

Is not staff entertaining allowable?

A

No

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37
Q

Are gifts to employees allowable?

A

Yes

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38
Q

Are gifts to customers allowable?

A

Only if the 3 below criteria are met:

Cost no more than 50 per diner per year

Carey as conspicuous advert for the business

Are not food, drink, tobacco or vouchers exchangeable for such goods

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39
Q

Are professional / trade subscriptions allowable?

A

Yes

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40
Q

Are policial donations allowable?

A

No

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41
Q

Are legal and professional charges that directly relate to trade allowable!

A

Yes

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42
Q

Are legal and professional
Fees relating to capital items, leases or breaches of laws and regs allowable?

A

No

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43
Q

Is specialist constultancy work allowable?

A

No

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44
Q

Is interest in trade loans allowable?

A

Yes

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45
Q

Is interest on overdue tax allowable?

A

No

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46
Q

Are the costs of secondments to charities and education allowable?

A

Yes

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47
Q

Is expenditure incurred in the 7 yrs prior to commencement of trade allowable?

A

Yes

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48
Q

are removal expenses to new business premises allowable?

A

Yes

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49
Q

Are travel expenses allowable?

A

Yes but NOT COMMUTING.

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50
Q

Are redundancy payments allowable?

A

Yes limit is 3x statutory amount

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51
Q

What goes into the general pool / main pool?

A

Most expenditure in plant and machinery including cars with CO2 emissions of 50g/kg or less

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52
Q

What’s the maximum AIA limit for a 12 month period?

A

£1million

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53
Q

Is AIA available on cars?

A

NO.

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54
Q

Is AIA pro-rated?

A

Yes

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55
Q

What is a FYA?

A

Special allowances given in addition to the AIA

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56
Q

What is FYA available on?

A

Zero emission cars

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57
Q

What % is FYA?

A

100% ALWAYS

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58
Q

Do you time apportion / prorate FYAs?

A

NO

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59
Q

What is the writing down allowance % on the main pool?

A

18%

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60
Q

Do you prorate the written down allowance?

A

Yes

N/12 x 18%

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61
Q

What is the small pool limit for a 12 month period?

A

£1000 instead of the 18% a year

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62
Q

What value are disposals valued at?

A

Lower of:

Cost at purchase

Proceeds from sale

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63
Q

Which schemes can be pro rated?

A

AIA and WDA

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64
Q

Is FYA ever adjusted?

A

No

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65
Q

What schemes can be used when a business ceases to trade?

A

None. No AIA, no FYA and no WDAs

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66
Q

Upon cessation, what happens if assets are not sold?

A

Deemed to be disposed of on the final day of trading for their market value.

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67
Q

What is a balancing allowance?

A

When there is a positive balance left in the pool after removing qualifying expenditure. Basically a CA

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68
Q

What is a balancing charge?

A

When the balance remaining in the pool is negative, the balancing charge increases taxable trading profits (opposite of CAs)

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69
Q

What assets are not included in the general pool?

A

Cars with CO2 emissions greater than 50g/kg

Assets not wholly used for business purposes in a unincorporated business

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70
Q

What pool do cars with emissions in excess of 50g/kg?

A

Special rate pool of 6%

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71
Q

How to treat a private use asset?

A

Asset put in a separate column

TWDV is reduced by the full amount of AIA / FYA / WDA calculated as normal

A balancing allowance or charge will arise at date of disposal.

ONLY the business proportion is transferred to the allowances column.

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72
Q

Is there ever any provide use adjustments on companies?

A

No Never

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73
Q

Do you calculate private use assets for employees?

A

NO, sole traders or partners only.

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74
Q

What are the enhanced capital allowances?

A

Available to companies only
Available only on new plant and machinery
Not available on cars

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75
Q

What rate is enhanced capital allowances for companies paid at?

A

130%

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76
Q

When did SBA start applying to buildings?

A

29th October 2018

77
Q

What does SBA cover?

A

Expenditure on the construction of the building or structure itself but NOT the cost of land, planning permission fees or taxes

78
Q

What can be considered for SBA?

A

Offices
Retail and wholesale premises
Factories
Warehouses
Walls
Bridges
Tunnels

NOT residential

79
Q

What is the % for SBA on what basis?

A

3% straight line over a 33.3 year period

80
Q

How to treat SBA?

A

Each building or structure treated separately

Can be prorated where needed

No balancing adjustments on sale - adjustment made to chargeable gain or loss arising by adding the SBA claimed to the sellers disposal proceeds.

81
Q

How to calculate tax for the first fiscal year?

A

From the date the business commenced trading to the next April

82
Q

What is taxed If the period is 12 months?

A

CYB - the 12 months period ending in the tax year

83
Q

What is taxed if the length of the second year accounting period is less than 12 months?

A

First 12 months of trade

84
Q

What is taxed if the length of the accounting period ending in the second year is greater than 12 months?

A

Tax the last 12 months of trade

85
Q

What do you tax if there is no accounting period?

A

Actual basis, from 6 April to 5 April

86
Q

What are overlap profits?

A

Where profits are taxed 2x due to the falling of the accounting period.

87
Q

When do you get the refund of overlap profits?

A

When a business ceases trading

88
Q

When can there be no overlap profits?

A

When the business uses a 5 April year end

89
Q

How to we tax the penultimate year before cessation?

A

Apply CYB - like a normal year.

90
Q

How do we tax the final year?

A

Profit not yet taxed minus overlap profits

91
Q

How to tax if if business strayed trading and ceased trading in the same year?

A

Basis period is the whole lifespan of the trade

92
Q

How to tax if the final year is the second year?

A

The basic period runs from 6 April at the start of the second year to the date of cessation

93
Q

When is a good year end for cash flows?

A

Near the beginning of the tax year as you can earn profits but not pay tax on them for a longer period of time

94
Q

How to divide taxable profits between partners?

A

FIRST - allocate any salaries and interest on capital between the partners.

SECOND - share the residue of profits between partners in the agreed ratio

95
Q

What to do when there is a change in the profit sharing agreement?

A

Apportion the profit before and after the change.

Do before first and then after

96
Q

How is a new partner taxed?

A

Using the opening year rules

97
Q

How is an ongoing partner taxed?

A

Using the current year basis

98
Q

How is a retiring partner taxed?

A

Using the closing year rules

99
Q

What are the 2 types of national insurance?

A

Class 2

Class 4

100
Q

What are the 3 differences between taxation of companies vs sole traders/ partnerships

A

Companies are entitled to the super deductions (130%)

NEVER any adjustments for private use in companies

Companies can deal with long period of account

101
Q

What is interest recievable accounted and taxed as?

A

NTL-R income

102
Q

What can you deduct a trading loan from?

A

Trading income

103
Q

If the loan is for non trading purposes, what do you deduct it from?

A

Deductible from investment income to give a net investment income figure to be used in computing taxable total profits.

104
Q

How is NTL-R accounted for?

A

On an accruals basis

105
Q

On what basis is property income accounted for?

A

Accruals basis

106
Q

How are QCDs accounted for?

A

On a PAID basis

107
Q

If QCD has been deducted in calculating trading profit, what to do in tax computation?

A

Must be added back

108
Q

What to do with the amount actually paid when computing taxable total profits?

A

Deducted from total profits

109
Q

How to deal with dividends income in the tax computation?

A

They are EXEMPT.

If they have been included in net profit in the accounts, they will need to be deducted to get total taxable.

110
Q

How to deal with dividends paid?

A

Add back

111
Q

How to sort tax for a period > 12 months?

A

Split into 2 - one 12 month period, and the remainder

112
Q

How do you apportion trading income?

A

Apportion on a time basis.

113
Q

How to apportion capital allowances and balancing charges?

A

Calculated separately for each period. AIA and WDAs need to be apportioned.

114
Q

How is property income apportioned?

A

Over the period the property is actually rented out eg on an accruals basis

115
Q

How is NTL-R ( investment income) apportioned?

A

On an accruals basis

116
Q

How are qualifying charitable donations allocated?

A

In the accounting period in which they are paid.

117
Q

How are chargeable gains allocated to a period?

A

With reference to the date that the asset was sold

118
Q

What goes in the tax computation for TTF if there is a trading loss?

A

Nil / 0

119
Q

How is loss dealt with in a partnership?

A

Loss split between partners

120
Q

What are the 3 choices on how to relieve losses?

A

Carry forward of losses against future trading income

Losses set against total income in the tax year of the loss - CY

Losses set against total income for the prior year - PY

121
Q

When are losses available for set off against total income?

A

PY and / or CY

No partial claim - maximum loss must be set off in that year

122
Q

What are the rules with losses if within first 4 rules of trading?

A

Can be carried back for 3 tax years for the full amount - but it has to cover all of them not just 1 or 2 or only part of the loss. FIFO basis

123
Q

What are the rules of terminal loss relief?

A

May be relieved by loss relief if total income in the normal way.

Allowas relief against profits in the heat of cessation and the 3 PRECEDING years on a LIFO Basis

Loss is increased by overlap profits

124
Q

Basics of current year loss relief against total profits?

A

Trading loss may be relieved against total profits including gains before QCDs (charity) in the period in which the loss arose

125
Q

Basics of carry back loss relief?

A

Can be carried back before QCDs of the last 12 months.

Carry back can only be made after a current year claim.

Have to carry back the maximum amount , any loss remaining after carry back MUST be carried forward and offset

126
Q

What about a loss when a company ceases trading?

A

Carry forward relief no longer available?

Carry back period is extended to 3 months for the losses in the 12 months prior to the cease of trade - LIFO basis

127
Q

How are capital losses set against for companies?

A

Can only be set against capital gains. FIRSTLY against current period gains, SECOND against future gains.

NO CARRY BACKS.

128
Q

What to consider when making a choice against loss method of offset?

A

The rate at which relief will be obtained

How quickly relief will be obtained

The extent to which the personal allowance may be wasted

129
Q

When do we take market value for disposals?

A

When it’s a gift OR knowingly sold at less value than market value

130
Q

What costs are deducted in the chargeable Gains proforma?

A

Incidental costs of disposal
Allowable costs
Enhancement expenditure

131
Q

When did the indexation allowance stop?

A

December 2017

132
Q

What is the indexation allowance?

A

Cost X factor (given in exam)

133
Q

Can indexation allowance allow / create an allowable loss?

A

No

134
Q

When can an indexed gain be rolled over?

A

Where it arises on the disposal of a business asset if another business asset is acquired

135
Q

What are the conditions for an indexed gain being rolled over?

A

Old and new asset must be used in qualifying trade

Old and new asset must both be qualifying assets

136
Q

What categories must both old new and assets fall into?

A

Land and buildings used for the purpose of trade

Fixed plant and machinery

137
Q

What are the timing limits for the ROR?

A

One year before replacements or 3 years after the date of disposal

138
Q

What if not all profits are re invested?

A

Any proceeds not re invested are deducted from the gain

139
Q

What are the matching rules for companies?

A
  1. Aquisitions on same day as disposal
  2. Acquisitions in prior 9 days - FIFO basis
  3. Shares from FA1985 pool
140
Q

When are bonus shares treated as being acquired?

A

On the date of the original acquisition of shares given rise to the bonus issue

141
Q

Is indexation required on business shares?

A

No - because there is no additional cost.

142
Q

Are rights issues an operative event?

A

Yes

143
Q

Do you index capital gains tax for individuals?

A

No.

144
Q

What is the annual exempt amount for capital gains tax?

A

12300

145
Q

How to calculate the capital gains?

A

Gains - CY capital losses - annual exempt amount

146
Q

What rate is CGT payable at?

A

10% for basic rate bands

20% for any excess above the BRB

147
Q

What % is BADR?

A

Taxed at 10%

148
Q

What should you offset AE against non eligible or eligible?

A

Non eligible

149
Q

What do you tax first, ineligible gains or eligible gains?

A

Eligible gains - so not often does any BR remain for the excess ineligible gains

150
Q

What are the 3 conditions for BADR?

A

Disposal of whole / part of an unincorporated business

Disposal of assets used in an unincorporated business that has ceased trading

Disposal of shares / securities

151
Q

What are the rules surrounding the disposal of an unincorporated business?

A

Has been owned for at least 2 years

152
Q

What are the rules surrounding the disposal of assets used in the business that has ceased trading?

A

2 years of ownership

Assets must be sold within 3 years of cessation

153
Q

What are the rules surrounding the disposal of shares?

A

F - five %
T - trading company
T - two years ownership
W - work there

154
Q

What is the lifetime limit of BADR?

A

£1 million

155
Q

What value is a gift deemed to be transferred at?

A

Market value

156
Q

What value does the recipient acquire the asset for?

A

Market value - deferred gain

157
Q

What are the conditions for gifts?

A

Assets used in a trade by the donor or by a donors company

Shares in an unlisted company (any %)

Shares in the donors company - must be greater than or = to 5%

158
Q

What does the disposal of goodwill generate?

A

Deemed sold at MV, if internally generated, base cost will be 0.

Goodwill gives rise to a chargeable (capital) gain.

159
Q

What tax does the sale of land and building generate?

A

A capital / chargeable gain / (loss)

160
Q

What tax arises on the sale of plant and machinery?

A

If sold at a profit, any gain is not usually taxable.

If sold at a loss, no capital loss available.

Capital allowance purposes: MV will be deducted and then balancing adjustments will arise.

161
Q

What tax arises on the disposal of net current assets / stocks?

A

If the assets MV exceeds the cost, this will increase trading profit.

If the assets MV is less than their cost, this will reduce trading profit

162
Q

What happens in the event of the disposal of a company?

A

Company will be transferred to new ownership with no real tax consequences. The individual will sell their shares in the business and will be taxed via CGT for this.

163
Q

What are some badges of trade?

A

Subject matter
Ownership
Frequency of transactions
Improvement expenditure
Reason for sale
Motive for profit
Existence of similar trading interests
Source of finance
Method of acquisition

164
Q

What liability does a ST / Partnership have?

A

Personal liability - risky

165
Q

What liability does a company have?

A

Separate legal entity - protected by limited liability.

166
Q

Do STs / Partnership have to post on companies house?

A

No - more private

167
Q

How are the tax on profits charged for ST / Partnerships?

A

Income tax

Class 2 and class 4 NIC

168
Q

How are profits taxed on companies?

A

Corporation tax at 19%

Class 1 NICs employer

169
Q

Tax payment period for ST / partnerships?

A

Two payments - 31st Jan and 31 July

170
Q

Tax payment period for companies?

A

9 months and one day after the end of the accounting period

171
Q

How can you extract profits from a ST / partnership?

A

Drawings or salaries

172
Q

How do you extract profit from a company?

A

Directors salary or dividends.

173
Q

What’s the best way for a ST / partnership to extract profits in terms of tax?

A

On salary - pay income tax and class 1 employees NIC.

On dividends- income tax due on dividends greater than the allowance. No NICs, therefore DIVIDENDS are better.

174
Q

What is the better extractions of profits for companies?

A

Salary - class 1 employer NICS - these are deductible from profits thus reducing TTP and saving corporation tax. Better option.

Dividends - not tax deductible, must be added back to TTP. No NICs so no CT saving

175
Q

What are the penalties for late notification of chargeability?

A

100% where deliberate and concealed.

70% where deliberate but not concealed

30% in any other case

176
Q

What was the paper due date for paper returns for 21/22?

A

31 Oct

177
Q

What was the filing date for online returns 21/22?

A

31 Jan 23

178
Q

How long should individual records be left for?

A

One year after 31 Jan after end of tax year.

5 years of self employed or have property income.

Time at which enquiries can no longer be opened

Time at which enquiries are concluded

Max penalty for failing to keep records is £3000

179
Q

When may penalties for errors in individuals be imposed?

A

Been careless
Made a deliberate error
Made a deliberate error and attempted to conceal it

180
Q

What is repayment interest paid on?

A

Over payments of:

Payments on account
Final payments of tax
Penalties

181
Q

When can the agent disclose client information?

A

If money laundering is suspected.

182
Q

How must companies submit their tax returns?

A

All companies must subir them online via the CT600 form

183
Q

What if the period of account is longer than 12 months?

A

There will be 2 accounting periods - a tax return must be filed for each accounting period

184
Q

How long must companies keep records for?

A

Latest of:

Six years from the end of the accounting period

The date when any enquiries are completed

The date after which enquiries may not be commenced.

Penalties of up to £3000

185
Q

What are the penalties of late documents requested by HMRC?

A

£300 penalty
£60 a day until they’re produced

186
Q

When is corporation tax due for non large companies?

A

Due for payment nine months and one day after the end of the accounting period for a company will augmented profits ( TTP + Dividends) if less than £1.5m

187
Q

How are large companies expected to pay their estimated tax liability?

A

In 4 quarterly instalment a

188
Q

When may a large company not have to pay corporation tax by instalment?

A

Augmented profits do not exceed £10million

It was not a large company in the PY

Business Tax (1 decks)

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