Income From Trading

Question 1

What are the badges of trade ?

Answer 1

Subject matter of transaction
Length of period of ownership
Frequency of transactions
Supplementary work
Reason for sale
Motive

Question 2

Capital expenditure

Answer 2

Capital expenditure on non current assets which bring an enduring benefit to the business is disallowed when computing trading profits

Capital related expenditure which are disallowed is

Legal or professional charges incurred on the acquisition of non current asset

Depreciation and amortisation

Losses on the disposal of non current assets

Repairs to a newly acquired non current asset

Question 3

Appropriations of profit

Answer 3

Appropriations of profit are disallowed

These include any owners drawings or salary which have incorrectly been shown as an expense in the accounts

Appropriations of profit also include the traders own personal income tax or NICs

Question 4

Other disallowed expenditure

Answer 4

Increase in general provisions

Political donations

Non trade bad debts

Most fines and penalties

Criminal payments

Question 5

Allowable expenditure

Answer 5

Interest payable if incurred for trade purposes

Short lease premiums

Non recoverable VAT

Trade subscriptions

Car lease but only 85% deductible if CO2 emissions exceed 110g/km

Patent royalties paid for trade purposes

Pre reading expenditure incurred in the 7 years before starting to trade