Income Tax - Companies

Question 1

Are drawings an allowable expense?

Answer 1

No

Question 2

Are personal NICs an allowable expense for a sole trader?

Answer 2

No

Question 3

Is private medical insurance an allowable expense?

Answer 3

No

Question 4

Is personal income tax an allowable business expense for a sole trader?

Answer 4

No

Question 5

Is increase in general bad debt provision an allowable expense?

Answer 5

No

Question 6

Is non-trade debt written off an allowable trading expense?

Answer 6

No

Question 7

What % lease rental on a car should you disallow?

Answer 7

15%

Question 8

Is entertaining customers an allowable expense?

Answer 8

No

Question 9

Pre-trade expenditure within how many years before the business started can be deducted at start of trading?

Answer 9

7 years

Question 10

What are cessation if business tax year rules?

Answer 10

Any profits not yet taxed have overlap profits deducted from them

Question 11

What is pre-trading expenditure?

Answer 11

It is deductible and counted as having occurred on the first day of trading if is was incurred within seven years of the starting date of trade and the expenditure would have been deductible had it been incurred in the trade.

Question 12

How do you work out taxable trading profit for an accounting period?

Answer 12

1) Net profit for accounting period as per P&L
2) add back disallowed expenditure
3) deduct non-trading income
4) this is your adjusted profit for the accounting period
5) deduct capital allowance
6) this is your taxable trading profits for the accounting period

Question 13

What are cessation rules?

Answer 13

Profits taxed in final year of trading are:

Profits from the end of basis period of the penultimate tax year until date of cessation - ie any profits not taxed.

Overlap profits are deducted from this amount

Question 14

What is a long life asset for purposes of special rate capital allowances pools?

Answer 14

• the asset has when new an expected life of 25 years or more AND
• the total expenditure on this asset exceeds 100k in the 12m accounting period - pro rata for short periods

Question 15

What assets do you put in single assets pools?

Answer 15

• assets with some private use by the sole trader or partner
• short life assets
• ONLY the business element of the allowance can be deducted in computing taxable trade profits
• however, the AIA, FYA OR WDA is still calculated in full and is deducted from the single asset pool

Question 16

What is a short life asset?

Answer 16

One which is expected to be sold within 8 years of the end of the period in which the asset is purchased

If a disposal does not happen in that period, the twdv is transferred to the main pool at the start of the next period

Question 17

What happens if the balance on a main pool or a special rate pool is =

Answer 17

The trade can claim a WDA on the full balance

Question 18

What are the different types of trading loss?

Answer 18

1) carry FORWARD - standard, is how you imagine. Cannot restrict loss to preserve personal allowance. Need to agree the amount within 4 years of the end of the tax year in which the loss arose.
1a) use on general income for that year / prior year in any and/or combo and carry forward the remainder to trading losses
2) loss in first four tax years, set against nsi, then so then doc, carry back to prior 3 years on a FIFO basis, optional but all or nothing
3) terminal loss relief on cessation, set against trading profits from same trade. Carry back to prior three years on a LIFO basis. Optional but all or nothing. Need to claim within 4 years of the end of the last tax year of the business.

There are two others I don’t get

Question 19

How do overlap losses work?

Answer 19

There ain’t no overlap losses!!

Question 20

When setting losses against income other than trading income, what is the restriction?

Answer 20

The higher of £50,000 or 25% of adjusted total income (this doesn’t include any losses!)

Question 21

What do you do with loan interest for buying an employee controlled company shares

Answer 21

Take it off nsi or whatever comes first if not nsi - prior to tax

Question 22

How do you work out the DISallowable expense on leased cars for sole traders / partnerships ?

Answer 22

If CO2 emissions are above 110g/km then 15% of the lease value is disallowed. If no more than 110g then all is allowed

Question 23

How are sole trader / partnership losses accounted for?

Answer 23

NO PARTIAL CLAIMS, all or nothing on one year.

You can carry it forward onto TRADE profits for the next year OR

Claim it on CY or prior year total income (ie not just trading). This is applied before personal allowance, so it may mean that personal allowance is wasted

Question 24

What capital allowances on cars do you get if claim fixed mileage for income tax?

Answer 24

None

Question 25

What else do you need to do when your total taxable income is above £100,000?

Answer 25

Take off grossed up gift aid and grossed up pension contributions prior to tapering PA

Question 26

What do you do with basic rate and additional rate bands when you have made gift aid or personal pension contributions?

Answer 26

gross up and extend bands