Module 2 - Tax-Adjusted Trading Profits Flashcards
Is unpaid employee remuneration deductible from trading profits?
If employee remuneration is accrued in the statement of profit or loss, then a deduction can only be made if the payment is made within 9 months of the end of the accounting period.
If it is not paid within 9 months of the end of the acconting period, then the accrued amount must be added back into the taxable profits and no deduction will be permitted until the remuneration is paid.
Can social security contributions be deducted?
A sole trader or partner cannot deduct their own class 2 and class 4 NIC payments.
Employer’s contributions in relation to staff (class 1 secondary NIC payments) do not need to be adjusted as they are tax deductible.
Can penalties, interests and VAT Surcharges be deducted from taxable profit?
Most tax penalties and interest on late payment or underpayments will not be deductible.
Are crime related payments deductible?
disallows sums paid if the payment itself constitutes a criminal offence or if the payment is made in response to a demand which is a criminal offence,
Is pre-trading expenditure deductible?
Relief is allowed for expenditure incurred by a person or company before
commencing the trade, which would have been deductible had it been incurred
after the commencement.
deducted in computing profits of the first period of trading
limited to expenditure
incurred within seven years prior to commencement.
expenditure is treated as if it were made on the first day of trading
Are the incidental fees of obtaining laon finance deductible?
Any sums spent on fees, commission, etc. that are incidental to obtaining of loan finance are allowable for a business.
no matter what the loan is obtained for, (e.g. even for capital expenditure) and even if the loan is not
subsequently obtained.
These rules only apply to individuals. Companies apply different rules relating to loans
Are payments for restrictive undertakings tax deductible?
Where a business pays a sum to an employee/ex-employee to restrict their
activities to protect the trader this will be allowable.
Are payments to employees seconded to charities and education establishments deductible?
When an employee is seconded to a charity or educational establishment, but
their salary continues to be paid by the trade this will be allowable. This is only the
case where the secondment is intended to be temporary.
Are counselling and retraining cost tax deductible?
Where such services are provided to employees because of the cessation of their
job, the costs of the services will be allowable to the trader.
Are redundancy payments tax deductible?
Although such payments could fail to meet the ‘wholly and exclusively’ test (as the employee no longer helps to earn profits for the business), the legislation specifically allows statutory redundancy payments.
The employer may claim a deduction not only for the statutory amount but also for an additional payment of up to three times the statutory
amount.
Employers may also pay ‘ex-gratia’ or ‘gratuitous’ amounts to employees that they make redundant. Generally, such costs will be allowable as there is a benefit to
the ongoing trade in making such payments.
Are expenses related to patents and trademarks tax deductible?
These sections allow a deduction for expenses in connection with obtaining a patent, design or trademark for the purpose of the trade.
