Module 3

Question 1

What are the 6 badges of trade?

Answer 1

Subject matter 
Length of ownership 
Additional work 
Profit motive 
Frequency of transactions 
Manner of sale

Question 2

What constitutes capital expenditure?

Answer 2

Money spent on acquiring or maintaining fixed assets

Question 3

What is disallowable because they are expenditure of capital nature? (Add back if been expensed)

Answer 3

Depreciation 
Losses (profit deducted)
Legal surveyors and other fees
Goodwill written off
Initial repairs to assets 

(add back if been expensed)

Question 4

Main reasons for adjusting figures?

Answer 4

Capital should not form part of trading profits
Taxable/deductible elsewhere
Legislative rule

Question 5

Items of a capital nature should not form

Answer 5

Part of taxable trading profit

Question 6

What key items of income are taxable but not as trading income?

Answer 6

Rental
Interest
Dividend

(Deduct from trading income, under another heading)

Question 7

What expenditure may receive tax relief but not part of trading?

Answer 7

Gift aid
Contributions to a personal pension scheme

Added back to trading income

Question 8

No deduction is allowed to expenses

Answer 8

Not incurred wholly and exclusively for the purposes of the trade

(expenses must relate wholly and exclusively to be allowed)

Question 9

Business entertainment and gifts

Answer 9

No deduction allowed for expenses incurred in providing entertainment or gifts

Exceptions: it’s their usual trade or provided to employees

Question 10

Gifts that are allowable?

Answer 10

Traders trade to provide those items
Conspicuous advert for the trade but not food, drink, tobacco or voucher
Gifts to employees
Gifts to a charity

Question 11

Restrictions on leased cars

Answer 11

Emissions < 110 fully allowable

Exceed 110 add back 15% of lease cost

Question 12

Bad and doubtful debts, no adjustment required for?

Answer 12

Actual bad debt expense
Movement in a specific provision

Movements in general provisions are not allowed for tax

Question 13

Movements in general provision are

Answer 13

Not allowed for tax
Increase (dr)- added back
Decrease (cr)- deducted

Question 14

Rules restricting deductions

Answer 14

Unpaid remuneration (bonuses) deduction only permitted if actual payment made within 9m of end of a/c

Social security contributions
Penalties, interest and VAT surcharges
Crime related payments

Question 15

Rules allowing deductions?

Answer 15

Pre trading expenditure- set ups costs
Within 7 years prior to commencement

Incidental costs of loan finance
Counselling and retraining
Redundancy payments (max x4 statutory)
R+D

Question 16

Treatment of interest?

Answer 16

Allowed as a deduction as a business expense (wholly and exclusively for trade)

Question 17

Advertising expenditure is?

Answer 17

Generally allowable

Question 18

Charitable donations are?

Answer 18

Allowable to local institutions and which employees are likely to benefit

Add gift aid back as relief elsewhere

Question 19

Legal expenses are?

Answer 19

Allowable when incurred in normal course of trading

Question 20

Repairs?

Answer 20

Repair what we’ve got okay (maintain)

Improvements need adding back

Question 21

What type of provision needs to be added back to be taxed?

Answer 21

General

Question 22

Normal vs alternative basis?

Answer 22

Minimise profit so pay less tax

Rev - expenses
Or
Rev - 1000 allowance

Lowest is best

Question 23

General provisions

Answer 23

Increase added back

Decrease deducted

Question 24

Things that aren’t allowed as a trading deduction?

Answer 24

Movement in general provision
VAT surcharge for late payment
Accrued employee pension contributions

Question 25

What is revenue expenditure?

Answer 25

Money spend on general operating costs or consumables such as rent