Module 3 - Tax Adjusted Trading Profits

Question 1

What are the six badges of trade?

Answer 1

1. The subject matter of the transaction
2. The length of Period of the ownership.
3. The frequency of number of similar transactions by the same person
4. Supplementary work on, or in connection with the asset.
5. Circumstances that were responsible for the realisation.
6. Motive.

Question 2

Name three items you deduct as being non trading income.

Answer 2

Rental income

Interest income

Dividend income.

Question 3

Name three key items of Expenditure which are tax deductible but not dealt with as part of trading income:

Answer 3

Gift aid

Deductions from income

Contributions to a personal pension scheme

Question 4

Is bad debt deductible?

Answer 4

Specific bad debt is tax deductible, general bad debt is not.

Question 5

Is accrued income tax deductible?

Answer 5

It is deductible as long as the amount is paid within 9 months.

Question 6

Is pre trading expense tax deductible?

Answer 6

Yes if it is incurred within 7 years of the business started.

Question 7

What fees occurring with redundancy are deductible?

Answer 7

Counselling and retraining.

Redundancy payments - the employer can claim relief on three times the statutory amount.

Question 8

Are pension contributions tax deductible?

Answer 8

Paid pension contributions are tax deductible, however accrued payments are not.

Question 9

Are charitable donations taxable?

Answer 9

Large charities (gift aid) are not tax deductible.

Small local charities require no adjustment as they are deductible

Question 10

Are legal expenses tax deductible?

Answer 10

These are tax deductible where:

• debt collection
• normal taxation work (not accountant)
• renewal of a lease < 50 years duration.
• defending titles to assets or maintaining trading rights.

Question 11

Are welfare expenses tax deductible?

Answer 11

Yes, as long as they are not capital in nature.

Question 12

Are repairs tax deductible?

Answer 12

Genuine repairs are tax deductible, however improvements are not.

Question 13

Is VAT tax deductible?

Answer 13

Irrecoverable VAT is, as long as it is not capital in nature.

Question 14

Are drawings or salaries to the proprietor tax deductible?

Answer 14

No - they must be added back.

Question 15

What is the small business income tax simplification?

Answer 15

Annual turnover must not exceed £83000 - and if it exceed £166000 then it must stop using it.