Self-employment

Question 1

the badges of trade

Answer 1

• subject matter of the transaction
• length of the period of ownership
• frequency of the transactions
• supplementary work
• reason for the sale
• motive

Question 2

calculating trading profits

Answer 2

start with net profit then make adjustments

Question 3

Exemption for gross trading income

Answer 3

£1,000 per annum

Question 4

Deductibility of expenditure criteria

Answer 4

• computing trading profits only if it’s incurred wholly and exclusively for trade purposes
• remoteness test (does it have a connection with the trade)
• NOT deductible if incurred for both trading and private purposes

Question 5

Capital expenditure

Answer 5

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

Question 6

capital related expenses that are disallowed examples

Answer 6

• Legal charges incurred on the acquisition of a non-current asset
• Depreciation and amortisation
• Losses on the disposal of non-current assets
• Repairs to a newly-acquired non-current asset if required to put the asset into usable condition

Question 7

Appropriations of profit

Answer 7

• disallowed when computing trading profits
• include any owner’s drawings, trader’s owns personal income or NICs

Question 8

Disallowed entertainment and gifts examples

Answer 8

• customer entertaining costs
• customer gifts over £50

Question 9

Allowed entertainment and gifts examples

Answer 9

• customer gifts that don’t include food, drink or tobacco
• <£50 customer gift
• customer gift displays a conspicuous advertisement

Question 10

allowable expenditure examples

Answer 10

• interest payable for trade
• short lease premiums
• non recoverable VAT
• trade subscriptions
• car lease rental payments
• patent royalties for trade
• pre trading expenditure, 7 years prior

Question 11

Car lease rental payments allowable expenditure for emissions exceeding 50g/km

Answer 11

85% of the payment is deductible

Question 12

what happens to trading income if the trader takes stock for private use?

Answer 12

• stock taken from business for the trader’s private use is treated as sale at normal selling price
• trading profits are increased by the selling price minus contributions made by the trader

Question 13

A small business

Answer 13

total receipts in accounting year do not exceed £150,000

Question 14

Cash basis system for calculating profits

Answer 14

• income actually received - expenses actually paid

Question 15

Can capital allowances be claimed?

Answer 15

no as expenses paid include most capital expenditure

Question 16

can capital allowances in relation to purchase of a car be claimed?

Answer 16

motor cars aren’t deductible so business may claim capital allowanced unless fixed rate deductions are applied in relation to motor expenses

Question 17

Fixed rate deductions

Answer 17

• unincorporated businesses may apply to expenses such as:
  1. motor expenses
  2. use of home for business
  3. business premises used partly as a home