Sole Trader and Partner Taxation - LGS 5

Question 1

Income tax

Answer 1

tax on money coming in to business. Reoccurring money, rent etc
- deducted at source
- self assessment

Question 2

Calculating Income tax

Answer 2

Step 1 - Calculate income
Step 2 - Apply relief
Step 3 - apply tax rates

Question 3

Income tax rates

Answer 3

Personal allowance up to £12,570 = 0%
Basic rate £37,699 = 20%
Higher rate £99,729 = 40%
Additional rate over £150,000 45%
Dividends , savings, non-savings = 45%

Question 4

Income loss relief

Answer 4

1. Start up relief - ITA 2007 s72 = first 4 years of trading, carry back against income for up to three years = tax rebate
2. Carry across/back relief s64 = any year of business, trading loss can carry across to non-trading income and back to previous year (and gains) = tax rebate
3. Carry forward relief s83 - any year of business carry forward until profit is made = reduction in tax liability
4. Terminal loss relief s89 - final year of trading, loss carried back for up to three years (if same trade) = tax rebate.
5. carry forward on incorporation s86 - business transferred to company, at least 80% of consideration for the transfer is share in company - carry loss forward indefinitely against income.

Question 5

Partnership income tax

Answer 5

• each partner assessed on own share of income
• share set out in partnership agreement
• Step 1 calculate income and share between partners how they are shared in partnership or equally.

Question 6

Capital Gains Tax

Answer 6

gains from disposing an asset
- all property
Wholly or partly exempt:
- wasting assets = life of 50 years or less consumer goods
- antiques disposed for £6,000 or less
- private motor cars
- private dwelling houses (if only or main residence)
- primarily land, premises, goodwill and investments

Question 7

Capital Gains Tax Calculation

Answer 7

Step 1 identify chargeable disposal

Step 2 calculate gain
- disposal value (price received on sale) minus acquisition cost (price paid or market value minus costs to dispose and acquire) minus expenditure on improving asset = gain

Step 3 apply reliefs

Step 4 deduct capital losses (from same or previous years) and apply annual exemption (£12,300) selling assets at loss can be rolled forward.

Step 5 apply tax rates
- Basic rate 10% if under £12,300
- basic rate 20%
- non-exempt residential property 8% surcharge (28%)

Question 8

CGT reliefs

Answer 8

1. Hold-over reliefs on gifts s165 TCGA 1992 - hold gain over until subsequent disposal
2. roll-over relief on replacement of business assets ss152-159 - primarily land and buildings - roll over gain to subsequent disposal - replacement of qualifying gain assets. (postponed and gets added when business sold at later date)
3. Business asset disposal relief - sole trader and partners sell interest in business or sell business assets following cessation of business - Reduced tax rate of 10%.

• disposal between spouses don’t incur CGT

Question 9

CGT partners

Answer 9

Step 1 and Step 2 will be calculated together and then shared between partners and steps 3, 4 and 5 apply individually