Sole Traders Flashcards
What are the badges of trade?
Subject matter
Frequency opf transactions
Existance of similar trading transactions
Length of ownership
Organisation of the activity as a trade
Supplementary work and marketing
Profit motive
The way in which the asset was sold and aquired
Method of finance
Taxpayers intentions
What is the remoteness test?
If the expenditure is not for trade purposes it is not deductible
What is the duality test?
If the expenditure has more than one purpose, the private part is not decuctible.
Are impairment losses / bad debts deductible?
Only if in the course of the trade. If the debt was an employee it is not deductible unless the business is one of making loans.
Earnings
If there are employee earnings within the accounts but the amounts are not paid within 9 months of this period then they are not deductible within the accounts
Entertainment costs
For employees are normally deductible unless excessive at which chargeable on employee
Customers can recieve gifts as long as they are less than £50 per donee per year and carry advertising and is not food, drink, tobacco or vouchers.
What is the restriction on leased cars?
A leased car with CO2 emissions over 50g/kg will have the costs restricted by 15%
Penalties and interest on late paid tax
Are not a deductible expense
Pre trading expenditure
Allowable as long as it was incurred within 7 years of the start of the trade and would otherwise be deductible
There is no capital expenditure allowed BUT
The repair of this expenditure is allowed
Restrictive covenants
If an employee is paid in exchange for the limitation on future activities, as long as they were paid these expenses are deductible.
Secondments
The costs of seconding employees to charities or educational establishments are deductible
Counselling
Providing counselling for employees and leaving employees is allowable
Redundancy payments
If made when a trade ends, it is deductible on the earlier of the day of payment and the last day of trading.
X check ont he rules if not ended
Debts released
If a trader owes an amount that is deductible but doesn’t pay. If the supplier writes off the amount owed it must be shown as income.
Takeover of trades
If a trader takes over a trade and recieves income relatign to the previous owner, it must be brought into account unless it was included previously.
Gifts of trading stock to schools
No income needs to be accounted for
When are charitable donatiosn deductible?
When they are small and to a local charity
Where a donation represents the most cost efficient commercial way
Like donating surpluss food to a homeless shelter. The proceeds can be treated as nil, otherwise it should be market value
When are accoutnancy expenses not deductible?
If there is an enquiry and it is deemded that there areadditional liabilities that have arisen as a result of negligent or fraudulent conduct.
Goods for own use
Treated as recieved the money
If it is a service rather than goods, it is treated as recieved the actual amount paid, if any.
When are removal expenses allowed?
If movign premises and it isn’t an expansionary move.
Implications of cessation of trade
Post cessation receipts or releases of debts are chargeable to income tax as misc income. If they are recieve din the tax year of cessation or the next 6 tax years the election can be made up to 31st Jan 22 months after the tax year of receipt.
Post cessation expenses
Any expenses can be offset against other income if paid within 7 years of discontinuance.
These can be bad debts or costs of correcting defective work or goods, legal expenses
