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
Stock valuations
If stock is sold to another trader it is valued under these rules:
If seller and buyer are unconnected - actual price paid
If connected - Taker what would have been the price at an arms length sale
However, if the arms length exceeds the original cost of the stock and tghe actual transfer price. Both the seller and buyer can elect to take the higher of the original pric eor transfer price.
Who is a connected person?
Spouse, direct relatives and spouses relatives and the spouses of relatives included in laws and step family
Not cousins, neices nephews, aunties or uncles though.
Who is the cash basis available to?
Sole traders and partnerships with less than 150k turnover
If a business is using X you should assume they
Cash basis
Use flat rate expenses
What are the flat rate business premises amounts?
The disallowable amount
If the cash basis provides a trading loss, this loss
can only be carried forwards
The cost of disposals for CA are limited to
Cost
If a trade passes from one connected party to another
They can make a succession election which avoids the balancing adjustments and results in the p&M transferring at TWDV. If no succesion election is made it will be deemed thatthe transferor has sold P&M at MV even if there were no proceeds which will create balancing adjustments.
Related business are those who
carried on or controlled by the same individual or partnership and either are engaged in the same businesses or share the same premises.
A business is only controlled by the person if it is controlled by them at the end of the tax year.
Structures and buildings allowance
Available on new commercial structures and buildings for contracts entered into on or after 29th OCtober 2018.
Includes the cost of the structure but not the cost of the land, planning permission, fees or stamp duty.
SBA’s - Where an existing building is renovated or converted, expenditure may qualify which includes
Offices
Retail and wholesale premises
Factories
Warehouses
Walls
Bridges
Tunnels
NOT ANY PART THAT IS CLASSED AS RESIDENTIAL
SBA’s are given at the rate of
3% straight line over 33 1/3 years. Each building is treated seperatly and enhancement expenditure is also treated seperatly.
Must be fore trade or apportioned if only part trade.
Pro rated for period based on when purchased or if the period is short.
When an SBA asset is sold
Ther eis no balancing allowance BUT the SBA allowances claimed are included within the proceeds figure and the purchaser takes over claiming the allowance
If sold to a connected person or within a 75% corp xapital gains group there is no sales adjustment
Short life assets
Normally go in the main pool and have an expected life of less than 8 years.
Plant and machinery (not cars) can be depooled, calculate allowances in seperate column and then balancing allowances can be claimed.
Special treatment ends at the end of 8 years of the period of account that the asset was aquired and goes back to Main pool
Any asset purchased on hire purchase is treated
As if purchased outright for cash price. So included as an asset, CA claimed and finance costs are allowed.
If assets are leased for less than a 5 year period
It’s merely a hire of the asset rather than a purchase. If a car over 50g/km then 15% of the cost is restricted
A trade loss can be offset against:
Current year and or prior year general income
If trade losses are c/f
The full loss is deductible for Class 4 NIC purposes despite any loss being offset in the previous year
For trade losses a taxpayer can decide
Whether to partically offset it against either current or preceding year with the remaining in the other year
A current year trading loss can be turned into
A current year capital loss. Of if backdates in that year too, but it can only be done in a year that you are claiming a loss against general income.
What are the restrictions on trading losses against general income
Total deductions in a year cannot exceed the greater of:
50,000
25% of the taxpayers adjusted total income (income less gross pension)
If a claim is made againstgeneral income in the previous year there is no restriction on the amount of trading losses that can be used against the same trade. Any excess loss can still be carried forwards.
Doesn’t apply to CG
Opening year loss relief
If ther eis a loss made in the first 4 years of trade it can be osset againstt he three precious years of profits on a FIFO basis.
As must as possible must be offset and is capped at 50k and 35% adjusted total income.
