TC quick tips/corrections Flashcards
Trading income (ST): A change of accounting date results in a period of account (POA) that is not 12 months long. In the affected tax year then how should you proceed?
Tax the profits not yet taxed up to the new accounting date within the tax year
If this is > 12 months’ profit, deduct overlap profits from commencement to bring the profits being taxed down to 12 months.
If this is < 12 months’ profit, go back to make it up to 12 months (creates overlap profits)
Steps to tax a sole trader.(3)
tax adj trading profit
deduct CAs
decide which year to tax using basis periods
indexation allowance formula and when not to use.(1)
(RPI on disposal-RPI in month of purchase)/RPI in month of purchase
Round to 3dp unless shares
Post Dec 2017 acqn get no IA
How to calculate long POA for trading income (ST) vs companies?(1)
For ST you calculate on the full 15month period and then use basis period rules to determine the income
For companies you split into 12 months and the rest
How to deal with VAT in capital allowance calculations, what about different periods of account?
For VAT you need to take out unless cars as already claimed input VAT on the pruchase so cant also get CAs
For different periods you need to make sure the AIA limit and WDA amount is time apportioned (never do this for FYA!)
What can you get small pool allowance on?
<1k on main or special rate pools
lifetime transfers are exempt if they do not exceed what?
250 per recipient per tax year (cannot exempt part of a larger gift)
ALSO when allocating cy/py remember to allocate cy first
fall in value relief.(3)
can use a lower chargeable amount if still own assrt received but MV on death is less than MV at transfer date ir sold before desth but below MV
Does not alter GCT when calculating NRB for subsequent transfers (ie for this use the GCT at the end of stage 2)
The relief does not apply to chattels with a life of no more than 50 year or P&M
when to use lower of quarter up or average marked bargain vs half up
IHT-quarter v avg
CGT-half
QSR formula? WB on a specific legacy?
tax paid*received/estate
Itd that but just on that specific item
Assets transferred to an employee benefit.(2)
if new and give immediately the employee is taxed on cost to employer
Where an employee has use and is then given the asset then is the higher of:
MV at gift (alwats this is car/van/bike but employee cont deductible)
MV when first provided less benefit already taxed (ie 20% mv pa for time lent)
living accom benefit.(3)
rateable value+(cost-75k)*2% if owned
higher or rateable value or rent paid by employer if rented
For cost used if employer owned for >6 years before employee moved in use the MV at the date they moved in
If there were any capital improvements add those since that date but before start of the tax year
Assets lent for private use eg furniture
mv*20% if owned
mv*20% or rent paid by employer if rented (whichever higgest)
Fixed rate expenses.(3)
For sole traders to make eaiser, can do on motor vehicles, use of home or business premises as home also (not if use home for business < 25 hours then cant but see OBT for speicfics)
Cant claim if already claimed CAs or made a cash deductiono under cash basis
If adopted must be continued for the asset adopted for
How to deal with a change in AC date which leads to a period of >12 months?
You will need to deduct overlap profits to bring back down to 12 month period
Note: say you have 5 months worth of overlap but a change in POA has meant you now have a 14 month accounting period, you wouldnt deduct all 5 months of profit this would simply be 14-2=12 months therefore 2/5*the overlap would be deducted and the other 3/5 would still be cf for another change or cessation of trade.
How to deal with a change in AC date which leads to a period of <12 months?
Go back to create 12 months (will create overlap)
What to do if there is no period of account ending in the tax year?
Create a notional 12 month period ending 12 months before the actual new accounting date in the tax year of change, in the following tax year tax the 12 months up to the new AC date (will create overlap of the tax year used to creste the notional (ie before)
check tyu8 chapter 4 if you need to see
what to do with client entertaining?
add back (disalloable cost)
staff entertaining is allowed!
capital expenditure and trading profit?
revnue expense ie repairs are allowable but capital is not eg improvements (may be allowbale for CGT tho)
is write off of trade debts an allowable cost?
yes
should i add back fines?
no unless ncurred on business activity
legal fees of a capital nature and trading profits?
add back unless for obtaining long term finance, reigstering patents or renewing a lease <50 years
lease allowable cost add back is in the OBT
employer pension contributions to trading profits? wb employment payments?wb interest on late tax payment?
add back if accrued, only on a paid basis
usually allowable however if not paid within 9 months of AP end then disallowed until acc paid , on cease trade only allowed stat redunacy + 3*stat redundanyc
interest on late tax payment is disallowable
trading allowance
1k , if ST has expenses <1k can use trading allowance, if has loss can choose not to use trading allwoance, if trader has <1k income then it will be xempt (also add misc income eg marking exam scripts to this allowance limit)
Long life assets.(2)
> 25 years and total cost over >100k (in 12 month period so time apportion limit)
cant get long life if car, ship or P&M in retail showrooms offices hotels or houses
How to be tax efficient with AIA?
Use against SRP before main
1m cap time apportioned
SLA. (2)
assets expected not to be used >8 years
can make a depooling election to put in their own pool to allow balancing allowances on these, if not disposed of by 8 years after end of basis period that it was bought must be returned to main pool at TWDV (time limits in OBT)
