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)
SBAs.(6)
-Commercial buildings only or structures 3% straightline (time apportion), if being built by business qualifying costs include demolition, land alteration for construction and direct costs to bring into existence
-Note: Stamp duty, land, costs of planning permission, professional fees do not qualify
-Can only for non res use if a propety business and used partly in trade and rented out ot non res tenants have to apportion between trading and rental income
-Students accoms, prisons, military accom dont qualify
-Can only be claimed ONCE brought into use, no CAs on S&Bs but any qualifying P&M could claim
-Disposal no balancing adjustment for the seller instead the proceeds received are increased by the SBAs claimed to date for chargeable gains purpsoes, meanwhike the buyer takes over the remainder of the SBA period and receives SBAs based on the orignal cost of teh strucutre or building
Things held to be plant under case law.(6)
-moveable office partioning
-dry dock
-free stadning decorative screens
-swimming pool at a caravan park
-light fittings/decor/murals in a hotel
-special display light
Things not held to be plant under case law.(6)
-ship used as floating restaurant
-football ground stand
-false ceilings
-shop fronts, tiles, water tanks. staircases and rasied floors in a restaurant
-petrol station canopy
-building housing car wash machinery
pre trading capital expense
allowable for ca treat as being incurred on first day of trade
small pool allowance
pre WDA can just be wiped to nil (this needs time apportioned also for shorter periods)
what to deduct from main or special rate pool on disposal?
lower of original cost or proceeds (mv if taken by sole trader)
Balancing charges and allowances.(3)
On main or special rate pools you cant get balancing allowances unless ceasing to trade,
For single asset pools you can get them or a balancing charge
Remember blancing charge is when proceeds>TWDV therefore too many allowances claimed, the reverse for allowances
Cessation of trade and capital allowances.(1)
No AIA, WDA or FYA is available in the final period of account, instead:
add any addtions in final period, deduct any disposals in final period (if owner takes use mv), calc a balancing adj on each pool to bring the TWDV cf to nil
Cash basis approach.(4)
Redraft the P&L, with some exceptions:
1) Follow cash (not cars which can have CAs, expenses or 42/25p per mile)
2) Interest payable max £500 deduction on loans
3) No 15% disallowance on leases
4) Goods for own use add back the cost
Leased cars and trading income.(1)
the amount >50 then 15%*hire charge disallowance
if no more than 50 the hire charge is allowable
if calculating fixed mileage allowance on cars which are used for personal use which way do you calc?
IF say 15k miles and 60% personal use first do 15k60% personal use then use the mileage rates eg that woudl give 9k45p=4050
Ie dont calc then personal use apportion here
changing from accruals to cash basis.(4)
-if claimed fixe mileage allowance msut continue
-gotta meet the eligiblity criteria to join
-deduct for capital allowances claimed on P&M (eg TWDV on main pool os 2500 so when move can now treat the 2.5k as an expense and no longer claim CAs on it)
-adj for double counting (eg had receviable in accrual in py but now under cahs basis and receive, would record twice therefore for that value you would need to take it out to adj)
Leaving the cash basis.(3)
-capital asset sale is sold it will increase trading profits if it was bought under cash basis
-unreleived expense on P&M must be allocated to CA pools in next period (onyl for acquired not fully paid eg hire purchase with outstanding payments)
-adj expense dedcuted in frsit AP after leaving, adj income spread over 6 years after the one in which you leave (but trader can elect to tax all sooner)
qualifying interest payments.(1)
interest paid on these is deductible during the tax year from total income eg loan to buy P&M, inest in partnership, pay IHT, buy interest in close company
capped at higher of 50k and 25% of adj total income (total incom+payroll giving less gross PPS cont)
stamp duty on shares. WB SDRT? WB SDLT?
0.5%*consid round up to nearest 5 eg 251 would be 255 (interest on late payment is rounded down to nearest 5 and not charged <25
not charged on new shares or intra group transfers >75%, gifts divorce or variation of will and for those on AIM all exempt
For SDRT still *0.5% but no rounding (on paperless trasnfers)
For SDLT use OBT for rates on VAT inc price,for leases: also payable on lease premiums AND on net present value of rents (ie all rents now at CV) (same exemptions as above unless for groups if the transfer is no for commerical reasons or at time of transfer arrangeements exist for the mmebers to cease being group members or leave <3 years)
Corporation trade loss options. Wb NTLR? Property? Capital? How to prioritse?(4)
-CY total, CY/PY total or CF total (can restrict to not waste QCDs capped at 5m+50*excess (ie profit-5m))
cf claim must be made within 2 years of the AP its relieved, for others made within 2 years of loss making AP
can also get TLR but have to claim CY first as is simply an extension of the others
-NTLR just negative in comp but can restrict to preserve QCDs, can be set against py NTLR income only or cf again partial allowed
-property is automatically jsut offset, excess cf against total and can preserv qcds under cf
-capital only on capital and cf available on first useable gains
-prioirtise NTLR then property then trading (for capital just do outside and put in the net chargeable)
Overseas groups and companies
Can join but cant participate, they are used in determining whether a group exists though
Group relief is avail for the following period lsoses.(4)
trading income
NTLR
excess proeprty and QCDs (ie cant be utlised by the surrendering company)
SLAG % holdings.(4)
Stamp duty-75/75
Losses-75/75
Associate-50/50
Gains-75/50
Sole trader/unincorp business losses.(4)
-Same as corporate wiht following differnces:
TLR is against trade only and can waste PA
cy is total as is py (can do cy/py in either order), cf is on first available future trading profits (may worst PA as max must be claimed for ALL options) cf is indefiinte
also get opening loss relief on first four tax years of trade (carryback FIFO against total income
-There are no overlap profits and if a loss appearss in two tax years will only be treat as a loss for one of the years
-There is a restriction for non active traders <10 hours per week (obt for specifics but either 50k or 25% adj net income-same as restriction on QIP)
-can also use any remaining trade losses after other claims against capital gains (either the loss remaining or max amount=gains-cap losses (cy and bf))
Impact of loss relief claims on NICs for ST business
If you say rleieve a cy loss of 19k against py which has 10k trading and 4k proeprty income, you can claim agains tht efull 14k but for NICs it is only treat as having used 10k of said loss therefore on the next available taxable profits the remainder 9k loss will be utlised ot reduce the class 4 NICs liab
Where an indivudal disposes of a Uk res property they must submit…
A UK land return (or payment) together with a payment on account within 60 days of completion
NOT REQUIRED IF:
Gain is covered by PRR
Disposal gives loss
Covered by AEA
Where should CGT payments on account be included in calc and if res and other gains whihc should you calc first?
Do other first, but deductg AEA from res as higher rates, once calc entire liab deduct the payments on account from the final liab to give the adj final CGT liab
CGT and cars?
Cars are exempt from CGT !
is enhancement expendtirue an allowable deduction from a CGT gain?
yes
If i had trading income of 47k how much BRB would be left.(1)
47k-12570=34430
37700-34430=3270 therefore 3270 is left
Always remember to deduct PA!!
M had gain of 13200 on a ring and a loss of 500 on a wardrobe with cf losses of 6k. How much would be left to cf
13200-500=12700 less AEA 12300=400
6k-400=5600 left to cf
cf losses are deducted cy losses and AEA!! must be offset againsy first avaulable net gains or otherwise continue to be cf
Eve bought land for 100k and gave to her husband when mv was 125k he then sold for 130k
What is the gain and on who?
NGNL for Eve
for husband base cost is now 130k therefore 30k gain chargeable
Connected persons for CGT.(3)
spouse and their relatives’ and their spouses’
relatives (siblings ancetors or direct descendants) and their spouse
business partners and their spouse
Under this proceeds are always MV at date of disposal regardless of any consid received
Also any losses can only be offset against that of those gains made on the same individual
How are incidental costs or enhancement treat on part disposal
If solely relate to part being disposed can deduct in full, if relate to entire property need to apportion same way as cost
eg on purchase cost 21k and 600 incidental so just add together for cost apportion as relates to full amount, on sale say icnurred selling costs of 2500 and proceeds were 22500 you would still use 22500 in fraction as fraction is the mv but the full 2500 would come off when calculating a gain as fully realte to this part of the disposal
how to calc disposal of shares by indivudal. What should you do if you have a bonus issue? wb rights issue?
use opne book (same day, fifo following 30 days, then s104 pool)
to calc gain use proceeds *proportions of share value (in s104 work out avergae vlaue)
Bonus add into s104 at nil value, rights add in at issued amount
CHargeable gain now on ROR
Full gain before any relief or proceeds not renivested (the lower of these)
note that if part is chargeable now this will come off the gain deferred ofc so less will be used to reduce the base cost
unless depreciating asset (<60 years) in which case doesnt impact base cost but gain is deferred until when the asset is no longer used or disposed or 10 years from acqn
What can you get gift relief on?
-assets used in trade of the donor
-unquoted shares
-quoted shares of donors person company (trading co)
PERSONAL CO >5%
Quick way to remember classificaiton for supplies for VAT on builidings
Exempt are old commericial (>3 years) and res buildings (just says existing), bare land and lease are exempt
Commerical buildings <3 years or construction are standard
construction and sale of res or res accom new sale followeing non res conversion are both zero rated
annual adj for CGS and adj for sale
total recovered/adj period *(% recovered now-% recovered initially)
recovery is based on use of the asset
if sold the above is done and a final adj for sale on the remaining periods is done using the above formula but if the sale was exempt then 0% is in % recovered now and if standard or OTT then 100% will be there
What are supplies to os businesses
Sales are always 0 rated
51% company rules
This limit is pro-rated by the number of related 51% group companies a company has. For this
purpose, the company must have been a related 51% group company on the last day of the
previous accounting period.
aug/51=limit
1.5m large
20m very large
When do you get IA?
Companies on fixed assets only and shreaes (non rounding)
dont get any if bought after dec 2017
should you dedcut mortgage capital when calculating property income
no
cash basis and cars
deduct proceeds from trading income, can still claim CAs
A purchased a factor and sold for 1.2m realising 585k gain
He then bought machinery for 1.2 and claimed any CAs
Sold this for 1.105m
Calc the chargeable gains on these sales
For the 585k gain reinvested therefore no charge
Reinvested in depreciating asset so doesn’t become chargeable until that’s disposed of and doesn’t impact base cost!
The sale on the p&a doesn’t get an allowable loss as got CAs
