Topic 15 - Unincorporated businesses Flashcards
List the badges of trade
Subject matter of transaction Ownership length Frequency of similar transactions Improvements, supplementary work and marketing Reason for the sale Motive
Finance
Acquisition method
Similar Transactions
State the disallowable expenditure
- Interest paid to owner on capital invested in business
- Salary/drawings
- Private element of expenditure
- Excessive salary to ST family
- Late payment interest
- Income tax/ CGT
- Capital expenditure/new/improved (CA’s)
- Losses on sale of NCA
- Depreciate/ Amortisation
- Car leasing emissions are > 50g. 15% cost disallowed
- Donation under gift aid
- Political subscriptions
- Non charitable gifts
- National charity donations
- Entertainment- customer suppliers
- Gifts to customers if conditions not met
- Fees of acquiring new NCA’s
- Write off of Non trade debt
- New Lease
- Fines
What is the capital allowance computation proforma
TWDV Additions: Not Qualifying for AIA or FYA Second hand zero emission cars (GP) Cars - Co2 <50g/km (GP) Cars - Co2 > 50g/km (SRP) Cars - PU (PU)
FYA 100%
New 0 emission cars/electric
Cost
100% allowance
Additions qualifying for AIA
FIRST - SRP Additions
AIA (£1m)
Transfer excess to SPR
Second GP - Additions
AIA remaining
Transfer excess to GP
Disposals:
Lower of Cost or SP
(BA/BC) Small pool WDA (<£1000) GP WDA @18% SPR WDA @ 6% Sht Life Assets WDA @ 18% PU@ 18%/6% TWDV cfwd CA
What expenditure qualifies for SBA?
- Non-residential property
- Structure eg walls, bridges, roads and tunnels
- Cost of subsequent improvements where building is renovated or converted
- Unused building purchased from a builder of developer - price paid less value of land
What costs qualifies for SBA?
- Fees for design
- preparing site for construction
- construction works
- renovation and conversion costs
- fitting out works
SBA can only be claimed when a building is…?
Therefore it must be….?
Brought into use.
Time apportioned for period bought into use.
How is SBA calculated?
3% straightline basis over 33 1/3 year period.
What are the opening year rules for basis periods?
First tax year: date of commencement to following 5th April. (actual basis)
Second tax year:
Have you got a AP ending in that period?
i) Yes 12 months? CYB
ii) Yes, less than 12 months. - First 12 months of trade
iii) Yes, more than 12 months - 6th April - 5th April
Third year:
Have you got a 12 months AP ending in that period?
i ) Yes - 12 months = CYB
ii) More than 12 months = Last 12 months of AC period
How does a change in accounting date have an impact on the basis periods?
How long is the AP change?
Less than 12 months?:
Tax profits of 12 month period ending on new a/c date
Overlap profits created
More than 12 months?:
Tax profits of whole AP
Relief for overlap profits to ensure only 12 months taxed.
What are the conditions of a change in accounting date?
- Notify HMRC of change by 31 January following the tax year in which the change is made
- Period of account to new date cannot exceed 18 months
- Must have been no previous change in last 5tax years unless current change is for genuine commercial reasons.
What are trading loss relief options?
Carry forward
Carry forward indefinitely:
Against first available trading profits of same trade.
Max amount needs to be relieved
What is the timing of liability for an unincorporated business?
PoA
31 Jan in tax year, 31 July following at 31 Jan (bal payment and filing date)
What is adjusted total income?
Total income less gross amount of personal pension contributions.
What are trading loss relief options?
TOTAL INCOME
Total Income: ( dont forget cap)
If claimed set loss again total income in tax year of loss and/or the preceding year.
Can: Cy - Cf CY then CB then CF Cb then Cy then CF Cb - CF remaining loss CF
What are trading loss relief options?
Capital Gains
Capital gains: Can claim for offset against chargeable gains
- Must relief first CY
Relief for lower of:
-remaining loss
-chargeable gains less cy/bf capital losses - Max amount needs to be relieved.
- Claim 31 Jan 2 years after tax year (21/22 - 31 Jan 24)
Opening years loss relief
Available for losses in first 4 tax years:
Offset against :
Total income in 3 tax years before tax loss year
FIFO
Max amount relieved (waste PA)
Claim 21-22 is 31 Jan 2024
Terminal Loss relief
Trading losses in closing year of trade:
Loss offset against:
- Trading profit of last tax year; then
- Trading profit in 3 tax years before tax year of loss of a LIFO basis.
One claim for all 3 years
21/22 - Claim by 5 April 26
Incorporation relief conditions
- A business transferred to a company wholly or mainly for shares ( > 80% Consideration)
Incorporation relief operation
Losses can be carried forward indefinitely:
- Provided shares still owned throughout whole tax year in which relief is given; and
- Business continues to carry on the trade
- Set against first available income the individual received from company
- Offset against different types of income in any order
- Cannot be set against future profits of the company
Maximum deduction from total income
£50,000 or 25% of total adjusted income
What is a related business and how does this interact with AIA?
Only allowed one AIA between them.
Businesses are related when they are carried on or controlled by the same individual or partnership and either:
Engaged in same activity; or
Share same premises
Within a 12 months period, if a business spends more than 50% of the cost of replacing as integral feature on repairing an integral feature, what do the costs count as?
Capital expenditure in the special rate pool.
For Hire purchase assets, how is the individual treated and what is the impact on capital allowance?
As if they purchased outright.
CA based on cash price exc. interest.
What is the cash basis option for small businesses?
Can choose to calculate profit/losses on either cash or accruals basis provided that cash receipts do not exceed
£150,000 per annum. (Accruals applies if exceeds)
How does the cash basis option work?
- Cash receipts less tax deductible expenses paid
- Cost of equipment purchased (not cars) deducted
- Proceeds from equipment sales included in receipts
- Trading losses can only be carried forward and set against future trading profits.
No distinction between capital and revenue expenditure.
For the cash basis options, there is no distinction between capital and revenue expenditure in respect of P&M and therefore, an allowable deduction is given when paid for.
What are the exceptions whereby this does not apply?
CARS
ASSETS provided for use in residential property
CAPITAL EXP on Land and Buildings (new improved)
DEPRECIATION
What are the advantages and disadvantages of the cash basis?
+ves:
- Simple
- Profit not taxed until cash received - good for cashflow
-ves:
Less relief options
How do you calculate the flat rate expenses?
First 10,000 miles p.a 45p
Over 10,000 miles p.a 25p
Private use adj relating to household goods, rent, food& utilities = fixed amount based on no. occupants.
When would Class 2 be calculated?
If self employed and below the small profits threshold (£6,515)
Fixed rate of £3.05 per week.
When would Class 4 be calculated?
Payable on tax adjusted trading profits after trading losses.
