Topic 9- Sole traders basis of assessment Flashcards
What is the ongoing year rules?
▪ The profits for a year of assessment are the tax adjusted trading profits for the 12 month period of account ending in that year.
▪ Current year basis (CYB)
What is the first tax year called and its rules?
Take from the date of commencement to the following 5th April (Actual basis)
What are the second tax year rules?
Ask yourself the question have you got a 12 month accounting period ending in that tax year?
i) Yes - 12 months=Take the 12 months of trade (CYB)
(ii) Less than 12 months=Take the first 12 months of trade
(iii) More than 12 months=Take the last 12 months of that accounting period.
(iv) no accounting period ending in the second tax year=Take from the 6th April to the 5th April of that tax year
What is the third year tax rules?
Ask yourself the question have you got a 12 month accounting period ending in that tax year?
(i) Yes -12 months-=CYB)
(ii) More than 12 months=Take the last 12 months of that accounting period.
What is over lapped profits and what happens to it?
▪ Profits that are assessed in more than one tax year are known as the overlap profits
▪ The overlap profits are carried forward and are normally deducted from profits on cessation of a business.
What happens in the closing year?
▪ In the final tax year of assessment – ensure that any profits not previously assessed are assessed here.
▪ Any overlap profits from commencement are deducted from the assessable profits for the final year.
What is the cash basis for smaller business and the eligibility
A voluntary simplified cash basis of calculating trading profit has been introduced for sole traders and partnerships (limited companies are excluded) as an alternative to the normal accrual’s basis.
Eligibility
▪ Revenue limit for using scheme is £150,000
▪ Can continue until turnover £300,000
How does the cash basis work?
▪ Cash receipts less tax-deductible cash expenses paid
▪ Equipment purchased (NOT cars) deducted as an expense
▪ Equipment sales included in receipts
No capital allowances
▪ Optional fixed rate expenses for mileage using the approved rates (tax tables) or use of business as home (rate to be provided in exam)
▪ The examiner has indicated that in any examination question involving the cash basis the optional fixed rate expenses where relevant should be claimed
e.g. if it says they did certain miles for work, use that benefit
▪ Trading losses can only be carried forward against future trading profits. Restrictive
