Trading Income Flashcards
Steps to tax sole trader?
Adjust profits
Deduct capital allowances
Basis period
What are the adjustments to profit
Add
Disallowable expenditure
Taxable income not accounted
Less
Non taxable income included in accs
Taxable expenditure not included in accs
Capital allowances
What are the 15 main disallowable expenses for trading income
Capital expenditure Depreciation Appropriation of profit Movement in general provisions Write off of non trade debt Client entertaining Some gifts Donations Subscriptions - except trade/prof. Assoc. Fines - except employee parking fines Legal fees of a capital nature Employment pay - not paid YE+9 months Accrued pension costs - paid allowable 15% Leased car costs in excess of 50gkm Interest on late payment of tax
What are the types of disallowable appropriation of profit?
Business owner salary
Drawings
Private element of expenditure
Unreasonable payments to family
What gifts are allowable?
To employees
Trade samples
Customers if advertise business, not food, drink, tobacco or vouchers for goods and cost < £50 per person
What legal fees of a capital nature are allowable?
Costs of obtaining long term finance
Cost of registering patents
Cost of renewing short lease <50 years
When is employment costs disallowable?
If not paid within 9 months of year end
Redundancy payments above 3 x statutory redundancy pay
Sol trader removing goods from business treatment?
If removed from stock in accounts increase profit by profit element
If not accounted increase profit by sales price
Is non-monetary consideration for goods/services taxable?
Yes, at its money worth
Examples of income not taxable for trading income?
Capital gains
Rental income
Savings income
Exempt income
Limits on costs incurred before commencement of trading?
Normal trading costs
Claim up to 7 years of costs
What are the 2 ways of calculating motor costs
Calculate business portion of actual costs
Mileage allowance as per Employment income
Working from home costs:
Calculation methods?
Minimum hours to allow for monthly deduction
Calculate business proportion of actual expenses
Fixed monthly deduction
Minimum 25 hours working at home a month
Business premises used as traders home
Calculation methods?
Fixed monthly adjustment calculation?
Calculate business proportion of total costs
Fixed monthly amount
1 occupant £350
2 occupants £500
3 occupants £650
What is the trading allowance and how can it be utilised for tax efficiency?
Trading allowance of £1000
If actual expenses are less than £1000 opt for the trading allowance to reduce profits by £1000 instead of actual costs
No extra relief to create a trading loss
Basis period:
First tax year?
Actual basis to 5th April
Basis period: Second tax year 12 months? Less than 12 months? More than 12 months?
12 months - tax that period
Less than 12 months - tax 12 months past the year end
More than 12 months
Tax 12 months up to year end
Basis period:
What are overlap profits?
How they are used for relief?
Profits taxed twice due to the opening year rules and the change of accounting period rules
Used against closing years and some types of accounting period changes
Basis period:
Closing year rules?
Last lax year - tax all months not yet taxed up to cessation
Less
Any overlap profits
Basis period: Change of accounting date Shorter - same tax year? Shorter - next tax year? Longer - next tax year? Longer - next next tax year?
Shorter - same tax year
Extend previous year - reduce back to 12 months with overlap profits
Shorter - next tax year
Tax 12 months to new date, creates overlap profits
Longer - next tax year
Tax the longer period and reduce back to 12 months with overlap profits
Longer - next next tax year
Create a 12 month period ending 12 months before the new accounting date, creates overlap profits
Conditions for changing accounting date?
First 3 years of trading
Or any other time with conditions:
Notify HMRC before 31 Jan following The tax year of change
Not exceed 18 months
No change in last 5 years
