Trading Income

Question 1

Steps to tax sole trader?

Answer 1

Adjust profits
Deduct capital allowances
Basis period

Question 2

What are the adjustments to profit

Answer 2

Add
Disallowable expenditure
Taxable income not accounted

Less
Non taxable income included in accs
Taxable expenditure not included in accs
Capital allowances

Question 3

What are the 15 main disallowable expenses for trading income

Answer 3

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

Question 4

What are the types of disallowable appropriation of profit?

Answer 4

Business owner salary
Drawings
Private element of expenditure
Unreasonable payments to family

Question 5

What gifts are allowable?

Answer 5

To employees

Trade samples

Customers if advertise business, not food, drink, tobacco or vouchers for goods and cost < £50 per person

Question 6

What legal fees of a capital nature are allowable?

Answer 6

Costs of obtaining long term finance
Cost of registering patents
Cost of renewing short lease <50 years

Question 7

When is employment costs disallowable?

Answer 7

If not paid within 9 months of year end

Redundancy payments above 3 x statutory redundancy pay

Question 8

Sol trader removing goods from business treatment?

Answer 8

If removed from stock in accounts increase profit by profit element

If not accounted increase profit by sales price

Question 9

Is non-monetary consideration for goods/services taxable?

Answer 9

Yes, at its money worth

Question 10

Examples of income not taxable for trading income?

Answer 10

Capital gains
Rental income
Savings income
Exempt income

Question 11

Limits on costs incurred before commencement of trading?

Answer 11

Normal trading costs

Claim up to 7 years of costs

Question 12

What are the 2 ways of calculating motor costs

Answer 12

Calculate business portion of actual costs

Mileage allowance as per Employment income

Question 13

Working from home costs:
Calculation methods?
Minimum hours to allow for monthly deduction

Answer 13

Calculate business proportion of actual expenses

Fixed monthly deduction
Minimum 25 hours working at home a month

Question 14

Business premises used as traders home
Calculation methods?
Fixed monthly adjustment calculation?

Answer 14

Calculate business proportion of total costs

Fixed monthly amount
1 occupant £350
2 occupants £500
3 occupants £650

Question 15

What is the trading allowance and how can it be utilised for tax efficiency?

Answer 15

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

Question 16

Basis period:

First tax year?

Answer 16

Actual basis to 5th April

Question 17

Basis period:
Second tax year
12 months?
Less than 12 months?
More than 12 months?

Answer 17

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

Question 18

Basis period:
What are overlap profits?
How they are used for relief?

Answer 18

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

Question 19

Basis period:

Closing year rules?

Answer 19

Last lax year - tax all months not yet taxed up to cessation
Less
Any overlap profits

Question 20

Basis period:
Change of accounting date
Shorter - same tax year?
Shorter - next tax year?
Longer - next tax year?
Longer - next next tax year?

Answer 20

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

Question 21

Conditions for changing accounting date?

Answer 21

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