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TC > Trading Income > Flashcards

Trading Income Flashcards

1
Q

Badges of Trade - Profit seeking motive

A

Purchase with intention of reselling at profit

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2
Q

Badges of Trade - Number of transactions

A

Number of similar transactions may indicate trading

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3
Q

Badges of Trade - Nature of the asset

A

not for personal use / investment, but resale at a profit

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4
Q

Badges of Trade - Existence of similar trading transactions/interests

A

e.g. builder sells property more likely to be trade than if sold by someone not in building trade

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5
Q

Badges of Trade - Changes to the asset

A

Purchased then subject to process before resale to enhance marketability more likely to be regarded as trade
(active market and advertising)

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6
Q

Badges of Trade - way sale carried out

A

Sale carried out in way typical of trading organisation (through agent) more likely to be trade

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7
Q

Badges of Trade - Source of finance

A

Loan required to acquire an asset which will be repaid through sale of asset likely to indicate trading

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8
Q

Badges of Trade - Time between purchase and sale

A

short time more likely to be traded

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9
Q

Badges of Trade - method of acquisition

A

If not acquired by purchase, hard to impute trading motive

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10
Q

Trading allowance

A

£1000

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11
Q

What is not covered by trading allowance

A

Trading receipts from a partnership

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12
Q

Does trading allowance apply to miscellaneous income

A

Yes

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13
Q

When must election be made to claim trading allowance

A

by firsts anniversary of normal self-assessment filing date for the tax year

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14
Q

Allowable/disallowable
Capital expenditure (improvements)

A

Disallowable

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15
Q

Allowable/disallowable
Revenue expenditure (repairs)

A

Allowable

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16
Q

Allowable/disallowable
Depreciation

A

Disallowable

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17
Q

Allowable/disallowable
Appropriation of profit

A

Disallowable
e.g. sole trader salaries, pension contributions, tax liabilities, excessive payment to family

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18
Q

Allowable/disallowable
General provisioning

A

Disallowable

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19
Q

Allowable/disallowable
Specific provision

A

Allowable

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20
Q

Allowable/disallowable
Non-trade bad debts - specific provision or written off

A

Disallowable

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21
Q

Allowable/disallowable
Trade debts

A

Allowable

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22
Q

Allowable/disallowable
Non-staff entertaining

A

Disallowable

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23
Q

Allowable/disallowable
Staff entertaining

A

Allowable

24
Q

Allowable/disallowable
Gifts

A

Disallowable unless
gift to employee
gift of trade sample
gift to customer if incorporate conspicuous advertisement, are not food or drink or tobacco or vouchers exchangeable for goods and cost per customer < 50

25
Q

Allowable/disallowable
Donations and subscriptions

A

Disallowable unless
Small donation to local charity
Trade stock/plant gifted to charities / UK educational establishment
subscription to trade and professional associations

26
Q

Allowable/disallowable
Fines and penalties

A

Disallowable apart from employee parking fines

27
Q

Allowable/disallowable
Interest on late payment of tax

A

Disallowable

28
Q

Allowable/disallowable
Legal and professional fees relating to capital

A

Disallow apart from
- legal cost to renew short lease (up to 50y)
Costs of registration patent / copyright for trade use
Incidental cost of raising LT finance

29
Q

Allowable/disallowable
Irrecoverable VAT related to disallowable expenditure

A

disallowable

30
Q

Allowable/disallowable
Employment payments and pensions

A

Allowable
cessation of trade, payments in addition to redundancy only up to 3 x statutory redundancy

31
Q

Allowable/disallowable
Leased cars CO@ > 50g/km

A

Disallowance = 15% * hire charge

32
Q

Allowable/disallowable
Leased car co2 < 50g/im

A

hire charge fully allowed

33
Q

Allowable/disallowable
Trading income not showing in accounts
Nothing recorded in accounts

A

Add back selling price

34
Q

Allowable/disallowable
Trading income not showing in accounts
Entered at cost

A

Add back profit

35
Q

Allowable/disallowable
Customer paid for sale in non-monetary consideration

A

taxable as trading income

36
Q

Allowable/disallowable
Non trading income in accounts

A

Deduct

37
Q

Allowable/disallowable
Trading expenditure not in accounts

A

Allowable

38
Q

Pre trading expenditure deemed incurred on first day of trading if

A

Incurred within 7 years of starting date of trade and
would have been deductible if incurred in trade

39
Q

Fixed rate deduction
Motor vehicles used in trade

A

approved mileage allowances rather than actual expenditure

40
Q

Fixed rate deduction
Use of home for business

A

Fixed rate monthly deduction, only if work at least 25 hours per week from home

41
Q

Fixed rate deduction
Business premises partly used as trader’s home

A

Monthly adjustmentbased on number of occupants, reduces allowable costs

42
Q

CYB

A

Basis on which trading profits taxed, 12 month period of account ending in the tax year

43
Q

Second tax year tax if accounting period ending in second tax year is 12m

A

Tax 12 month period ending in that tax year

44
Q

First tax year

A

Tax actual profits from commencement to following 5 April

45
Q

Second tax year tax if period ending in second tax year is less than 12 months

A

Tax first 12 months of trade

46
Q

Second tax year tax if period ending in second tax year is more than 12 months

A

Tax 12 months to normal accounting date (last 12 months of the period)

47
Q

Second tax year tax if no accounting period ending in second year

A

Tax profits of actual tax year

48
Q

Closing year rules
Basis period if business ends not in first or second tax year

A

From end of basis period for penultimate tax year to date of cessation

49
Q

Closing year rules
Basis period if business ends in first tax year

A

Period traded

50
Q

Closing year rules
basis period if business ends in second tax year

A

6 April - date of cessation

51
Q

Change accounting date
One short period of account < 12m

A

Basis 12m to new date, create overlap profits

52
Q

Change of accounting date
one long period of accounts < 12m

A

Basis period exceeds 12 months, use overlap profits to bring done number to 12

53
Q

Change of accounting date
No period of account ending in tax year

A

Create notional period of accounts, 12 month ending 12 months before actual new date, creating overlap profits

54
Q

Change of accounting date
two periods ending in one year

A

Basis period starts immediately after end of previous and ends on accounting date - > 12m and relieve with overlap

55
Q

Conditions for change of accounting date
Within first three years

A

Automatically accepted

56
Q

Conditions to change accounting date not in first three years

A
  • Notify HMRC of change by 31 January following end of tax year of the change
    POA < 18 months
    No previous change in last five tax years unless genuine commercial grounds

TC (18 decks)

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