Trading Income

Question 1

taxes on trading income?

Answer 1

• class 4 on profits
• IT on profits
• class 1 secondary (if there are employees)

Question 2

trading income computation for tax purposes?

Answer 2

• start with PBT
• add back disallowable expenses
• deduct allowable expenses not included
• add income not included
• deduct disallowable income
• deduct capital allowances

Question 3

depreciation / loss on disposal?

Answer 3

disallowable (add back)

capital allowances claimed instead

Question 4

appropriation of profit

Answer 4

disallowable (add back)

includes withdrawal of cash or stock by owner

treat stock withdrawals at normal selling price

Question 5

personal expenses of owner?

Answer 5

disallowable (add back)

Question 6

general provisions?

Answer 6

disallowable (add back)

Question 7

specific provision?

Answer 7

allowable

Question 8

pension contributions by employer?

Answer 8

disallow amount unpaid at year end, deductible when paid

(add back unpaid amount)

cash basis

Question 9

third party entertaining / gifts?

Answer 9

disallowable if >£50
disallowable if food/drink
disallowable if tobacco
disallowable if vouchers

Question 10

donations?

Answer 10

allowable if local charity or gift

Question 11

non-trade expenditue?

Answer 11

disallowable (add back)

only trade-related expenditure is allowable

Question 12

fines?

Answer 12

generally disallowable (add back)

Question 13

parking fines incurred by employees?

Answer 13

allowable

Question 14

capital expenditure?

Answer 14

disallowable

Question 15

capital related repairs/enhancement?

Answer 15

repairs = allowable
enhancement = disallowable

Question 16

capital related legal fees?

Answer 16

disallowable

e.g., legal fees for buying new assets

Question 17

renewal of short lease?

Answer 17

allowable

Question 18

short lease?

Answer 18

<50 years

Question 19

patent registration?

Answer 19

allowable

Question 20

leased cars?

Answer 20

15% disallowance for pollutant cars (>50g/km)

Question 21

capital allowances?

Answer 21

allowable

Question 22

pre-trading expenditure?

Answer 22

allowable if incurred within 7 years of trade starting

Question 23

is interest receivable included in trading profit?

Answer 23

no, taxed elsewhere

Question 24

is property income included in trading profit?

Answer 24

no, taxed elsewhere

Question 25

profit on tangible disposal?

Answer 25

taxed elsewhere deduct from trading profits

Question 26

dividend income?

Answer 26

disallowable taxed elsewhere

Question 27

ISA dividends?

Answer 27

disallowable not taxed anywhere, they're exempt from IT

Question 28

employee salaries?

Answer 28

allowable (deductible)

Question 29

are class 4 NICs deductible expenses for trading income?

Answer 29

no, taxed elsewhere

Question 30

class 1 & class 1A deductible trading expenses?

Answer 30

yes, allowable

Question 31

legal fees on advice on health & safety regulations?

Answer 31

allowable legal fees are disallowable if they relate to non-trade or capital activities

Question 32

does personal pension relate to trading income?

Answer 32

yes and occupational/workplace pension relates to employment income

Question 33

how do you handle personal pension contributions?

Answer 33

gross it up and add it to the BRB

Question 34

how is tax relief given for personal pension contributions?

Answer 34

by extending the BRB, not by being a deductible trading expense

Question 35

how are trading losses from prior year treated?

Answer 35

they are carried forward against current year trading income automatically e.g., loss of 2k in PY, profit of 100k in CY, net CY = 98k profit