U2 Income and Trading Flashcards
Do companies pay income tax?
No, companies pay corporation tax instead of income tax.
When does the UK tax year start and end?
runs from 6 April to 5 April of the following year.
What tax are sole traders primarily subject to on their trading profits?
income tax
Which other taxes might a sole trader pay?
Capital Gains Tax (CGT) or Inheritance Tax (IHT) based on their circumstances and the nature of their trade.
When is VAT registration required for a sole trader?
if chargeable supplies exceed £90,000 in a 12-month period.
How are trading profits assessed for sole traders?
calculated based on an accounting period, usually of 12 months.
can choose an accounting period that differs from the tax year
who pays tax on partnership profit
individual partners NOT the partnership itself
profits apportioned between partners
How is the trading profit for a partnership calculated?
Trading profit/loss = Chargeable receipts - Deductible expenditure - Capital allowances.
How do partners report their income from the partnership for tax purposes?
Each partner reports their share of profits on their tax return and is assessed for income tax individually.
How are trading losses handled in a partnership?
shared according to the partnership agreement, and partners decide individually how to claim reliefs for their share.
What happens if the partnership’s accounting period doesn’t align with the tax year?
Profits or losses are apportioned between tax years based on the accounting period and the number of days in each tax year.
How is tax liability calculated for new or retiring partners?
calculated using the apportionment principle, based on the number of days they were a partner in the relevant period.
How are LLPs treated for tax purposes
similarly to general partnerships
What tax is payable by shareholders on dividends received from their shares?
income tax on dividends
What happens if a close company makes a loan to a shareholder and later writes it off?
If a close company writes off a loan made to a shareholder, the shareholder may face income tax implications.
