02 - Sole Trader Profits

Question 1

What are badges of trade?

Answer 1

Ways to tell if someone is trading or not, this will be the difference between paying income tax or CGT on sold items

Question 2

What are the two reasons for making adjustment to a tax computation?

Answer 2

• so that only trading income is included
• so that the only expenditure deducted is allowable for trading expenditure

Question 3

What are some common types of disallowed expenditure?

Answer 3

• Fines and penalties
• Donations
• All capital expenditure (including improvements but not repairs), including low value capital expenditure
• Depreciation
  Profit/loss on disposal of assets (loss added back & profit deducted)
• 15% of the cost of a leased car if the emissions are over 50g/km
• Some legal fees if capital related
• customer entertainment and gifts (staff if over £150 per head)
• Provisions for bad debt (actual write offs are allowable)
• Personal expenditure (Assets taken out of the business by the owner need to be accounted for at the selling price)
• Owner salaries (relatives of the owners salaries are only allowable at market rate)

Question 4

What are some common types of non trade income?

Answer 4

• Interest received
• Dividend income
• Property income
• Gains on disposals of capital assets