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4.6 Business Tax > Osborne 2 - Trading profits > Flashcards

Osborne 2 - Trading profits Flashcards

1
Q

Adjusting trading profit for tax purposes:

Qualifying charitable donation?

A

Add back!

Then gets deducted from TTP (visibillity?)

Donating trading stock to sports clubs etc is allowable .. I don’t THINK you add/deducct from TTP in that case.. just ignore…?

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2
Q

Adjusting trading profit for tax purposes:

Donation to political party?

A

Add back (not to do with trade)

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3
Q

Adjusting trading profit for tax purposes:

Gifts to customers rules (2)

A
  1. NO food, drink, tobacco, vouchers.
  2. Otherwise YES up to £50 p/r p/y if LOGO’d.

(Don’t fixate on the £50 and forget the no food etc rule!)

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4
Q

If carrying a trading loss forward , must it be offset against trading profits from the sae trade?

A

No

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5
Q

Cessation

Steps?

A
  1. Identify Final TY (the one the close date falls in)
  2. Identify the Penultimate TY (the one B4) and tax that on CYB
  3. Tax the rest (may be 1 or 2 Accounting periods)
  4. Remember to deduct any Overlap profits.
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6
Q

Change of Accounting date

Steps?

A

1.
Identify YoC:
Earlier of:
1st TY accounts not ending on OLD Accounting date.
1st TY accounts DO end on NEW accounting date.
(Often but not always the same)

2.
TY B4 YoC - tax the 12m up to AP that ends in that TY
TY after YoC - tax the 12m up to AP that ends in that TY
IE CYB

3.
Identify GAP (ie. not yet taxed) - HOW LONG?

> 12m - tax all profits & reduce to 12m using OLP b/f

<12m - tax all profits & increase to 12m by taxing profits from previous period again (creates more OL to c/f)

NB remember can work out how long OLP represent in months by counting from end of ap to end of ty,

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7
Q

Cash vouchers to a local sports club - allowable?

A

No (cash vouchers).

Cricket bats to a local school, incorporating the company logo would be allowable

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8
Q 
Sole trader
class 2 NIC, tax bill - allowable?
A

No The only allowable expenditure is the wages to his daughter of £6,000. The class 2 NIC, tax bill and payment to himself are all drawings.

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9
Q

Cost of setting up a lease - allowable

A

No

Allowable if RENEWING … IF the lease is NOT more than 50 years.

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10
Q

Opening years rules

Steps?

A
  1. Year 1 (tax year start date is in) is start date to end of tax year.
  2. Year 2 (next TY) draw the year on timeline.
    No End of AP? - tax the tax year
    AP is <12m - tax 1st 12m of Trade.
    AP is >12M - tax 12m up to the end of the AP
  3. Year 3
    Shd be CYB but if there was No End of AP in Y2 then you would tax the 12m to the end of the AP.
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11
Q

Are legal costs connected with acquiring NCAs allowable?

A

YES (and installation costs)

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12
Q

Lease payments for cars?

A

If emissions >110 g/km
leased for >45 days
operating lease

15% Disallowed
(110 OR less emissions then whole amount allowable)

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13
Q

Staff entertainment

Customers / suppliers

Gifts to customers

A

Staff
All Allowable
(Don’t worry about £150 limit - this is to do with BIKs)

Customers / suppliers
NOT allowable

Gifts to customers:
Only if >50
carry an advert
not food, drink, tobacco, gift vouchers

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14
Q

Where accounts have been prepared using ‘impairment’ as means of calculating the Bad debt provision.

A

This is treated in same way as ‘specific’ BD .. as long as objective evidence used to calc the amount of impairment. (this arises if accounts prepared using IASs)

NB. Specificbad debt means NAMED debtors

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15
Q

Legal expenses on company formation or acquiring new leases (any length) - allowable

A

NO - Not allowable

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16
Q

Fines to company for LAWbreaking (eg H&S) & legal costs associated. - allowable?

A

NO

I think legal costs eg. breach of contract are OK.. ie civil type lawsuit

17
Q

Corporation tax itself - is this allowable?

A

NO !!!!

18
Q

Employers NICs - allowable?

A

YES

19
Q

Legal expenses on RENEWING a lease

A

YES …. if short (50 years or less)

20
Q

Gifts to educational establishments, charities or registered amateur sports clubs

A

Gifts of trading stock allowed.
Have seen cricket bats allowed example.
Have seen cash vouchers example disallowed.

21
Q

R & D

Criteria (3)

Example costs (5)

A

Must be SME (<500 empl; <= £1M turnover; <=£86M ass)

Must advance overall knowledge or capability in a field of science or technology through the RESOLUTION OF SCIENCE OR TECHNOLOGICAL UNCERTAINTY.
ie. not just advance companies own knowledge or capability.

Must also relate to companies own existing or INTENDED trade.

Example costs:
Employees;
materials;
payment to clinical trials volunteers;
utilities;
software
22
Q

Adjusting published accounts… what to remember?

A

Use PROFIT BEFORE TAX figure to start adjusting.

Otherwise you would have to adjust out the tax because its not allowable!

23
Q

Finance costs relating to bank overdraft interest - allowable?

A

YES

24
Q

When adjusting profits long period how does this work?

A

Just do one adjustment of profit, (except dont do the Cap allowance deduction)

Apportion the profit into the 2 CAPs

Do 2 CA calculations and deduct from relevant CAP

25
Q

Trading Loss

COMPANY

A
  • Can be C/F to set against TTP B4 QCD of fut. CAPs.
  • Co can choose the future CAPs
  • Doesn’t have to be same trade
  • I THINK with CF can restrict to save QCDs????
  • Can be C/B to set against TTP B4 QCD of same CAP.
  • If already set against same CAP can be C/B to the previous 12M (might be one or two CAPs falling in the 12M period)
26
Q

Trading Loss
ST / P’ship

(P’ships are just collection of STs)

A

Carry Back.
* Against Total Income of CY and Previous year
(Can’t restrict save PA)
Can pick and choose which years and which order.
Claim needed by 1 year after Tax return due date.

Carry Forward.
If still got loss (or chose not to use C/B)
* Against FIRST AVAILABLE profits of SAME TRADE

Decision

  • Think about PA and marginal tax rate.
  • Review future profits - will be some same trade?
  • If cashflow needed C/B may get tax refund
27
Q

Trading Loss

DIFFERENCES between Companies & STs

A
  • C/F Same trade.
    Only applies to individuals.
  • Carry back set off.
    Companies have to set off against CY before CB
    Individuals can pick & choose.
28
Q

Change of accounting period

When the gap is <12m

dont make this mistake

A

Bring the gap up to 12 months by using up OLP

(I should know wrong by short gap increase OLP ‘rule’)

You bring the gap up to 12m by going back and taxing the previous x mounths again

29
Q

register a Patent - Sole trader

allowable?

A

YES

BIM45951 - Specific deductions: patents and royalties: costs of obtaining or extending patent rights
S89 Income Tax (Trading and Other Income) Act 2005, S89 Corporation Tax Act 2009

There is general guidance as to the meaning of a patent and the legal background at CA75000 onwards.

Expenses incurred for the purposes of a trade in obtaining the grant of, or the extension of the term of, a patent are admissible as a deduction in computing the profits of the trade. Expenses incurred in connection with unsuccessful applications for patents for the purposes of a trade are also allowable.

30
Q

Adjusting profits for a ST

Gift aid donation - allow or disallow

A

Disallow

It gets claimed elsewhere

31
Q

Kaplan tip re basis periods

Remember a taxpayer will always be taxed for 12m worth of profit except in first and last year of biz

A

NB

In second tax year when there isn’t an accounting period end and so you follow the rule to tax 6/4/x to 5/4/x this is known as ACTUAL BASIS

32
Q

A sole trader can carry forward a loss indefinitely but must agree the amount of the loss with HMRC within 4 years from the end of the tax year in which the loss arose

A

.

33
Q

Sole trader - capital losses

Can you ‘save’ AEA going forward?

A

YES

34
Q

Sole trader - capital losses

Can you ‘save’ AEA CY?
PY?

A

No you cannot ‘restrict - and you can’t opt not to offset CY so as to CF and restrict instead - you MUST offset CY like it or not

You can’t carry back to PY at all

35
Q

The amount of unrelieved qualifying charitable donations … sound confusing

A

It means ‘wasted’ QCDs

So if you got to deduct them from profit then the answer is ‘Nil’

If you had some profit left

Profit B4 QCD 10,000
QCD 15,000

Then the amount of ‘unrelieved’ QCD would be 5,000
(I think)

36
Q

Take care when dividing into CAPs

A

I made error by splitting a 16 month period into first 4 months and then 12 months instead ofthe 12 month period first

..meant that capital gains/losses fell differently and meant a loss could not be offset after all… so computation was wrong

37
Q

indexation rpi or cpi

A

AAAArrrrrrrrrgggggg (PI)
Think of Pirate :)

nb its 3 decimal places unless within the share pool

38
Q

R & D relief

Is capex / capital allowances allowable

A

NO capex

4.6 Business Tax (12 decks)

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