3 Flashcards
(39 cards)
What was the estimated number of private-sector enterprises in the UK at the start of 2023?
5.6 million
Reported by the Dept for Business and Trade in October 2023.
What percentage of private-sector enterprises are non-employing businesses?
75%
These businesses employed 27.5 million people and had a combined turnover of £4.48 trillion.
What is the largest group among private-sector enterprises in the UK?
Sole traders (55%)
3.1 million sole traders were reported.
What is the focus of Lecture 3?
Tax treatment of unincorporated businesses, specifically sole traders.
How is a sole trader’s business treated for tax purposes?
It is not a separate legal entity and forms part of personal income tax.
What is the basis of assessment for trading income?
Determining if the income is from trading or capital in nature.
What are the two types of income tax computations mentioned?
- Other (non-savings)
- Savings
- Dividends
What are the tax rates for trading income?
- Personal allowance: £12,570
- Income tax:
- £1 - £37,700: 20%
- £37,701 - £125,140: 40%
- £125,140+: 45%
- Class 4 National Insurance:
- £12,570 - £50,270: 6%
- £50,271+: 2%
What is the annual exempt amount for capital gains tax?
£3,000
This amount has been reduced substantially over the last couple of years.
What is the difference in tax treatment of trading losses versus capital losses?
Trading losses can reduce income tax liability; capital losses cannot.
What does S989 ITA 2007 state about trade?
A trade includes any venture in the nature of trade.
What are the nine factors per HMRC BIM 20205 that indicate trading?
- Profit seeking motive
- Number of transactions
- Nature of the asset
- Existence of similar transactions
- Changes to the asset
- Method of sale
- Source of finance
- Interval between purchase and sale
- Method of acquisition
What is the significance of profit-seeking motive in determining if an activity is a trade?
It is one of the most persuasive indicators of trading.
What is the starting point for calculating taxable trading profits?
Accounting profit.
What types of adjustments may be needed to calculate tax-adjusted trading profits?
- Add disallowable expenses
- Add unrecognized taxable income
- Subtract allowable expenses not included in accounts
- Subtract non-taxable income included in accounting profit
What must be true for expenditure to be considered allowable for tax purposes?
It must be incurred wholly and exclusively for the purposes of the trade.
What is the duality of purpose in the context of disallowable expenditure?
If expenditure has more than one purpose, one of which is not a trading purpose, it may be disallowed.
What happens if the incorrect treatment of profits occurs?
It may result in penalties and interest.
What does the term ‘badges of trade’ refer to?
A series of tests suggested to help determine if a transaction constitutes a trade.
What does ‘remote’ refer to in the context of disallowable expenditure?
It refers to expenses that are not related to the purpose of the trade
Expenses must be closely connected to the trade to be deductible.
What is the significance of duality of purpose in disallowable expenditure?
If an expenditure has more than one purpose, one of which is not a trading purpose, it may be disallowed.
What does S34 ITTOIA 2005 state regarding trade profits?
No deduction is allowed for expenses not incurred wholly and exclusively for the purposes of the trade or losses not connected with or arising out of the trade.
What is stated in S33 ITTOIA 2005 regarding capital nature items?
No deduction is allowed for items of a capital nature.
What are the criteria for an expense to be deductible in computing taxable business profit?
- Incurred wholly and exclusively for the purposes of the trade
- A revenue expense, not a capital expense
- Incurred for the purpose of producing a profit
- Not otherwise disallowed
