CH 23 - Simplification Measures Flashcards
Who can claim a flat rate expenses?
Any sole trader or partnership (where all the partners are individuals)
can choose to claim
* a flat rate expense for motor expenses and
* any business use of their home (instead of calculating the actual expenditure incurred and apportioning it between business and non-business use.)
What covers flat rate motor expense (mileage)
he flat rate expense covers the cost of buying, running and maintaining the vehicle.
(ITTOIA 2005, s.94D)
How cost is claimed of a new vehicle acquired
under usual & flat rate expenses?
When a new vehicle is acquired, either:
* Capital allowances can be claimed along with the business proportion of the running costs; or
* The flat rate expense can be claimed instead.
Once the method of relief has been chosen for a vehicle, it is not possible to change to the other method in a later year.
The business proportion of the finance element of a hire purchase or finance lease may be claimed in addition to the flat rate expense.
How Business Use of Home
can be claimed?
his flat rate expense covers household running costs on utilities such as gas and electricity.
Hours worked in the home
(by sole trader/partner and their employees)
Hours Mothly expenses
* 25–50 £10
* 51–100 £18
* 101+ £26
once method is used, it can be changed again in each period by a trader (to claim business porportion of actual expenditure or flat rate expnese)
(ITTOIA 2005, s.94H)
What we do on private use of
Business Premises?
relief can be claimed for the total costs incurred in running the premises less a flat rate reduction to cover private use.
no. of non-business occupants reduc in claim p.m/part m.
* 1 £350
* 2 £500
* 3 £650
In each period the trade can decide whether to claim
- actuall business element of expenditure or,
- flat basis.
Who can use cash basis?
sole traders and partnerships (where all the partners are individuals)
What is eligibility for cash basis?
when can one join or must leave
To be eligible,
the total cash basis receipts for all trades carried on by the person for the basis period must not exceed £150,000 at the end of the tax year.
(proportioned to number of months)
To exit
The election ceases to apply the tax year after business receipts exceed £300,000
or
until the trader’s circumstances change and the trader elects for profits to be calculated using the accruals basis.
(ITTOIA 2005, s.31D)
How cas basis receipts are calculated
where
prtnsp has controling partner?
the partnership cash basis receipts must be added to the cash basis receipts of any other business carried on by the controlling partner
to determine whether the cash basis can be claimed.
How P&M & CA are trated under cash basis?
- The cost of plant and machinery (other than cars) is deducted when it is paid.
- Capital allowances may be available on cars.
- the disposal proceeds from plant and machinery (other than cars) are treated as income.
(ITTOIA 2005, s.33A)
How cost of goods taken by personal use
are treated under cash?
The cost of goods taken out of the business by a trader for their own personal use must be added back.
(ITTOIA 2005, s.172AA)
How interest expense & loan charges are
treated under Cash basis?
A maximum of £500 a year may be deducted for interest expense and charges relating to loans.
(ITTOIA 2005, s.57B)
What are rulles around use of
‘Flat Rate Motor Expenses & Business UoH’?
If the flat rate expense for motor expenses is claimed for a vehicle,
no relief is available for the cost of a van or motorcycle and no capital allowances are available on a car.
What adjustment is required on
join. cash scheme by an existing busines?
an adjustment expense will need to be calculated
Opening debtors + Opening stock – Opening creditors
= Adjustment EXPENSE
+ Unrelieved expenditure for capital allowances (other than for cars) is deducted as an allowable expense.
+ unpaid hire purchase instalments on plant and machinery is treated as a cash basis receipt in the first period of using the cash basis.
(ITTOIA 2005, ss.231 and 233)
What adjustment is required on
leaving a cash basis?
When a business leaves the cash basis, adjustment income will need to be calculated to ensure that all income is taxed and all expenses obtain relief:
Opening debtors + Opening stock – Opening creditors
= Adjustment INCOME
This income will be spread evenly over six tax years unless an election is made to tax any amount earlier.
On cessation of trade, the value of stock and work in progress is taken into account as trading income.
(ITTOIA 2005, ss.239A and 239B)
(ITTOIA 2005, ss.97A and 97B)
What losses are available on Cash Basis?
Relief is not available for ‘sideways loss relief’ ie claims under s.64 or s.72 ITA 2007.
The trade loss can only be carried forward and set against future trading income.
On cessation of trade, terminal loss relief is still available to traders using the cash basis. (ITA 2007, s.89)
(ITA 2007, s.74E)
