Common Adjustments

Question 1

pre-trading expenditure - time limit

Answer 1

7 years from commencement of trade

Question 2

business gifts rules

Answer 2

1. <50 to one person in one basis period
2. gift has business name / logo / is clear advertisement
3. gift is not food / drink / tobacco

Question 3

operating lease rules

Answer 3

*does not have risks and rewards of owning asset
*deduct rental payment in P&L
*no capital allowances

Question 4

finance lease rules

Answer 4

• does have risks and rewards of owning asset
  *deduct interest and depreciation from P&L (depreciation is an allowable expense for tax in this instant)
  *no capital allowances

Question 5

leasing high emission car rules

Answer 5

*flat rate disallowance of 15% for emissions >50g/km
*leases before 6/4/21 >110g/km
*does not apply if own for 45days or less

Question 6

termination payment rules

Answer 6

• continuing trade - allowable expense
• cessation of trade - statutory amount only - max amount is 4 x stat redundancy amount (1 under s.77 & 3 under s.79)
  *restrictive covenants allowable

Question 7

short lease premium rules

Answer 7

• <50 years
• part of premium is chargeable to IT & part to CGT
• amount chargeable as property income:
  A = P x (50-(Y-1))/50
• if tenant uses property for for trade the amount allowable for tax is:
  A / length of lease
  *landlord charged in year lease is granted
  *tenant received tax relief over the life of the lease

Question 8

parking and speeding fine rules

Answer 8

• incurred by owner = disallowable (dual purpose / not course of trade)
• employee personal fines = taxable benefit = deductible for owner
• fine incurred in car owned / leased by business = business liable therefore disallowable

Question 9

income received after cessation rules

Answer 9

• can elect to have post-cessation receipt taxed year of cessation (could be offset against loss)
• must elect within 1 year from the next 31st jan
• only applies to receipts in tax year no later than 6 years from cessation of trade

Question 10

what post-cessation expenses are qualifying?

how long is relief available for / when must claim be made?

Answer 10

• exp incurred when remedying defective work form former trade
• damages in respect of defective work
  legal expenses in connection with claim on defective work & insuring against liabilities form these claims
• debt collection expenses
• relief available for expenses in the 7 years after cessation
• claim must be made within 1 year from next 31st jan

Question 11

what is the cap for post-cessation trade relief?

is post-cessation relief just against trading income?

Answer 11

• max relief each year: £50k or 25% of taxpayers total adjusted income if greater
• if it has not been relieved against income it can be treated s an allowable capital loss for CGT purposes in the same year
• post cessation exp can be carried forward against future post-cessation receipts only - may be wasted if no receipts in future

Question 12

how to treat patent royalties

Answer 12

• royalties are paid net of tax
• add back the basic tax to the income tax liability so not receiving relief twice

Question 13

charity donation rules

Answer 13

• allowed if local charity in return for advertisement
• if gift aid declaration has been made add back and extend bands in income tax computation instead