Profits/VAT

Question 1

Two types of profit

Answer 1

1. Income - profits which are recurring in nature e.g. rent or trading profit.
2. Capital - one off items e.g. office building increasing in value

Question 2

What is the meaning of:

1. Chargeable receipts
2. Deductible expenditure
3. Income in nature

Answer 2

1. Chargeable receipts - money received for the sale of goods and services.
2. Deductible expenditure- must be for the trade.
3. Income in nature e.g. stock, utility bills.

Question 3

What are capital allowances?

Answer 3

Businesses are entitled to an allowance, which allows them to deduct a proportion of the cost of most capital items from chargeable receipts.

Question 4

Plant and machinery

Answer 4

• type of capital asset
• all goods and chattels which they keep for permanent use in their business, but not stock in trade e.g. manufacturing equipment, tools, computers and other office equipment.

Question 5

Full expensing

Answer 5

Type of capital asset that allows a company to deduct 100% of the cost of plant and machinery, uncapped - but the condition of the asset must be brand new.

Question 6

What does relief for a trading loss applies to?

Answer 6

For a sole trader or partner - they may be able to deduct a trading loss from other income, resulting in them paying less tax overall.

Question 7

Start up loss relief

Answer 7

When the tax payer suffers a loss in any of the first 4 years of the business, the loss can be carried back and set against the tax payers total income in the 3 years immediately prior to the tax year of the loss.

Enables them to claim back from HMRC, some of the income tax they paid in previous employment/business.

Question 8

Carry forward relief

Answer 8

Taxpayer may carry forward their trading loss for a tax year and set it against subsequent profits which the trade produces in subsequent years.

Question 9

What is the current rate of VAT and who must register and charge VAT?

Answer 9

Current rate is 20%.

Anyone making taxable supplies of more than £90,000 in any 12month period must register and charge VAT.

Those that make less, is voluntary for them.

Question 10

What supplies are exempt from VAT?

Answer 10

1. Residential land
2. Postal services
3. Education services
4. Health services

Question 11

Carry-across/ one year carry-back relief

Answer 11

Losses can be set against total income from the same tax year or the tax year preceding the tax year of the loss

Question 12

Set-off capital gains

Answer 12

Allows the tax payer to set trading losses against chargeable gains in the same tax year, and applies when a tax payer has claimed carry across relief.