Tax adjustments to trading profits

Question 1

Capex cash basis

Answer 1

Cost of capital assets are allowable except:
- Cars
- Land and Buildings

Question 2

Capex Accruals basis

Answer 2

Disallowable - add back

(Capital allowances instead)

Question 3

Depreciation

Answer 3

Disallowable - Add back

Question 4

Salary to sole trader

Answer 4

Disallowable - Add back

(could also include excessive salary to fam member)

Question 5

Provisions

Answer 5

Cash basis - Not deductible

Accruals:
General provision - Disallow, add back
Specific provision - Allowable

Question 6

Non staff entertaining

Answer 6

Disallow - add back

Question 7

Gifts

Answer 7

Disallow except:
- Gift to employees
- Trade samples
- customers if not food, drink, <£50

Question 8

Donations and subscriptions

Answer 8

Disallow- except:

Small donations to local charities
Trading stock or plant gifted to charities or UK education establishment
Subscriptions to trade and professional associations

Question 9

Fines and penalties

Answer 9

Disallowable - add back except:
- employee parking fines

Question 10

Interest on late payment of tax

Answer 10

Disallowable

Question 11

Legal and professional fees relating to capital

Answer 11

Cash basis - Allowable if the item is allowable

Accrual - Disallowable

Specifically allowable for both basis
- Legal costs for renewal of short lease
- Cost of registration of patent/copyright
- Incidental costs of raising long-term finance

Question 12

Employment payments and pensions

Answer 12

Allowable

• On cessation of trade payments for redundancy are only allowable up to 3 x statutory redundancy pay.

Question 13

Leased cars - cash basis

Answer 13

All leased car costs are fully allowable

Question 14

Leased cars - Accrual basis

Answer 14

• CO2 >50g/km the disallowance is 15% of hire charge
• CO2 <50g/km the hire charge fully allowable