Trading Income

Question 1

Badges of Trade - Profit seeking motive

Answer 1

Purchase with intention of reselling at profit

Question 2

Badges of Trade - Number of transactions

Answer 2

Number of similar transactions may indicate trading

Question 3

Badges of Trade - Nature of the asset

Answer 3

not for personal use / investment, but resale at a profit

Question 4

Badges of Trade - Existence of similar trading transactions/interests

Answer 4

e.g. builder sells property more likely to be trade than if sold by someone not in building trade

Question 5

Badges of Trade - Changes to the asset

Answer 5

Purchased then subject to process before resale to enhance marketability more likely to be regarded as trade
(active market and advertising)

Question 6

Badges of Trade - way sale carried out

Answer 6

Sale carried out in way typical of trading organisation (through agent) more likely to be trade

Question 7

Badges of Trade - Source of finance

Answer 7

Loan required to acquire an asset which will be repaid through sale of asset likely to indicate trading

Question 8

Badges of Trade - Time between purchase and sale

Answer 8

short time more likely to be traded

Question 9

Badges of Trade - method of acquisition

Answer 9

If not acquired by purchase, hard to impute trading motive

Question 10

Trading allowance

Answer 10

£1000

Question 11

What is not covered by trading allowance

Answer 11

Trading receipts from a partnership

Question 12

Does trading allowance apply to miscellaneous income

Answer 12

Yes

Question 13

When must election be made to claim trading allowance

Answer 13

by firsts anniversary of normal self-assessment filing date for the tax year

Question 14

Allowable/disallowable
Capital expenditure (improvements)

Answer 14

Disallowable

Question 15

Allowable/disallowable
Revenue expenditure (repairs)

Answer 15

Allowable

Question 16

Allowable/disallowable
Depreciation

Answer 16

Disallowable

Question 17

Allowable/disallowable
Appropriation of profit

Answer 17

Disallowable
e.g. sole trader salaries, pension contributions, tax liabilities, excessive payment to family

Question 18

Allowable/disallowable
General provisioning

Answer 18

Disallowable

Question 19

Allowable/disallowable
Specific provision

Answer 19

Allowable

Question 20

Allowable/disallowable
Non-trade bad debts - specific provision or written off

Answer 20

Disallowable

Question 21

Allowable/disallowable
Trade debts

Answer 21

Allowable

Question 22

Allowable/disallowable
Non-staff entertaining

Answer 22

Disallowable

Question 23

Allowable/disallowable
Staff entertaining

Answer 23

Allowable

Question 24

Allowable/disallowable
Gifts

Answer 24

Disallowable unless
gift to employee
gift of trade sample
gift to customer if incorporate conspicuous advertisement, are not food or drink or tobacco or vouchers exchangeable for goods and cost per customer < 50

Question 25

Allowable/disallowable Donations and subscriptions

Answer 25

Disallowable unless Small donation to local charity Trade stock/plant gifted to charities / UK educational establishment subscription to trade and professional associations

Question 26

Allowable/disallowable Fines and penalties

Answer 26

Disallowable apart from employee parking fines

Question 27

Allowable/disallowable Interest on late payment of tax

Answer 27

Disallowable

Question 28

Allowable/disallowable Legal and professional fees relating to capital

Answer 28

Disallow apart from - legal cost to renew short lease (up to 50y) Costs of registration patent / copyright for trade use Incidental cost of raising LT finance

Question 29

Allowable/disallowable Irrecoverable VAT related to disallowable expenditure

Answer 29

disallowable

Question 30

Allowable/disallowable Employment payments and pensions

Answer 30

Allowable cessation of trade, payments in addition to redundancy only up to 3 x statutory redundancy

Question 31

Allowable/disallowable Leased cars CO@ > 50g/km

Answer 31

Disallowance = 15% * hire charge

Question 32

Allowable/disallowable Leased car co2 < 50g/im

Answer 32

hire charge fully allowed

Question 33

Allowable/disallowable Trading income not showing in accounts Nothing recorded in accounts

Answer 33

Add back selling price

Question 34

Allowable/disallowable Trading income not showing in accounts Entered at cost

Answer 34

Add back profit

Question 35

Allowable/disallowable Customer paid for sale in non-monetary consideration

Answer 35

taxable as trading income

Question 36

Allowable/disallowable Non trading income in accounts

Answer 36

Deduct

Question 37

Allowable/disallowable Trading expenditure not in accounts

Answer 37

Allowable

Question 38

Pre trading expenditure deemed incurred on first day of trading if

Answer 38

Incurred within 7 years of starting date of trade and would have been deductible if incurred in trade

Question 39

Fixed rate deduction Motor vehicles used in trade

Answer 39

approved mileage allowances rather than actual expenditure

Question 40

Fixed rate deduction Use of home for business

Answer 40

Fixed rate monthly deduction, only if work at least 25 hours per week from home

Question 41

Fixed rate deduction Business premises partly used as trader's home

Answer 41

Monthly adjustmentbased on number of occupants, reduces allowable costs

Question 42

CYB

Answer 42

Basis on which trading profits taxed, 12 month period of account ending in the tax year

Question 43

Second tax year tax if accounting period ending in second tax year is 12m

Answer 43

Tax 12 month period ending in that tax year

Question 44

First tax year

Answer 44

Tax actual profits from commencement to following 5 April

Question 45

Second tax year tax if period ending in second tax year is less than 12 months

Answer 45

Tax first 12 months of trade

Question 46

Second tax year tax if period ending in second tax year is more than 12 months

Answer 46

Tax 12 months to normal accounting date (last 12 months of the period)

Question 47

Second tax year tax if no accounting period ending in second year

Answer 47

Tax profits of actual tax year

Question 48

Closing year rules Basis period if business ends not in first or second tax year

Answer 48

From end of basis period for penultimate tax year to date of cessation

Question 49

Closing year rules Basis period if business ends in first tax year

Answer 49

Period traded

Question 50

Closing year rules basis period if business ends in second tax year

Answer 50

6 April - date of cessation

Question 51

Change accounting date One short period of account < 12m

Answer 51

Basis 12m to new date, create overlap profits

Question 52

Change of accounting date one long period of accounts < 12m

Answer 52

Basis period exceeds 12 months, use overlap profits to bring done number to 12

Question 53

Change of accounting date No period of account ending in tax year

Answer 53

Create notional period of accounts, 12 month ending 12 months before actual new date, creating overlap profits

Question 54

Change of accounting date two periods ending in one year

Answer 54

Basis period starts immediately after end of previous and ends on accounting date - > 12m and relieve with overlap

Question 55

Conditions for change of accounting date Within first three years

Answer 55

Automatically accepted

Question 56

Conditions to change accounting date not in first three years

Answer 56

- Notify HMRC of change by 31 January following end of tax year of the change POA < 18 months No previous change in last five tax years unless genuine commercial grounds