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Additional factors when considering Badges of Trade:. 3 start learning
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Finance method. | Acquisition method. | Similar Transactions. FAST
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Badges of Trades are factors used to determine... Subject matter. Taxpayer purchased and resold 1 million rolls of toilet paper. This was held to be an adventure in the nature of a trade, since it was inconceivable that the rolls were acquired for any purpose other than realising a profit. start learning
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whether an activity constitutes trading or an investment (so that IT vs CGT).
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# start learning
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Subject matter. | Ownership period. | Frequency of transactions. | Improvements. | Reasons for sale. | Motive. SOFIRM Type of good normally traded vs personal asset. | Sale within short period indicates trades. | Repeated similar transactions indicate trading. | Work carried out to make asset more marketable indicates trading. | Intention to profit indicates trading.
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AIA is available on acquisitions in the order: SPSP start learning
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Special rate pool items.| Plant and machinery in main pool.| Short life assets.| Private use assets. Available to all businesses.| 100% allowance for the first £1,000,000 of expenditure.| AIA is not available on cars.| Pro rate for periods of accounts that are not 12 months.| Voluntary.| Expenditure above the limit qualifies for WDA immediately.
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AIA is unavailable in the accounting period in which... start learning
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AP in which trade ceases.
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Even if companies are not in the same 51% group the AIA must be split between... start learning
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related businesses (owned by the same individual are related where businesses are engages in the same activities | or share the same premises). The owner of the businesses can choose how to allocate a single AIA between them. Unrelated businesses owned by the same individual will each be entitled to the full AIA.
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18% Writing down allowance (WDA) is on main pool and... start learning
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Special rate pool WDA is 6%. | WDA is adjusted for assets with private use. | Available to all businesses.
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What type of asset is available for First Year Allowance (FYA)? start learning
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New cars with emission up to 50g per km only. Never time apportion for short or long accounting periods. | Voluntary. | Available to all businesses.
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Balancing adjustment types: ? start learning
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Balancing charge (BC). | Balancing allowance (BA). When sale proceeds are HIGHER than balance in relevant pool. | When sale proceeds are LOWER than balance in relevant pool. |
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Balancing Allowance (BA) only occurs on main pool or special rate pool when... start learning
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when business ceases to trade. BA can occur in a 'single asset' column at any time. | BC can occur in any pool at any time.
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BC and BA. Amount of asset disposed of can never... start learning
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can never exceeds the original cost of the asset. Deduct the sale proceeds from the relevant pool but the amount deducted can never exceeds the original cost of the asset.
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Capital allowances for cars with a private use characteristics: 2 start learning
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Separate column. | BA or BC will arise on disposal. WDA 18%/6% depending on emissions.
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6% special rate pool includes expenditure incurred on: # start learning
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High emission cars (over 110g). | Integral features of a building. | Long-life assets (LLA). | Thermal insulation of a building. HILT [rękojeść]
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AIA is not available for... start learning
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Long-life assets (LLA) definition in special rate pool context: 2cz start learning
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Assets with a working life of at least 25 years, | with a expenditure incurred AT LEAST £100,000 in 12 months period. E.g. aircraft, agricultural equipment, air conditioning units.
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Long-life assets (LLA) exceptions: 2 start learning
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Cars. | Plant and machinery situated in a building used as a retail shop, showroom, hotel or office. RSHO
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Integral features in capital allowances context examples: 2 start learning
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Lifts. | External solar shading. Electrical systems. | Cold water systems. | Space or water heating systems. | Powered systems of ventilation, air cooling or air purification. | Escalators and moving walkways.
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Thermal insulation can be included in special rate pool provided that the building is... start learning
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is any commercial building, other than residential building in a property business.
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Small pool WDA applies to ... and ... pools only. 2 start learning
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main pool | special rate pool
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Small pool WDA operating: start learning
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Company can claim on either or both pools*. | Available where the balance on the pool after current period additions and disposals is up to £1,000. WDA = any amount up to 1,000 for 12 month period. Optional. | Applied proportionally if AP is not 12 months. | *Applies to the main pool and the special rate pool only.
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Capital allowances - Short life assets definition: start learning
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Asset with a useful life less than 9 years.
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Short life assets (SLA) accounting treatment: 3 start learning
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AIA available. | BA or BC will arise when the asset is disposed of. | Each asset has its own column. ABC Not available on motor cars. | Not available on assets with a private use.
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SLA is beneficial where... start learning
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where the asset with a short life is to be disposed of at less than TWDV. In order to determine whether making the election is beneficial, the trader must decide within two years whether he anticipates selling the asset for more or less than its TWDV.
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SLA treatment if asset was not disposed of within 8 year from the end of the AP in which it was acquired: start learning
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the TWDV is transferred back into the main pool.
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Short Life Asset (SLA) election due date: start learning
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By 1 year of 31 January following the end of the tax year in which the asset was acquired. Election is irrevocable and binding.
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Capital allowance - Private use assets operating: 3cz start learning
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Separate column for each assets.| Written down by the AIA or WDA in full | but actual allowance claimed is restricted to business proportion use proportion. BC and BA on disposal are also restricted to business use proportion.
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Which capital allowance is available only for unincorporated businesses? start learning
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Private use asset allowance (Not applicable for companies).
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start learning
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Allocate the AIA to special rate pool additions in priority to additions of PPE in the main or individual asset pools.
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Total capital allowances are deducted from... start learning
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from the tax adjusted trading profits. Deal with any disposal by deducting the lower of cost or sale proceeds. Don't forget about balancing charge or balancing allowance.
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Structures and building allowances (SBAs) are available for companies, including ... on, ... property 2 start learning
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companies, including unincorporated businesses | on commercial property. SBAs must be scaled up or down according to the length of AP, which could be shorter than 12 months for an unincorporated businesses.
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New business - opening year rules: First tax year basis of assessment: start learning
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Profits from date of commencement to following 5 April (Actual basis).
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Second tax year if a period of account ending in the tax year is a 12 month AP: New business - opening year rules. Basis of assessment. start learning
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That period of account (CYB).
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Second tax year if a period of account ending in the tax year is less than 12 months long: New business - opening year rules. Basis of assessment. start learning
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The first 12 months of trade.
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Second tax year if a period of account ending in the tax year is more than 12 months long: New business - opening year rules. Basis of assessment. start learning
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12 months ending as the accounting date in the second tax year (that is the last 12 months of the long period of account).
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Second tax year if no period of account ending in the tax year: New business - opening year rules. Basis of assessment. start learning
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Actual profits from 6 April to 5 April.
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Third tax year - basis of assessment: 2 New business - opening year rules. start learning
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Normally CYB (12 months), | but in case of long period of account - last 12 months of that period. Fourth tax year onwards - Normal CYB.
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Relevant tax year for APs ending on 31 March 2020 and 30 April 2020: 2 start learning
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Assessed 2019/20. | Assessed 2020/21. 31 March - tax year ends late. | 30 April - tax year ends early. Pay dates: 31 January 2020 31 July 2020 31 January 2021. | Pay dates: 31 January 2021 31 July 2021 31 January 2022.
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Date to submit and time to prepare tax computations: 2cz+2cz (AP end on 31 March 2020 and 30 April 2020) start learning
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Submit until 31 January 2021 (10 months to prepare). | Submit until 31 January 2022 (21 months to prepare).
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AP end 31 March 2020 - late | an30 April 2020 - early start learning
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Profits INCREASING in opening year - assessments based on: 2 (AP end on 31 March 2020 and 30 April 2020) start learning
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Assessment based on later (higher) profits. | Earlier (lower) profits.
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Profits DECREASING in opening year - assessments based on: 2 (AP end on 31 March 2020 and 30 April 2020) start learning
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Assessment based on later (lower) profits. | Earlier (higher) profits.
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Change of accounting date conditions: 3 start learning
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Change must be notified to HMRC up to 31 January following the tax year in which the change is made. | The first accounts to the new accounting date must not exceed 18 months. There must not have been another change of accounting date during the previous 5 tax years, unless for genuine commercial reason.
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If new date is EARLIER in the tax year than the old one, the basis period for the tax year of change will be: 2cz start learning
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. | Assess the 12 months to the NEW accounting date. | Additional overlap profits ARE created. The basis period must be for 12 months (?).
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If new date is LATER in the tax year than the old one, the basis period for the tax year of change will be: 2cz start learning
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The WHOLE PERIOD ending with the new accounting date. | DEDUCT the appropriate number of months' worth of overlap profits to ensure that equivalent of only 12 months' profits are assessed.
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NICs on employees of self-employed individual: start learning
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Standard employer class 1 and 1A contributions. Fun fact: NIC class 4 is not payable if over state pension age or under 16 AT THE START of the tax year.
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Cash basis for small businesses joining and leaving conditions: 4 start learning
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Optional. | Unincorporated businesses* only. | Business must have annual turnover up to £150,000 [given]. | Can continue to account on cash basis until turnover exceeds £300,000. *sole traders and partnerships (not companies and Limited Liability Partnership, LLP) Cash basis - calculating profits and losses on the basis of cash received and cash paid in the period of account (instead of normal accruals basis). | On exam: assume that accruals basis applies unless it is specifically mentioned in the question.
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Cash basis for small businesses features: 3 start learning
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Accounts can be prepared to any date in the year. | The FLAT RATE EXPENSE DEDUCTION for car expenses will always be claimed instead of capital allowances. | There is no distinction between capital and revenue expenditure for tax purposes*. DCD *purchases are allowable deductions when paid for | and proceeds are treated as taxable cash receipts when an asset is sold.
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Advantages and disadvantage of Cash basis for small businesses: 2+1 start learning
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Simpler accounting. | Profit taxed when realised and cash available to pay. | Losses can only be carried forward.
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Flat rate expense deduction operating: 3cz start learning
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Any unincorporated businesses (whether or not using the cash basis) | can opt to use flat rate expense adjustments | to replace calculation of actual costs incurred in respect of those expenses. UOR
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Flat rate expense adjustment for Motoring expenses allowable deduction: start learning
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Amount using the AMAP rates (45p, 25p).
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Flat rate expense adjustment for Private use of part of a commercial building* adjustment: 2cz start learning
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Fixed amount based on the number of occupants. | Covers private use of household goods and services, food and utilities. Note: Fixed amount will be provided within the exam question. Private element of the other expenses (e.g. rent and rates) = adjusted for as normal.
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Cessation of business - examples of scenarios that may be examined: 3 start learning
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Sole trader sells his business to a company (incorporation of a business). | Partner leaves partnership. | Sole trader retires or dies. Sole trader sells his business to another sole trader. | Sole traders gifts his business.
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Cessation of business. IT and capital allowances operating: 3 start learning
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No AIA, FYA and WDA in final period. | BA nad BC computing, | but if business is transferred to connected person (i.e. business is incorporated), the owner can elect to transfer at TWDV (no BAs or BCs). Additions and disposals are allocated to relevant pools.
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Cessation of business - trading income assessment: 2 start learning
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Actual profit from the end of the basis period of the previous year until cessation. | Deduct overlap profits.
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Cessation of business - CGT operating: 3 start learning
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Chargeable gains arise on disposal of assets (goodwill, property, investments). | MV used as proceeds if assets gifted. | Reliefs possible (GIBER). GMR
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Cessation of business and CGT - what reliefs may be available: # start learning
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Gift relief (if business is gifted). | Incorporation relief (if sold to a company). | BADR. | EIS-SEIS reinvestment relief. | Rollover relief. GIBER Note: for IHT purposes consider availability of BPR on gift of an unincorporated business.
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Cessation of a business and VAT - Transferring business as GC treatment: 3 start learning
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Assets used in the same kind of business as transferor | and Transferee is or immediately becomes registered for VAT. | No VAT - not a taxable supply. ARN Standard VAT rules for actual cessation: deemed supply of business assets; no output tax for assets without input tax incurred (e.g. cars); de minimis limits of £1,000.
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Can trade losses can be offset against total income? ? start learning
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Relief available against TOTAL INCOME | in the year of the loss | and preceding tax year. When there is more than one loss to offset deal with the earliest loss first.
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Trading losses relief against total income characteristics: PAG start learning
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Offset cannot be restricted to preserve Personal Allowance - 'all or nothing'. | Excess loss is automatically carried forward | or can be set against chargeable Gains. PAG Offset is restricted if loss exceeds maximum amount.
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Trading losses. Relief against FUTURE profits rules: 3cz start learning
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Relieved against first available losses | against trading profits only | of the same trade. Loss offset cannot be restricted.
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Trading losses. In which year or years the relief against chargeable GAINS is available? ? start learning
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In the year of the loss | and preceding tax year (As a claim against total income). Trading loss is treated as a current year capital loss. It is deducted AFTER the offset of current year capital losses, BEFORE the AEA and capital losses brought forward.
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Trading losses. Relief against chargeable GAINS is only possible by... start learning
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by a claim against total income has been made in the tax year in which a claim against gains is required. No maximum restriction. | Do not need to claim against total income in both year.
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Loss arising can be reduced by NOT claiming full capital allowances because... start learning
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the TWDV carried forward will be correspondingly higher. Higher capital allowances will therefore be claimed in the future rather than increasing a loss now.
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Opening years relief is can be claimed in ANY of first ... years of a new business | on ... basis. 2 start learning
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any of first 4 years of the trade | on a FIFO basis. [against total profits] One claim covers all 3 years. | span of the relief: CY + last 3 year on a FIFO basis.
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Opening years relief can be set against ... income. It ... be restricted to preserve personal allowance. start learning
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against TOTAL INCOME; | cannot be restricted Maximum restriction applies as for ongoing loss relief against total income.
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Terminal Loss Relief is given for the loss of the last ... of trading | against ... preceding tax years | on ... basis. start learning
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is given for the loss of the last 12 months of trading | against 3 preceding tax years | on a LIFO basis. Only against profits of the same trade.
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Calculation of the terminal loss components: ? for the purposes of terminal loss relief start learning
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Loss from 6 April to date of cessation. | Proportion of loss in the preceding tax year up to 12 months prior to cessation date*. | Unrelieved overlap profits. *Terminal loss relief is given for the loss of the last 12 months of trading in total.
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Incorporation loss relief will be available if the consideration for the business is at least ... % in the form of shares. start learning
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When a business is transferred to company, trading losses at the date of cessation can be carried forward indefinitely provided... 2cz start learning
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provided that owner retains shares | and the shares consist at least 80% of consideration. It applies only for the personal I.T. purposes, not accounts of the company.
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When trading losses are transferred to a company, they can be offset against future income received from company IN ANY ORDER. Income can be in form of... 3 start learning
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dividends | interest | earned income
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Personal income tax. Trading losses offset against total income restriction formula: start learning
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greater of | £50,000 | or 25% of (total income − Gross PPCs). [Restriction does not apply to profits from the same trade - they are offset separately - and for capital gains.] Therefore restriction will be £50,000 unless adjusted total income exceeds £200,000. | The maximum restriction may be beneficial as it could avoid wasting personal allowance.
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Maximum deduction from total income limit applies to trading losses set against years: 2 start learning
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Current year total income | and earlier years IF set against income other than profits of the same trade.
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Maximum deduction from total income limit does not apply to... start learning
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to losses set against chargeable gains.
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When offsetting against earlier years set against profits from the same trade first, then offset... start learning
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No restriction to offset against profits from the same trade. | Restrict offset against non-trading income. | Loss that cannot be set off is not lost (can be claimed to offset against chargeable gains or carry forward as usual).
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When dealing with questions involving losses set up... start learning
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a loss working for each loss to show how it is utilised. If more than one loss, consider them in chronological order.
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Trade losses and relief against total income claim characteristics: 2 start learning
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Separate claim is required for each of 2 available tax years. | Either order of claims is allowed.
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'All or nothing' rule applies to reliefs against... 3 start learning
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total profits | gains | rollover relief
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Rules if partners join or leave partnership: 3 start learning
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Opening year rules. | Closing year rules. | Each partner use own share of accounting profits and losses. Partnership - treat partners like sole traders - each partner is the owner of the business. | Normally: just allocate profits according profit sharing agreement in the AP.
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Self-employed. Due date of IT and NIC 4 and filing date in opening year: start learning
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31 January following the tax year. From second year: 3 instalments (POA1 on 31 January, POA2 on 31 July, BA on 31 January).
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Self-employed. What is the payment for the late payment of POAs? start learning
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Balancing payment: as above + at least 5%. Additional penalty of at least £100 is levied for late filing of return.
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