16 - Business tax.

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.

SOFIRM + FAST

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.

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.

Any unused AIA is lost.

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.

Special rate pool WDA is 6%. | WDA is adjusted for assets with private use. | Available to all businesses.

Never time apportion for short or long accounting periods. | Voluntary. | Available to all businesses.

When sale proceeds are HIGHER than balance in relevant pool. | When sale proceeds are LOWER than balance in relevant pool. |

BA can occur in a 'single asset' column at any time. | BC can occur in any pool at any time.

Deduct the sale proceeds from the relevant pool but the amount deducted can never exceeds the original cost of the asset.

WDA 18%/6% depending on emissions.

E.g. aircraft, agricultural equipment, air conditioning units.

Electrical systems. | Cold water systems. | Space or water heating systems. | Powered systems of ventilation, air cooling or air purification. | Escalators and moving walkways.

2

Optional. | Applied proportionally if AP is not 12 months. | *Applies to the main pool and the special rate pool only.

Not available on motor cars. | Not available on assets with a private use.

SLA - short life asset

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.

BC and BA on disposal are also restricted to business use proportion.

Deal with any disposal by deducting the lower of cost or sale proceeds. Don't forget about balancing charge or balancing allowance.

SBAs must be scaled up or down according to the length of AP, which could be shorter than 12 months for an unincorporated businesses.

p 778/882 textbook.

New business - opening year rules. Basis of assessment.

New business - opening year rules. Basis of assessment.

New business - opening year rules.

Fourth tax year onwards - Normal CYB.

Pay dates: 31 January 2020 31 July 2020 31 January 2021. | Pay dates: 31 January 2021 31 July 2021 31 January 2022.

There must not have been another change of accounting date during the previous 5 tax years, unless for genuine commercial reason.

The basis period must be for 12 months (?).

Fun fact: NIC class 4 is not payable if over state pension age or under 16 AT THE START of the tax year.

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.

*purchases are allowable deductions when paid for | and proceeds are treated as taxable cash receipts when an asset is sold.

*e.g. guest house

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.

Sole trader sells his business to another sole trader. | Sole traders gifts his business.

Additions and disposals are allocated to relevant pools.

Closing year rules.

Note: for IHT purposes consider availability of BPR on gift of an unincorporated business.

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.

When there is more than one loss to offset deal with the earliest loss first.

Offset is restricted if loss exceeds maximum amount.

Loss offset cannot be restricted.

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.

No maximum restriction. | Do not need to claim against total income in both year.

One claim covers all 3 years. | span of the relief: CY + last 3 year on a FIFO basis.

Maximum restriction applies as for ongoing loss relief against total income.

Only against profits of the same trade.

for the purposes of terminal loss relief

*Terminal loss relief is given for the loss of the last 12 months of trading in total.

It applies only for the personal I.T. purposes, not accounts of the company.

so any form

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.

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).

If more than one loss, consider them in chronological order.

TGR

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.

From second year: 3 instalments (POA1 on 31 January, POA2 on 31 July, BA on 31 January).

Additional penalty of at least £100 is levied for late filing of return.