Business Tax
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- Created by: kian burgess
- Created on: 04-09-21 12:14
Badges of Trade - Profit Seeking Motive?
If the reason for buying the asset was to sell it for profit, then the profit is likely to be treated as trading income.
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Badges of Trade - Number of Transactions?
How many times has the individual carried out similar sales.
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Badges of Trade - Nature of the asset?
Where the items purchased have no personal use to the individuals then this usually indicates purchases for a trade.
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Badges of Trade - Existence of similar trading transactions or interests?
If the individual selling the asset which they claim to be held for investment purposes also runs a trade selling the same type of assets.
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Badges of Trade - Changes to the asset?
If the owner of the asset being sold has done any supplementary work (improvements , repackaging or even marketing) then the profit made on selling the asset could be treated as trading income.
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Badges of Trade -The way the sale was carried out?
If the sales transaction is carried out in the same way as that of an undisputed trader, this is more likely to be trade, For example, selling an asset through an agent would be typical of a trading organisation.
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Badges of Trade - The source of Finance?
If money is borrowed to buy the asset and will be repaid from the proceeds of selling the asset this is likely to indicate trading.
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Badges of Trade - Interval of time between purchase and sale?
If an individual has owned an item for a long period of time, then it is likely to be viewed as a gain. If the item has been owned for a short period of time, then any profit is more likely to be treated as trading income.
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Badges of Trade - Method of acquisition?
If the individual selling the assets acquired them unintentionally and so is selling them, then it is likely that any profits arising on sale will be treated as gains. The reason for acquisition and sale could indicate trade.
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List examples of disallowable expenditure?
Capital Expenditure/ Depreciation / Profit or loss on disposal of non-current assets/ Provisions and allowances/Donations/Class 2 and 4 NI/ Gifts o customers/Owner salary/Lease cars with CO2 emissions more than 110g/km then 15% of lease cost is disallowab
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What is tax evasion?
Any action taken to evade tax by illegal means; this carries a risk of criminal prosecution. Examples of tax evasion include failing to declare income and claiming false expenses.
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What is tax avoidance?
Tax avoidance is not illegal. It is a way of finding loopholes in the tax system in the way HMRC did not intend.
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What is tax planning?
Use of legitimate means to minimise tax payers tax liability for example by investing in a tax free ISA.
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Identify when a company is required to pay its final installment
The final installment is always due on the 14th of the 4th Month following the year end.
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Is a specific provision adjustment allowable or disallowable?
Specific provision adjustments are allowable
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Are general allowances and provisions allowable or disallowable
General allowances and provisions e.g. an allowance for irrecoverable/doubtful debts are not allowable deductions.
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How much is disallowed expenditure for lease cars, if a car has CO2 emissions of more than 110g/KM
15% of the lease cost is disalloable.
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What does annual investment allowance not apply to and what are the amounts?
Cars. Prior to January 2019= 200,000. From January 2019= 1,000,000.
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What are writing down allowances for (WDA)?
-Expenditure on Cars - Expenditure in excess of the AIA limit - Balances brought forward from earlier periods.
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How are WDA's calculated?
WDA's are transferred to the general pool except from cars with emissions over 110g/Km and calculated at a rate of 18% on a reducing balance basis.
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What is the rule in the general pool for when a capital item is sold?
When a capital item is sold it must be removed from the general pool by deducting the lower of original cost and any sale proceeds.
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What are the special rules that apply to the purchase of cars?
0-50g/km = 100% FYA.
51-110g/km= 18% WDA in the general pool
Greater than 110g/km= Reduced % WDA in the special rate pool.
51-110g/km= 18% WDA in the general pool
Greater than 110g/km= Reduced % WDA in the special rate pool.
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Give examples of disallowed expenditure?
Class 2 and 4 national insurance for the owner of the business is disallowed, however any Class 1 National insurance in respect of employees is an allowable deduction
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Give examples of disallowed expenditure?
Donations to political partoes. Donations to charities except small, local charities.
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Give examples of disallowed expenditure?
Lease cars, if a car has CO2 emissions of more than 110g/km then 15% of the lease cost is disallowable. This will leave 85% allowable.
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Choose the correct treatment for the following items in relation to the computation of taxable profit?
Profit on the sale of vehicle
Profit on the sale of vehicle
Disallowed
Deduct
Deduct
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Choose the correct treatment for the following items in relation to the computation of taxable profit?
Private use of car by a sole trader
Private use of car by a sole trader
Disallowed
Add back
Add back
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Interest income is taxed on the accruals basis whereas a charitable qualifying donation is assessed on the payment date
True
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A sole trader must retain all records for 2020/21 until 31 January 2027
True- Records need to be kept 5 years after the January following the end of the tax year.
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Explain the intermediaries (IR35) legislation that applies to personal service companies, and advise her whether she is likely to be affected by it.
Despite being asked to go into the office of one of her clients, she is able to go when it suits her, and there is no evidence of any benefits of employment being provided such as holiday or sick pay. The fact that she doesn’t work exclusively for one cl
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Other cards in this set
Card 2
Front
Badges of Trade - Number of Transactions?
Back
How many times has the individual carried out similar sales.
Card 3
Front
Badges of Trade - Nature of the asset?
Back
Card 4
Front
Badges of Trade - Existence of similar trading transactions or interests?
Back
Card 5
Front
Badges of Trade - Changes to the asset?
Back
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