ACCAF6四川大學(xué)工商管理學(xué)院

1、Chapter 7 Computing trading income (self-employment)1 The badges of trade2 The adjustment of profits3 Pre-trading expenditure精選ppt1 The badges of tradeThe badges of trade can be used to decide whether or not a trade exists. If trade does exist, the accounting profits need to be adjusted in order to

2、establish the taxable profits.精選pptThe badges of tradeThe subject matterThe frequency of transactionsExistence of similar trading transactions or interestsThe length of ownershipThe organisation of the activity as a tradeSupplementary work and marketingA profit motiveThe way in which the asset sold

3、was acquiredMethod of financeThe taxpayers intentions精選ppt2 The adjustments of profitsThere is a difference between the tax (tax law) and accounting treatment (accounting standard) of an item of income and expenditure. Net profit shown in the accounts is the starting point in computing the taxable t

4、rade profits, many adjustments may be required to calculate the taxable profit.精選ppt2.1 An illustrative adjustmentNet profitAdd: expenditure charged in the accounts which is not deductible from trading profits (2.3) income taxable as trading profits which has not been included in the accounts (2.4)L

5、ess: profits included in the accounts but which are not taxable as trading profits (2.5) expenditure which is deductible from trading profits but has not been charged in the accounts (2.6)Adjusted taxable trading profitNotes: 1. Adjustments to the accounting profits for unincorporated business are s

6、imilar to those needed for companies. 2. Taxable profit (“adjusted taxable trading profit”) is not the same as trading income.精選ppt2.3 Deductible and non-deductible expenditureDeductible allowable non-deductible disallowableDisallowable expenditure charged in the accounts must be added back to the n

7、et profit in the computation of the taxable trading profit, such as depreciation.精選pptPayments contrary to public policy and illegal paymentsCapital expenditureExpenditure not wholly and exclusively for the purposes of the tradeBad debtsUnpaid remuneration and employee benefit contributionsEntertain

8、ing and gifts精選pptLease charges for cars with CO2 emissions exceeding 160g/kmPatent royalties and copyright royaltiesNICPenalties and interest on taxAppropriations Subscriptions and donationsLegal and professional chargesInterest 精選ppt2.3.2 Payments contrary to public policy and illegal paymentsFine

9、s and penalties are not deductible.Only some qualifying parking fines are allowed.精選ppt2.3.3 Capital expenditureCapital expenditure is not deductible. Depreciation and amortisation are also not deductible. Capital allowance is deductible. capital expenditurerevenue expenditurenot deductibledeductibl

10、eExamples Improvements, factory extension, constructing a new wall to split a roomRepairs, decoratingCost of initial repairs to an assetnecessary to make the asset useable or profitableremedy normal wear and tear of recently acquired assetsRestoration costsseparate part of an assetsubsidiary part of

11、 an asset精選pptCapital expenditureTwo exceptions to the capital rule are worth noting.The costs of registering patents and trade marks are deductible.Incidental costs of obtaining loan finance are deductible.精選ppt2.3.4 Expenditure not wholly and exclusively for the purposes of the traderemoteness tes

12、t: expenditure is not deductible if it is not for trade purpose.duality test: if expenditure reflects more than one purpose, the private proportion of a proprietor is not deductible but the business element is allowable if an exact apportionment of business expenditure is possible. Notes: normally e

13、xpense deductible for business use, but non-deductible for private use.Where the payments are to or on behalf of employees, the full amount are deductible but the employees are taxed under the benefits code. (chapter 4)精選ppt2.3.5 Bad debtsOnly impairment debts incurred wholly and exclusively for the

14、 purpose of the trade are deductible .精選ppt2.3.6 Unpaid remuneration and employee benefit contributionsIf earnings for employees are charged in the accounts but are not paid within 9 months of the end of the period of account, the cost is only deductible for the period of account in which the earnin

15、gs are paid.Similar rules apply to employee benefit contributions. 精選ppt2.3.7 Entertaining and giftsThe general rule is that expenditure on entertaining and gifts is non-deductible. Entertaining for and gifts to employees are normally deductible.Gifts to customers are deductible if (a) costing no mo

16、re than 50 per donee per year, and (b) carry a conspicuous advertisement for business, and (c) are not food, drink, tobacco or vouchers exchangeable for goods. Gifts to charities may also be allowed. But if a gift aid declaration is made in respect of gift, tax relief will given under the gift aid s

17、cheme, not as a trading expense.精選ppt2.3.8 Lease charges for cars with CO2 emissions exceeding 160g/kmLeasing costs will normally be an allowable expense.There is a restriction on the leasing costs of a car with CO2 emissions exceeding 160g/km. 15% of the leasing costs will be disallowed in the calc

18、ulation of taxable profits.精選ppt2.3.9 Patent royalties and copyright royaltiesPatent royalties and copyright royalties relating to individuals trade are deductible as trading expense.精選ppt2.3.10 National insurance contributionsNo deduction is allowable except for employers contribution for NIC, such

19、 as Class 1 secondary contributions and Class 1A contributions. (chapter 12) 精選ppt2.3.11 Penalties and interest on taxPenalties and interest on late paid tax are not allowed as a trading expense.精選ppt2.3.12 Appropriation Salary or interest on capital paid to a proprietor, are not deductible. Salary

20、paid to a member of traders family is allowed as long as it is not excessive in respect of the work performed by that family member.The private proportion of payments for motoring expenses, rent, heat and light and telephone expenses of a proprietor is not deductible. Where the payments are to or on

21、 behalf of employees, the full amount are deductible but the employees are taxed under the benefits code. (chapter 4)Payments of the proprietors income tax and national insurance contributions are not deductible.精選ppt2.3.13 Subscriptions and donationsSubscriptions and donations are not deductible un

22、less the expenditure is for the trade purpose.The following are the main types of subscriptions and donations. trade subscriptions are generally deductible charitable donations are deductible only if they are small and to local charities political subscriptions and donations are generally not deduct

23、ible精選ppt2.3.14 Legal and professional chargesLegal and professional charges relating to capital or non-trading items are not deductible.Charges are deductible if they relate directly to trading.精選ppt2.3.15 Interest Interest paid by an individual on borrowing for trade purposes is deductible as a tr

24、ading expense on an accruals basis, so no adjustment to the accounts figure is needed. （business interest）business interest and deductible interest精選ppt2.4 Income taxable as trading income but excluded from the accountsThe usual example is when a proprietor takes goods for his own use. In such circu

25、mstances the normal selling price of the goods is added to the accounting profits.Supplies of services, which are treated as sold for the amount actually paid (but the cost of services to the trader is not deductible).精選ppt2.5 Accounting profits not taxable as trading incomeCapital receipts: capital

26、 gains (taxable on capital gains tax)Income taxed in another way, not assessed under trading income: interest income （ taxed as savings income）, rental income (taxed as property business income)Income that is exempt from tax精選ppt2.6 Deductible expenditure not charged in the accountsDeductible expend

27、iture not included in profit and loss account: (a) Capital allowances (chapter 8) (b) An annual sum of premium paid for a short lease which can be deducted by a trader that has paid a lease premium to a landlord who is taxable on the premium as property business income. (chapter 6)精選pptExample Lawri

28、e prepares accounts to 31 March. On 1 April 2011 he paid a premium of 25,200 for the grant of a 21-year lease on business premises.Calculate the deduction Lawrie can claim in his tax-adjusted trading profit.精選pptAnswer The amount of the lease premium paid that will be assessed on the landlord as pro

29、perty business income is: Premium 25,200Less (25,2002%20) (10,080) 15,120The trading deduction for Lawrie is therefore 720 (15,1201/21) each year. This would have been time apportioned for the year ended 31 March 2012, if the premium had not been paid at the start of the accounting period.精選pptQuestions: Deductible expenditure not charged in the accounts Sam is in business as a central heating engineer. She uses one room of her five-room house as an off