ACCAF四川大学工商管理学院-PPT课件.pptx

1 The badges of tradelThe 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 establish the taxable profits.The badges of tradelThe subject matterlThe frequency of transactionslExistence of similar trading transactions or interestslThe length of ownershiplThe organisation of the activity as a tradelSupplementary work and marketinglA profit motivelThe way in which the asset sold was acquiredlMethod of financelThe taxpayers intentions2 The adjustments of profitslThere is a difference between the tax(tax law)and accounting treatment(accounting standard)of an item of income and expenditure.lNet profit shown in the accounts is the starting point in computing the taxable trade profits,many adjustments may be required to calculate the taxable profit.2.1 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)Less: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.)Adjusted taxable trading profitNotes:1.Adjustments to the accounting profits for unincorporated business are similar to those needed for companies.2.Taxable profit (“adjusted taxable trading profit”)is not the same as trading income.2.3 Deductible and non-deductible expenditurelDeductible allowable non-deductible disallowablelDisallowable expenditure charged in the accounts must be added back to the net profit in the computation of the taxable trading profit,such as depreciation.lPayments contrary to public policy and illegal paymentslCapital expenditurelExpenditure not wholly and exclusively for the purposes of the tradelBad debtslUnpaid remuneration and employee benefit contributionslEntertaining and giftslLease charges for cars with CO2 emissions exceeding 10g/kmlPatent royalties and copyright royaltieslNIClPenalties and interest on taxlAppropriations lSubscriptions and donationslLegal and professional chargeslInterest 2.3.2 Payments contrary to public policy and illegal paymentslFines and penalties are not deductible.lOnly some qualifying parking fines are allowed.2.3.3 Capital expenditurelCapital expenditure is not deductible.Depreciation and amortisation are also not deductible.Capital allowance is deductible.capital expenditurerevenue expenditurenot deductibledeductibleExamples 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 an assetCapital expenditureTwo exceptions to the capital rule are worth noting.lThe costs of registering patents and trade marks are deductible.lIncidental costs of obtaining loan finance are deductible.2.3.4 Expenditure not wholly and exclusively for the purposes of the tradelremoteness test:expenditure is not deductible if it is not for trade purpose.lduality 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 expense deductible for business use,but non-deductible for private use.lWhere 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)2.3.5 Bad debtslOnly impairment debts incurred wholly and exclusively for the purpose of the trade are deductible.2.3. Unpaid remuneration and employee benefit contributionslIf 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 earnings are paid.lSimilar rules apply to employee benefit contributions.2.3. Entertaining and giftslThe general rule is that expenditure on entertaining and gifts is non-deductible.lEntertaining for and gifts to employees are normally deductible.lGifts to customers are deductible if (a)costing no more 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.lGifts 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 scheme,not as a trading expense.2.3.8 Lease charges for cars with CO2 emissions exceeding 10g/kmlLeasing costs will normally be an allowable expense.lThere is a restriction on the leasing costs of a car with CO2 emissions exceeding 10g/km.15%of the leasing costs will be disallowed in the calculation of taxable profits.2.3.9 Patent royalties and copyright royaltieslPatent royalties and copyright royalties relating to individuals trade are deductible as trading expense.2.3.10 National insurance contributionslNo deduction is allowable except for employers contribution for NIC,such as Class 1 secondary contributions and Class 1A contributions.(chapter 12)2.3.11 Penalties and interest on taxlPenalties and interest on late paid tax are not allowed as a trading expense.2.3.12 Appropriation lSalary or interest on capital paid to a proprietor,are not deductible.Salary 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.lThe 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 behalf of employees,the full amount are deductible but the employees are taxed under the benefits code.(chapter 4)lPayments of the proprietors income tax and national insurance contributions are not deductible.2.3.13 Subscriptions and donationslSubscriptions and donations are not deductible unless the expenditure is for the trade purpose.lThe 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 deductible2.3.14 Legal and professional chargeslLegal and professional charges relating to capital or non-trading items are not deductible.lCharges are deductible if they relate directly to trading.2.3.15 Interest lInterest paid by an individual on borrowing for trade purposes is deductible as a trading expense on an accruals basis,so no adjustment to the accounts figure is needed.（business interest）lbusiness interest and deductible interest2.4 Income taxable as trading income but excluded from the accountslThe usual example is when a proprietor takes goods for his own use.In such circumstances the normal selling price of the goods is added to the accounting profits.lSupplies of services,which are treated as sold for the amount actually paid(but the cost of services to the trader is not deductible).2.5 Accounting profits not taxable as trading incomelCapital receipts:capital gains(taxable on capital gains tax)lIncome taxed in another way,not assessed under trading income:interest income（taxed as savings income）,rental income(taxed as property business income)lIncome that is exempt from tax2. Deductible expenditure not charged in the accountslDeductible expenditure 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 )Example Lawrie 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.Answer The amount of the lease premium paid that will be assessed on the landlord as property business income is:Premium 25,200Less(25,2002%20)(10,080)15,120The trading deduction for Lawrie is therefore 20(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.Questions: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 office,and no adjustment has been made in her accounts for the year ended 5 April 2012 in respect of this.Sam has listed her household expenses relating to the year ended 5 April 2012 as follows:Electricity 400 Gas 250 Water rates 450 Television repairs 50 Groceries 00 Video rental 200 Mortgage interest on 20,000 mortgage 900 What amount can Sam claim as a deduction for her use of an office at home?Answer:Sam uses one room out of five as an office and therefore it is appropriate to allow one fifth of her expenses that relate to running the home.Sams television repairs,groceries and video rental are all of a private nature.The total of the remaining items is 2,000(400+250+450+900).One fifth of this is 400,and this will be Sams deduction for the use of the office.3 Pre-trading expenditure lPre-trading expenditure incurred within the seven years prior to the commencement of trade is allowable if it would have been allowable had the trade already started.