Taxation of Small Businesses 2023/2024

Malcolm James is the Head of Department of the Accounting, Economics and Finance Department at Cardiff Metropolitan University and has lectured widely on the subject of taxation on both professional and undergraduate courses. He has also lectured for the Chartered Institute of Taxation and written a number of articles for their journal Tax Adviser and is the Chief Examiner for taxation by the Institute of Financial Services. Before becoming a lecturer he worked for several large firms of accountants and also in industry.

Preface

About the author

Contents

List of abbreviations

Chapter 1. Income Tax Computation

1.1. Aggregation of Taxpayer's Income

1.2. Interest

1.3. Limit on Deductions from Adjusted Net Income

1.4. Payments to Charities

1.5. Personal Allowances Deducted from Net Income

1.6. Computation of Tax

1.7. Tax Reducers

1.8. Tax Retained on Interest, Royalties and Gift Aid donations

1.9. Comprehensive Example

1.10. Death and Separation

1.11. Married Couples – Joint Property

1.12. Minor Children

1.13. High Income Child Benefit Charge

Chapter 2. Taxation of Trading Income

2.1. Introduction

2.2. Statutory Definitions of Trading

2.3. Statutory Trades

2.4. Case Law

2.5. Gambling and Speculation

2.6. Illegal Activities

2.7. Individuals Trading in Shares

2.8. Definition of Trading – National Insurance

2.9. Mutual Trading

2.10. Election to Use Cash Basis

2.11. Capital and Revenue Receipts

2.12. Receipts not Received in Course of Trade

2.13. Other Receipts

2.14. Capital and Revenue Payments

2.15. Expenditure Incurred in the Course of a Trade

2.16. Duality of Purpose

2.17. Repairs and Maintenance

2.18. Replacement of Assets

2.19. Depreciation and Amortisation

2.20. Subscriptions and Donations

2.21. Sponsorship

2.22. Bad Debts

2.23. Provisions

2.24. Payments to Employees & Appropriations of Profit

2.25. Entertainment

2.26. Gifts to Customers and Samples

2.27. Gifts to Educational Establishments and Charities

2.28. Cost of Leasing Cars

2.29. Legal and Professional Fees

2.30. Fines and Payments Against the Public Interest

2.31. Interest and Bank Charges

2.32. Pre-trading Expenditure

2.33. Indirect Taxation

2.34. Compensation and ex gratia Payments to Former Employees

2.35. Redundancy Payments

2.36. Removal Expenses to New Business Premises

2.37. Premiums for Insurance

2.38. Payments to Employees for Restrictive Undertakings

2.39. Staff Training and Development

2.40. Counselling Courses in Connection with Termination of Employment

2.41. Payments to Secure Release from Unprofitable Contracts

2.42. Payments to Political Parties

2.43. Preservation of Goodwill

2.44. Payments on the Cessation of Trade

2.45. Post-cessation Expenditure

2.46. Rent

2.47. Lease Premium

2.48. Patents and Intellectual Property

2.49. Telephone

2.50. Business Rates and Council Tax

2.51. Security Expenditure

2.52. Loan Guarantee Payments

2.53. Use of Home

2.54. Website Expenditure

2.55. Expenses Connected with Foreign Trades

2.56. Valuation of Stock

2.57. Overseas Aspects of Trading

Chapter 3. Capital Allowances on Plant and Machinery

3.1. Introduction

3.2. Definition of Plant and Machinery

3.3. Assets Deemed to be Plant and Machinery

3.4. Definition of Expenditure

3.5. Date of Expenditure

3.6. Disposal of Assets

3.7. Allowances

3.8. Calculation of Capital Allowances

3.9. Short-life Assets

3.10. Cessations and Successions

3.11. Hire Purchase and Leasing

3.12. Fixtures

3.13. Disposal of Fixtures

3.14. Anti-avoidance

Chapter 4. Other Allowances

4.1. Business Premises Renovation Allowance

4.2. Patents

4.3. Know-how

Chapter 5. Basis Periods

5.1. Current Year Basis (CYB)

5.2. Opening Year Rules

5.3. Closing Year Rules

5.4. Tax Planning on Commencement

5.5. Tax Planning on Cessation

5.6. Change of Accounting Date

5.7. Period Less than 12 Months

5.8. Period More Than 12 Months

5.9. Two Accounting Dates in Tax Year

5.10. No Accounting Date in Tax Year

5.11. Transitional Overlap Relief

5.12. Changes in Size and Nature of Operations

5.13. Death of Trader

5.14. Mergers and Demergers

5.15. Date of Commencement and Cessation

5.16. Successions

5.17. Trader Becoming, or Ceasing to be, UK Resident

Chapter 6. Trading Losses

6.1. Introduction

6.2. Offset Against Future Trading Income

6.3. Transfer of Business to a Company

6.4. Offset Against Total Income and Carry-back

6.5. Offset Against Capital Gains

6.6. Losses in the Early Years of Trading

6.7. Terminal Loss Relief

6.8. Tax Planning and Loss Relief

6.9. Restriction of Loss Relief

6.10. Late Claims

Chapter 7. Property Income

7.1. Introduction

7.2. Basis of Assessment

7.3. Dilapidations

7.4. Lease Premiums

7.5. Sale with Right of Conveyance

7.6. Expenditure Deductible

7.7. Sea Walls

7.8. Mutual Business

7.9. Relief for Capital Expenditure

7.10. Losses

7.11. Furnished Holiday Lettings

7.12. Rent a Room Scheme

Chapter 8. Employment and Self-employment

8.1. Introduction

8.2. Benefits of Self-employment

8.3. Definition of Employment and Self-employment

8.4. Tests for Employment

8.5. Workers Supplied by Agencies

8.6. Non-executive Directors

8.7. Self-employment or a Number of Separate Employments

8.8. Provision of Services Through an Intermediary – Income Tax

8.9. Managed Service Companies

8.10. National Insurance – Deemed Employment

8.11. National Insurance – Deemed Self-employment

8.12. National Insurance – Persons Deemed not to be Employed

Chapter 9. Employment  Income

9.1. Income Tax – Introduction, Charging Legislation and General Definitions

9.2. National Insurance Contributions – Charging Legislation and General Definitions

9.3. Income Tax and National Insurance – a Comparison

9.4. Time of Receipt

9.5. Cash Payments to Employees

9.6. Payments Arising by Reason of Employment

9.7. Payments on Termination of Employment or Variation of Employment Terms

9.8. Damages and Compensation Paid to Employee

9.9. Sick Pay and Sickness and Other Benefits

9.10. Commission, Cashbacks and Discounts

9.11. Tax-free Lump Sum Payments

9.12. Payment of Expenses to Third Parties on Behalf of Employee

9.13. Payments for Clothing

9.14. Directorships Held by Partners

9.15. Payment of Employee's Tax by Employer

9.16. Income Tax – Deduction of Expenses

9.17. Reimbursement of Expenses

9.18. Qualifying Travel Expenses

9.19. Entertainment

9.20. Expenses Incurred by Homeworkers

9.21. Other Deductible Expenses

9.22. Payments and Benefits Exempt from Income Tax and Class 1 National Insurance Contributions

Chapter 10. Benefits in Kind

10.1. Valuation of Benefits in Kind

10.2. Benefits – Definition of Cost

10.3. Lower-paid Employment

10.4. Benefits in Kind and National Insurance Contributions

10.5. Payment of Expenses by Employer

10.6. Gift of Assets to Employees

10.7. Cash Vouchers, Non-cash Vouchers and Credit Tokens

10.8. Payment Made to a Registered Pensions Scheme for the Benefit of Two or More People

10.9. Waiver of Loan

10.10.  Job-related Accommodation

10.11.  Assets Available for Private Use

10.12.  Expenses Connected with Living Accommodation

10.13.  Cars

10.14.  Fuel for Private Use

10.15.  Pool Cars and Vans

10.16.  Vans and Heavier Commercial Vehicles

10.17.  Emergency Vehicles

10.18.  Beneficial Loans

10.19.  Scholarships

10.20.  Relocation Packages and Guaranteed Selling Price Schemes

10.21.  Medical Treatment and Medical Insurance

Chapter 11. National Insurance Contributions

National Insurance Contributions and Employees

11.1. Earnings Period

11.2. Aggregation of Earnings

11.3. Rate of Class 1 National Insurance Contributions

11.4. Class 1A Contributions

11.5. Calculation of Contributions

11.6. Class 1A Charge Where Benefits Provided by Third Parties

11.7. Earners over Pensionable Age

11.8. Notional Payments of Class 1 Contributions

11.9. Annual Maximum Contributions

National Insurance Contributions and the Self-Employed

11.10.  Class 2 Contributions

11.11.  Class 4 Contributions

Chapter 12. Pensions

12.1. Introduction

12.2. Scope of Regime

12.3. Registration of Pension Schemes

12.4. Payments by Registered Pension Schemes

12.5. Pension Payments

12.6. Contributions

12.7. Purchase of Shares in Sponsoring Employer

12.8. Loans to Employers

12.9. Unauthorised Payments Charge

Chapter 13. Capital Gains Tax

13.1. Scope of Capital Gains Tax (CGT)

13.2. Exemptions

13.3. Residence

13.4. Capital Losses

13.5. Offset of Trading and Other Losses against Capital Gains

13.6. Capital Gains Tax Rate

13.7. Disposal Consideration

13.8. Date of Disposal

13.9. Allowable Costs

13.10.  Indexation Allowance

13.11.  Taper Relief

13.12.  Assets Owned at 31 March 1982

13.13.  Married Couples and Civil Partners

13.14.  Disposal to Connected Parties

13.15.  Valuation of Assets

13.16.  Negligible Value Claim

13.17.  Value Shifting

13.18.  Disposal by Way of Security

13.19.  Hire Purchase Transactions

13.20.  Appropriations to and from Trading Stock

13.21.  Series of Transactions

13.22.  Options

13.23.  Debts

13.24.  Compensation

13.25.  Asset Derived from another Asset

13.26.  Location of Assets

13.27.  Chattels and Wasting Assets

13.28.  Part Disposals

13.29.  Leases

13.30.  Loss or Destruction of Asset

13.31.  Restoration of Assets

13.32.  Replacement of Business Assets

13.33.  Gift Relief

13.34.  Transfer of Assets to a Limited Company

13.35.  Entrepreneurs' Relief

13.36.  Losses on Loans to Traders

13.37.  Loan Guarantees

Chapter 14. Corporation Tax

14.1. Scope of Corporation Tax

14.2. Trading income

14.3. Loan relationships

14.4. Intangible Fixed Assets

14.5. Derivative Contracts

14.6. Property income

14.7. Chargeable gains

14.8. Indexation Allowance

14.9. Indexation and Losses

14.10.  Assets Owned at 31 March 1982

14.11.  Assets Owned at 6 April 1965

14.12.  Rollover Relief

14.13.  Dividends Received

14.14.  Payments to Charities

14.15.  Distributions

14.16.  Chargeable Accounting Periods

14.17.  Computation of Tax Liability

14.18.  Corporation Tax – Interaction with Income Tax

14.19.  Losses and Corporation Tax

14.20.  Groups and Consortia

14.21.  Close Companies

14.22.  Companies with Investment Business

14.23.  Close Investment-holding Companies

14.24.  Demergers

14.25.  Purchase of Own Shares

Chapter 15. Incorporation, Disincorporation and Choice of Business Medium

15.1. Introduction

15.2. Incorporation

15.3. Disincorporation

15.4. Disincorporation Relief

15.5. Choice of Business Medium

15.6. Comparison of Tax Treatment of Companies and Sole Traders

15.7. Salary vs Dividends

Chapter 16. Special Classes of Taxpayers

16.1. Construction Industry Scheme

16.2. Farmers and Market Gardeners

16.3. Authors, Artists and Composers

16.4. Actors, Musicians and Entertainers

16.5. Entertainers – Other Workers

16.6. Builders

16.7. Care Providers

16.8. Barristers

16.9. Bookmakers

16.10.  Breweries and Licensed Premises

16.11.  Doctors and Dentists

16.12.  Motor Dealers – Valuation of Used Vehicle Stocks

16.13.  Fishermen

16.14.  Franchising

16.15.  Solicitors

16.16.  Sub-postmasters

16.17.  Video and DVD Traders

16.18.  Clubs, Societies and other Mutual Organisations

16.19.  Charities

16.20.  Credit Unions

16.21.  Friendly Societies

16.22.  Housing Associations

16.23.  Self-build Societies

Chapter 17. Partnerships

17.1. Definitions

17.2. Limited Partnerships

17.3. Limited Liability Partnerships

17.4. Allocation of Profits

17.5. Assessment of Partnerships

17.6. Other Income of Partnership

17.7. Non-trading Partnerships

17.8. Post-cessation Receipts

17.9. Losses

17.10.  Notional Losses

17.11.  Mergers and Amalgamations

17.12.  Restriction on Loss Relief for Limited and Non-Active Partners

17.13.  Partnership Property Income

17.14.  Corporate Partners

17.15.  Partnerships and Capital Gains Tax

17.16.  Roll-over and Gift Relief - LLPs

Index