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Hi,
Sorry to bother you, I have a question regarding the practice question for chapter 4 (Tax adjusted trading profit). The last point in the question is regarding the use of his private office and phone for business purposes, this threw me slightly and the answer to my question maybe glaringly obvious (forgive me if this is a daft question) but why is it taken away from the profit and not added as an expense?
I assume as the phone bill would of course not be present in the company accounts so we have to take that off the profit but I cannot seem to draw a conclusion in my head for why the private office allowable amount has been taken from the profit.
Enjoying the tax lectures thus far! Thank you.
Many thanks
HarryHi Harry
As you rightly say the phone bill would not have been deducted in deriving the accounting profit, but the expense is an allowable business expense and hence for tax purposes is an allowable deduction and therefore reduces the net profit as per the accounts in our adjustment of profits.
It is exactly the same argument for the business use of the office within his private house!
This is a business expense that has been incurred privately and therefore has not been deducted in the accounting profit figure with which we always start the adjustment of profit exercise – hence we now reduce the accounting profit for tax purposes.
Hope this helps and the enjoyment continues!?
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