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Hi sir
I’ve faced with some questions in my final review for the exam which extremely made me confused! and they are:Q1: where should we deduct NIC?! I know any class 1A employer NIC is a deductible expense for our company, but what about other kinds of NIC?
Q2: what causes a transfer to be included in CGT and what causes it to be included in IHT?!
Q3: I can not understand the difference between “gift aid donation” and “qualifying charitable donation” and “gift aid under the payroll deduction scheme”! is it a deductible expense in calculating trading income?! if yes what is the relationship with local charities or national charities?!!
Q4: What should we do for the purpose of adjusting the trading profit when it comes to the case when the owner takes a good (with an original cost of 100$ and market value of 350$) for himself in two scenarios! 1: If he deducted its cost in calculating trading income 2: If he did not deduct the cost in the calculation of trading income?
Q5: If there is a trading loss in the first two accounting period, when we are calculating trading loss for each basis periods, the loss belongs to which period? the first year or the second year. ( I know there is no overlap loss)
I’m not a tutor master so my answer might be wrong, but this is my understand abt your question.
Q1: NIC class 1 secondary and 1A for employees is a deductible, unless it’s for director or trader. NIC class 1 primary contributor is of course, paid by employees. Class 2 and Class 4 are paid by the trader themselves.
Q2: You need to make a claim if it’s a lifetime transfer => no CGT
Q3: I’m not sure what you mean by this. The difference might be the way you deduct the donations for company and individual/ trader. Local or national only matter if you are trader or company. First one is deductible in some case when calculating tax adjusted trading income while the later is not deductible when calculating tax adjusted trading income.
Q4: it’s a revenue excluded from the account but included for tax purposes. It’s treated like the trader making a sale to himself for tax adjusted trading income.
Q5: Time basis. If you have claimed the loss in the first year then that loss can’t occur twice. You have the answer for this question right in your question :).
Hi thnguyen
It is very admirable that you should give up your time to assist your fellow students but it would be best to leave the questions on this particular forum to me.In respect of our tax paper and syllabus:
1. An employer’s class 1 and 1A NIC’s are deductible expenses in addition to the gross salary payments made to the employees
2. If a disposal is made in lifetime and represents a “chargeable disposal of a chargeable asset by a chargeable person” then a chargeable gain or allowable capital loss must be computed. If the disposal also represents a “transfer of value” then it is also relevant for IHT. If you do not understand these terms then you need to go back to the opening chapters on each of these taxes. You should also make sure you have thoroughly reviewed this issue in chapter 26
3. This also indicates that possibly you have not properly reviewed the lectures and notes where these items are dealt with – qualifying charitable donations are made by companies and deductible from total profits to give you the TTP of the company.
Gift aid payments and charitable gifting under the payroll deduction scheme are made by individuals and are 2 different things – contributions to charity made under the payroll deduction scheme (only possible when an employer operates this scheme) are allowable deductions from the employment income of the taxpayer, whereas gift aid payments are NOT deductible when calculating the taxable income of the taxpayer but will instead extend the basic rate band limit and higher rate band limit of the taxpayer.
For businesses small contributions to a local charity will be allowable deductions in computing trading profit whereas contributions to national or international charities are not allowable deductions against trading income.
4. In computing the accounting profit of a business the purchase cost of the goods will initially have been included in purchases, but if the goods have then been taken for private consumption by the business owner then either the accounting profit will have been increased by reducing the purchases figure in the accounts or no adjustment will have gone though the accounts. If no adjustment has been made in the accounts then for tax purposes in the Adjustment of Trading Income we must add back to the accounting profit the full market value of the goods taken (350). If the accounting profit has already been increased by the cost of the goods consumed then the tax adjustment will be to simply add back the profit element (350 – 100 = 250)
5. Where losses fall into more than one basis period in opening years in computing profit or loss to be allocated to the tax year of assessment, then they are used in the first such tax year in which they fall and are treated as nil if then they fall within the next year’s basis period as well
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