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Hello,
I am using the Kaplan book (F1) and got a bit confused by their explanation of Tax on trading income and Capital gain tax. Namely, they say that Trading tax income is the tax on income from main business activity. Then under Trading tax topic they give example of proforma used to adjust accounting profit for tax purposes. The final proforma contains Balancing charge or allowance which is calculated based on disposal of an asset. The latter made me think that (for some reason) gain from asset sale is considered as trading. Then I read a definition of a Capital taxes which states that capital tax gains are gains made on the disposal of investments and other NON- CURRENT assets. The examples given were about gains from sale of assets…. I got so lost to be hones… Could you please help to understand the above?
What is also confusing is that Balancing charge/allowance are calculated using proceeds from asset sale and tax written down value (which is basically carrying amount calculated using tax depreciation) but in case with Capital gain they used proceeds and THE initial COSTs of an asset.
Thank you in advance!
Hi,
I’m no tax expert but the capital gain arises from the sale of property, shares, so items that usually increase in value. This is why the calculation is the proceeds less the cost.
The tax on trading income will include gains/losses on the disposal of other items of PPE that do not appreciate in value, so machinery and cars.
Thanks
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