Contents

CHAPTER 1: ETHICS......................................................................................2
CHAPTER 2: INTRODUCTION TO TAXATION........................................6
CHAPTER 3: INTRODUCTION TO INCOME TAX...................................9
CHAPTER 4: EMPLOYMENT INCOME....................................................12
CHAPTER 5: TRADING PROFIT................................................................19
CHAPTER 6: CAPITAL ALLOWANCE......................................................24
CHAPTER 7: TRADING PROFITS – BASIS OF ASSESSMENT.............27
CHAPTER 8: NATIONAL INSURANCE CONTRIBUTION....................30
 CHAPTER 1: ETHICS
Fundamental principles
 Intergrity
 Objectivity
 Professional competence and due care
 Confidentiality
 Professional behaviour

Threats
 Self-interest
 Self-review
 Advocacy
 Familiarity
 Intimidation

Conflicts of interest
 Firm vs Client
 Clients managed by the same firm

6 factors to consider in conflict resolution process

 Relevant facts
 Relevant parties
 Ethical issues involved
 Fundamental principles related to the matter in question
 Established internal procedures
 Alternative course of action

Safeguards

Ethical conflict resolution process

 Refuse to
remain
Obtain professional associated with
advice from the the matter
Consult with relevant
professional
creating the
other confict
body/legal advisors
appropriate --> obtain guidance on
Consider 6 persons within ethical and legal issue
factors in the the without breaching
confidentiality
conflict firm/employing
organization
resolution
process
Tax avoidance vs Tax evasion

TAX AVOIDANCE TAX EVASION

Minimization of tax liability by
taking such means that do not violate
the tax rules
Hedging of tax
Taking unfair advantage of short-
commings in the tax law
Use of unjustified mean  not
always be effective
 Anti-avoidance legislation 
close the “loopholes”
 Certain tax avoidance scheme
must be disclosed to HMRC
 Ignoring no commercial
purpose elements
transactions
 General anti abuse rule 
challenge abusive
avoidance
Legal
Deferment of tax liability
Reducing tax by using illegal ways
Concealment of tax
Deliberately manipulationd in
accounts  fraud
Use of means that are forbidden by
law
 Surpressing information to
which HMRC is entitled
Failing to notify HMRC of a liability
to tax
Understating income/gains
of  Providing HMRC with false
information
Deducting expenses that have not
tax been incurred
Claiming capital allowance on plant
that have not been purchased
Illegal
Penalty/imprisionment
Small cases  settle out of court
Seriouse cases (involving fraud) 
 subject of criminal prosecution 
fine/imprisionment on conviction
Minimize tax liability  applying Minimize tax liability  Excersing
script of law unfair methods

Money laundering
Definition:
 Several offences involving in the proceeds of crime/terrorist funds
 Include: Possessing/in any way dealing with/concealing the proceeds of
any crime

Proceeds of crime act (POCA)

Criminalises all forms of money laundering and creates other offences (failing
to notice of money laundering, “tipping-off”,..)

Some one is engaged in money laundering

 Conceal, disguise, convert, transfer/remove (from the UK) criminal
property
 Enter into/become concerned in an arrangement which they know/suspect
facilitates (by all means) the acquisition, rentation, use/control of criminal
property by/on behalf of another person
 Acquire, use/have possession of criminal property

Criminal property includes:

 The proceeds of tax evasion, other tax-related offences, or any other
crime
 A benefit obtained through bribery and corruption (including both the
receipt of a bribe and the income received from a contract obtained
through bribery or the promise os a criminal a bribe)
 Benefit obatained, or income received, through the operationo ff a
criminal cartel
 Benefits (in form of saved costs) arising from a failure to comply with a
regulatory requirement where that failure is a criminal offence

Anti-money laundering reports

Money Laundering Reporting Officer (MLRO):
 All firms who are subjected to anti-money laundering (AML) rules must
appointed a MLRO
  MLRO responsible for oversight of the firm’s compliance with AML
obligations and should act as a focal point for the firm’s AML activity

Suspicion Activity Report (SAR):

 Made to National Crime Agency
 About suspicion of money laundering/terrprist financing

National Crime Agency (NCA)

 Tackles serious and organised crime, strengthen UK borders, fight fraud
and cyber-crime and protects children and young people from sexual
abuse and exploitation
 Receive SAR about money laundering and terrorist fiancing

Tax-related offences
Fall within the definition of money laundering.
In certain cases, individuals may be prosecuted under one of the money
laundering offences

Penalties
Cases tried in Crown Court
 Unlimited fines
 Up to 14 years’ imprisonment for main money laundering offences
Failure to disclose and tipping off
 Can attract unlimited fines and up to 5 years’ imprisonment
 Up to 5 years’ imprisonment for failure to disclose
 Up to 2 years’ imprisonment for tipping off
 CHAPTER 2: INTRODUCTION TO TAXATION
Objectives of taxation
 Management of the economy ~ Generate government’s budget
 Social justice:
o Direct taxes: paid by those who generate the funds to pay the tax
o Indirect taxes: Related to consumption
o Progressive taxes: Rise as a proportion of income as that income
rise
o Regressive taxes: Rise as a proportion of income as that income
falls
o Unit taxes: Flat rate/item, regardless of value
o Value taxes: based on a percentage of the value of the item
o Capital taxes: Based on the value of capital assets/wealth (e.g
CGT)
o Transaction-based taxes: Incurred due to a specific transaction
taking place
 Environment concerns
o Climate change levy on businesses in proportion to their energy
consumption
o Landfill tax to discourage the use of landfill sites for waste disposal
and to encourage recycling
o Taxes on motor vehicles based on carbon emissions

Liability to tax and tax administration

 Individuals:
o Income taxes
o Capital gains tax
o National insurance contributions
o Value added tax
Tax annually on their income and gains arising in a tax year
Tax year: 6/4/N – 5/4/N+1
 Partnership: group of persons carrying on a business together with a view
to making a profit
Each partner liable to tax on their share of income and gains of the partnership
in a tax year
o Income tax of employee deducted under PAYE
 o National insurance contributions as an employer (collected under
PAYE system)
o Value added tax as supplier of goods and services/final consumer
Joint and several liability  taxes can be recovered from all or any of the
partners
 Company: a legal person formed by incorporation under Companies Acts;
legally separate from its owners (shareholders) and its managers
(directors).
o Corporation tax on its income and gains
o Income tax of employees deducted under PAYE system
o National insurance contributions as an employer
o Value added tax as supplier of goods and services/final consumer
The rate determined by reference to the financial year.
Financial year: 1/4/N – 31/3/N+1

HMRC
 Her Majesty’s Revenue & Customs
 The Commissioners: a body of civil servants appointed by the Queen,
who exercise their duties on behalf of the Crown. They have duty to
implement the law relating to taxation and oversee the administration of
taxation.
 Responsibilities:
o Collect and administer taxes: IT, CGT, NIC, CT and VAT
o Pay and administer universal credit, tax credits and child benefits
o Collect and repayments of student loans
o Ensure all emloyees meet minimum wage rules
o Protect UK society from tax fraud, alcohol and tobaco smuggling
and illegal importation of drugs

Making Tax digital for business

Sources of law and practice

 Legislation
 o Statutes
o Budget cycle: The process by which UK statutory tax law
developed
o Finance Act
o Statutory Instruments
 Case law: Many judments are precedent for future cases  they must be
followed unless superseded by legislation or decision of a higher court.
 HMRC publications
o Manuals: guidance for HMRC’s staffs, but also available for
taxpayer and tax professionals
o Statements of practice: interpretation of tax legislation
o Ex-statutory concessions: a relaxation of the strict legal position 
resolve anomalies and relieve hardship
o Press release: dealing with changes in tax law
o Leaflets: aimed at ordinary taxpayer and explain the tax system in
nontechnical language
 CHAPTER 3: INTRODUCTION TO INCOME TAX

Chargeable and exempt income

Chargeable income
 Employment
 Trading
 Renting out property
 Investments: interest on loans,
bank and building society
accounts, dividends
 Other sources: pensions
income, social security
benefits, casual work...
Exempt income
 Interest on National Savings
Certificates
 Income from Individual
Savings Accounts, including
Junior ISAs
 Betting, competition, lottery,
premium bond winnings
 Social security benefits:
housing benefit...
 Scholarships
 Income tax repayment interest
 Apprenticeship bursaries paid
to individual leaving authority
care
 Compensatio payments made
under “qualifying payments”

Computation of taxable income

 Taxation at source: Tax is already deducted at source of the income
 Income received without deduction of tax at source
 Gross income: Income before any form of deduction has been made; most
interest received gross
 Net income: Total chargeable income before deducting the personal
allowance
 Types of income
o Non-savings income: Employment income, Trading profits,
Property income. Miscellaneous income...
o Savings: Income from investments
o Dividend income: Dividends from UK and overseas companies

Personal allowance
 The amount of income on which no income is charged
 £12,570 for 2021/22
 Reduce by £1 every £2 above £100,000  from £125,140  No PA
Taxable income
 For purpose of examination, taxable income = net income
 = net income after deduction of personal allowance

Non-savings Savings Dividends Total

income income Income
£ £ £ £
Employment X X
income
Trading profits X X
Property income X X
Interest received X X
Dividend received X X
Net income X X X X

Less Personal (X) (X) (X) (12,570)

allowance (PA)
Taxable income X X X X

Computing non-savings income tax liability

First £37,700 Basic rate band 20%

>£37,700 to £150,000 Higher rate band 40%
>£150,000 Additional rate band 45%

Computing savings income tax liability

First £5,000 of savings Starting rate band 0%

income
First £1000/£500/£0 Saving nil rate band 0%
above starting rate
band
≤ £37,700 Basic rate band 20%
£37,700 < x ≤ £150,000 Higher rate band 40%
> £150,000 Additional rate band 45%
Computing dividend income tax liability
 First £2,000 of Dividend nil rate band 0%
dividend income
≤ £37,700 Dividend odinary rate 7.5%
band
£37,700 < x ≤ £150,000 Dividend upper rate 32.5%
band
> £150,000 Dividend additional rate 38.1%
band

Computing tax (re)payable

 The amount of income tax payable pay by a taxpayer (or repayable by
HMRC) under self-assessment after considering tax deducted at source

Gift Aid
 Tax relief for cash donations made by individuals to charities
 Actual payment : 80% = Grossed up donation
 Extended basic rate, higher rate = Grossed up donation

Marriage allowance
 Spouse/civil partner can transfer part of their personal allowance to their
spouse/civil partner.
 The amount = £1,260
 The recipent must be a basic rate taxpayer.
 CHAPTER 4: EMPLOYMENT INCOME
Employment income
 Income arising from an employment + income of an office holder (such
as director)
 2 types of employment income
o General earnings: bonuses, commissions, reimbursed expenses,
expense allowances, inducements, tips and gratuities (even if
received unsolicited from third parties)
o Specific employment income

Receipt of general earninngs

Receipt basis  Actual amount received between 6/4/N and 5/4/N+1 
Taxable in 200N/200N+1 tax year
General earnings consisting of money are treated as received on the earlier of
time when:
 The payment is made
 Person becomes entitled to payment

Salary/wages X
Bonus X
Benefits X
Employment income X

Vouchers
 Cash vouchers
o Exchangeable for cash
o Taxable amount = the sum of money that can be exchanged
 Credit tokens (e.g credit card)
o Obtain money, goods, services
o Taxable amount = cost to employer of providing the benefit –
amount paid by employee
 Vouchers exchageable for goods and services
o Tax amount = cost to employer of providing the benefit – amount
paid by employee

Living accomodation
  Employees are taxable on the provision of living accomodation unless
it’s job-related accommodation
 Job related accomodation
o Necessary for the proper performance of employee’s duties (1)
o Provided for better performance of employee’s duties and it’s
customary for accommodation to be provided (2)
o Avoid special threat to the employee’s security (3)
o Director owns ≤5% of the company’s share/a full-time working
director/the company is non-profit making/a charity can claim one
of the first 2 exemptions
 The accomodation available for part of the tax year  The benefit is time
apportioned

Accomodation is owned by the employer

The amount of the benefit = the rent that would
have been paid if it had been let at its annual value
Basic rental benefit (taken to be the rateable value)
Accommodation is rented by the employer
The amount of the benefit = the higher of annual
value and the rent been paid by the employer
Amount of the benefit = (Cost of providing-
£75,000) x Official rate of interest at the start of the
tax year (= 2% for 2021/22 tax year)

Additional yearly Cost of providing = Original cost/ Market value

rental benefit (>6y) + Improvement
applies to expensive
accomodation (cost Employee makes a payment to the employer for
more than £75,000 to their occupation of the property Taxable benefit
purchase) reduced

Any excess not set against basic benefit be used

to reduce the additional benefit
The property was Additional charge = Market value when it was first
aquired by the provided + Cost of subsequent improvements
employer > 6 years
before it is first Unless the original cost + improvement >£75,000
provided to the cannot impose additional charge, high the market
employee value
Expenses connected Taxable benefit = Cost to employer – Employee
with the provision of contribution
living accommodation
(Heat, lighting, concil
tax and water, cleaning,
repairs, maintenance,
decoration)

Car and fuel for private use

 Private use includes ordinary home-to-work travel
 No taxable benefit for incidental private use of ‘pool’ car (car available
for use by any employee, not normally kept overnight at/near employee’s
residence)
 Basis of charge = List price of the car x appopriate percentage (See
table below) + any accessories originally provided with the car + any
further accessories costing ≥£100 provided later – employee contributions
 The benefit is time apportioned (the car must be unavailabe for a period
of at least 30 consecutive days)
 Emloyee contributes to the employer for the use of private car reduce
the taxable benefit
 As for fuel benefit
o Same percentage calculate for the car benefit: Base figure x
Appropriate percentage
o Fixed amount for 2021/22: £24,600
o Time apportioned
o No reduction for partial contribution by the employee, unless the
employee reimburses the employer for all private fuel provided
 TABLE OF APPROPRIATE PERCENTAGE

Car registered before 06/4/2020

Car
CO2 emission registered
Petrol
(g/km) on and
Electric range Diesel
  after
(miles)
06/4/2020
0 1%
1 – 50 > 130 2%
1 – 50 70 - 129 5%
Increased by a
1 – 50 40 -69 8%
4% supplement The relevant
1 – 50 30 – 39 12% (the overall percentage
1 – 50 < 30 14% maximum of is reduced
51 – 54 15% 37%), except by 1%
cars that meet (except for
55 – 59 16%
RDE2/Euro 6d zero
60 – 64 17% standard) emission
65 – 69 18% cars)
70 – 74 19%
75 – 79 20%
> 75 (round For every 5 g/km over the 75 g/km threshold (rounded down to the nearest 5
down) g/km), an additional 1% is added, up to a maximum of 37%.

Vans for private use

 Private use does not inclued travel from home to work
 Annual amount of £3,500
 The van has zero CO2 emissions £nil for 2021/22
 Time apportioned, must be unavailable for at least 30 days
 Separate charge for fuel provision for private use of the van.
o Annual amount £669. Time apportioned
o No reduction for partial contribution

Asset available for private use

 Taxable benefit = The higher of annual value of the asset/any rent/hire
charge payable by the employer + any expense relating to the provision
of asset.
  Annual value = 20% x Market value of the asset when first provided for
private use
 Time apportioned
 Reduce by contribution made by the employee
 No taxable benefit for insignificant private use

Other benefits
 Taxable benefit = The cost to employer of providing the benefit – amount
paid by the employee for the benefit
 Benefits are provided in-house cost of the benefit = marginal cost

Exempt benefits
 Contributions by an employer to a registered to a pension scheme
 A trivial benefit
o Cost <£50
o Not cash/cash voucher
o Provided for non-work reason (birthday, social events…)
o Annual cap of £300 when provided to certain directors
 Pension advice and associated tax planning
o Available to all employees
o Up to £500/tax year (above full taxable amount)
 One mobile telephone (including smartphone) available for private use by
an employee, including all calls
 Lunch meals
 Annual social events paid by the employer
o Up to £150/head/tax year, VAT included
o Social cost >£150 the whole amount is taxable
o Multiple events Total cost <£150 exempt; excess  Taxable
in full
o Staff party (not annual event)  taxable no matter of cost
o Employee do not need to hold the same event every year; the event
should be of an annual nature (Christmas, summer barbecue...)
one-off events will not be covered by this exemption
 Entertainment provided by 3rd party (seats at sporting/cultural events…)
 Non-cash gift from 3rd parties, up to £250/tax year/same donor
 Provision of a parking space at/near the employee’s place of work
 Award of up to £5,000 made under staff suggestion scheme
  Work-related trainning courses
 Sport and recreation facilities available to employees, but not to the
public
 Chilcare facilities run by/on behalf of an employer
Contract before 6/4/2011 Up to £55/week
Apply irrespective of their level of
earnings
Contract on 6/4/2011 and later dates Exempt/week depends on employee’s
basic earnings assessment

Basic earning assessment =

Basic earning assessment =
individual’s expected earnings for the
current tax year = employee’s basic
earnings + taxable benefit –
occupational pension contributions –
allowable expense payments –
personal allowance

BRB £55/week
HRB £28/week
ARB £25/week
From 4/10/2018 Unavailable for new applicant
 Payments toward the additional cost of an employee working from home
(up to £6/week, without supporting evidence, payment >£6 require
documentary evidence)
 Personal insidental expenses while the employee’s required to stay away
overnight on business, up to £5/night in the UK and £10/night aboard,
exceed daily limits  total amount is taxable
 Work buses and subsidies for employees to use public bus services
 Travel expenses when public transport disrupted, late night journeys and
where care sharing arrangement break down
 Use of bicycles/cyclists’ safety equipmemt if made available to all
employees
 Reasonable removal expenses (maximum £8,000) paid by an employer
for new employment position/on relocation
 Non-cash long service awards in respect of at least 20 years’service, not
exceeding £50/year of service
 Eye test required under health and safety legislation and specially
prescribed glassess for employees who use VDU equipment
  Health-screening assessment/medical check up for employee (one/tax
year)
 Up to £500 for recommended medical treatment to assist with a return to
work
 Vehicle battery charging facilities at/near working space, use by the
employee and the vehicle is not a taxable car/van

Pay as you earned (PAYE system)

 HMRC’s system collecting income tax and national insurance
contributions from employees
 Employer deducted tax and NICs directly from employment
income/occupational pensions on behalf of HMRC
 Applies to all cash payments made to employees and certain money-
exchangeable asset (gold bars, wine…)
 Payable electronically by 22nd of each calendar month
 Can be made monthly/quarterly
 Average monthy ≤£1,500

Allowances £ Deductions £
Personal allowance X Taxable benefits if not taxed X
through voluntary payrolling
Allowable expenses X Adjustment for underpaid tax X
Adjustment for overpaid X -
tax
X X

Pay codes
 Removing last digit in the computation  adding letter at the end

L Tax code with PA

M Tax code with PA + MA
N Tax code with PA – surrendered MA
S IT taxed at Scottish rate of IT
C IT taxed at Welsh rate of tax
K Total allowance < total deduction (At the beginning, remove
last digit and deduct 1)
T Tax code include other calculations to work the PA
 CHAPTER 5: TRADING PROFIT

Badges of trade

TEST CONSIDER
S Subject matter  Personal use
 Investment
 Trade
O Ownership period Brief period of ownership
 trading
F Frequency of transactions Repeated similar transactions
 trading
I Improvements Work carried out to make asset
more marketable
 trading
R Reason for sale Forced sale to raise cash
not trading
M Motive Profit motive
trading
F Finance Was a loan taken out to finance the
purchase which will need to repaid
on sale?
A Acquisition method Asset aquired via gift or inheritance
not trading
ST Existence of similar trading Similarities to an existing trade
transactions  trading
Adjustment of profits
£ £
Net profit/financial accounts X

Dissalowed expenditure X
Add Taxable trading income not X
showed in the accounts

Expenditure not charged in Y

the accounts but allowable for
the purposes of taxation
Less Income included in the Y
accounts that is not taxable as
trading income

Tax adjusted profit before capital (X-Y)

allowance

Less Capital allowance

Tax adjusted trading profit after (X-Y)-Z

capital allowance

Trading allowance
If trading receipt for individual
 <£1,000 not taxable
 >£1,000 choose between normal way or deducting £1,000 as deemed
expenses

Allowable expenditure
Expenditure incurred wholly and exclusively for the purpose of trade, not
specifically disallowed by legislation

Maintenance (e.g redecoration) + Repair work using currently

repair (returning the asset to its industry standard
original condition) materials/technology revenue
expenditure
Creating/increase/decrease in a No adjustment required
specific provision (e.g bad debt)
Trade bad debts No adjustment required
Gift of trading stock/used plant and machinery to charities/UK
educational establishments
Subcription to trade and professional association
Interest on money borrow for business purpose
Legall and professional fees relating e.g collection of trade debts,
to income employments issues, action for
breach of contract, preservation of
trading rights and preparation of
accounts
Earnings paid to employees
Cost of educational course for employees incurred for trade purposes
Employers’ contributions to a registered pension scheme are allowable in
the accounting period of payment
Payments of employers’ NICs in respect of employees
Costs of hiring, leasing, renting plant and equipment

Disallowable expenditure ADDED Back

Appropriation of profit:  Private item

Withdrawals from a business after  Salary, bonus, NIC payment
tax for proprietor
 Payment of salary to a family
member which is not
reasonable remuneration for
the services provided to the
business
Capital expenditure Depreciation replaced by capital
allowances
Depreciation and losses on disposals
of fixed assets added back to net
profit
Profit from disposals of fixed assets
 deducted from net profit
Car leasing costs CO2 emmissions >50 g/km (from
6/4/21; from 6/4/2018: 110 g/km;
before 6/4/2021: 130g/km)
15% of leasing costs disallowed;
private using also deducted
Legal costs relating to capital Except:
expenditure
  Cost of renewing short lease
(<50y)
 Cost of registration of patent or
copyright
 Incidental cost of raising long-
term loan fiance
Fines/penalties Except employee parking
Donations Except small amount to local
charities
Gift to customer Except
 <£50
 Trade samples
 Not
food/drink/tobacco/vouchers
exchangeable for goods
Entertaining Except for staff
Non-trade bad debts
General provisions for inventory, Increase  Added back to accounting
trade debt, loan to employee profit
written off Decrease  Deducted from
accounting profit
Interest on late payment of tax
Deduct a proportion related to
private uses
Political donation
An amount not paid to employees
after nine months from end of POA
Unpaid employees’ contribution to
pension scheme
Redundancy over 3 times of
statutory
Irrevoverable VAT not for trading
purpose

Other adjustment
Taxble trading income not included Goods for own use
in P/L  No adjustment made in the
accounts  add back selling
price
 Correct entries made in the
 accounts  add back profit
elements
Any non-trading income in the account must be deducted
Expenditure not shown in the accounts is business expenditure paid
personally by the owner  deduct
 CHAPTER 6: CAPITAL ALLOWANCE
Capital allowances
 Tax allowances for certain types of capital expenditure
 Give tax relief by allowing part of the cost of capital asset each year
Note: Depreciation on asset is not allowance for the tax purposes
 Entitled to a axable person
o Incurs capital expenditure on assets to be used for the purposes of
trade
o Carried on by that person
 CA for a partnership/sole trade are calculated for each period of
account.

Aquisation cost
 When a business start, owner bring personally owned assets into the
business
 Aquisiontion cost for capital allowance = market value of the asets when
it brought

Disposal value
 General rule: disposal value = sale proceeds of the asset
o Disposal value > cost  cost
o Asset is given away/sold < market value  market value on the
date of disposal
o Asset is scrapped/destroyed  disposal value = scrap
value/compensation received
 No other allowances are given in the period of trade ceases

Main pool: Writing down allowance

Assets in the main pool
 All machinery, fixtures, fittings, and equipment
 Vans, forklift trucks, fixtures, lorries, motorcycles
 Cars
o Purchased on/after 6/4/21 (1/4 for company): =< 50 g/km
o Purchased on/after 6/4/18 (1/4 for company): =< 110 g/km
o Purchased since 6/4/13: 130 g/km of CO2
Writing down allowance (WDA)
 Capital allowance for each period of account that a business may claim
=WDA on a proportion of value of its capital assets
 Given on the balance of main pool at the end of the period of account
 = A percentage of the pool balance for a period of accounr, currently
18%/annum
 If period of account is not 12 months  WDA is scaled up/down
accordingly
Tax written-down value (TWDV)
 Remainder of pool balance after CA deducted from pool balance 
carried fwd to the start of next period

First year allowances (FYA)

 Type of capital allowance
 Offer tax relief at 100% on qualifying expenditure in the year of purchase
 No limit on the qualifying amount
 Strict on qualifying assets
 100% FYA for expenditures on:
o New/unused zero emission goods vehicles; on/after 6/4/10 (1/4 for
company)
o Charging points for electric vehicles incurred between 23/11/17-
5/4/23 (31.3 for company)
o New qualifying low emission car:
 Purchase on/after 1/4/2021: 0 g/km
 Purchase btw 1/4/18-31/3/21: 50 g/km
 Before 1/4/18: 75 g/km
 In the year of disposal of an asset previously qualifying for FYA/in the
accounting period of cessation, the disposal proceeds (limited to cost)
must be deducted from the relevant pool

Annual investment allowance (AIA)

 Type of capital allowance
 Offer 100% tax relief on qualifying expenditure in the year of purchase
 Maximum amount: £200,000
 Available to sole trader, partnership or company
 Can be used against expenditure in the accounting period, except cars
 Can be scaled up or down according to the length of accounting periods
  Any balance of expenditure incurredd within an accounting period on
which AIA is not given  eligible for WDA
Small plant and machinery pools
 Small pool limit: £1,000 for 12 months accounting period
 Can be scale up or down according to the length of accounting period
 Available to business of any sỉze
 Write off does not apply to single-asset pool for private use assets
 Balance on main pool after additions and disposals, before claimming
WDA < pool limit WDA can be claimed up to small pool limit  can
be written down to nil

Cars and assets with private use

Cars in the main pool which are not low emission cars receive a 18% per annum
Date of aquisition Main pool
6.4.13-5.4.18 =< 130 g/km
6.4.18-5.4.21 =< 110 g/km
On/after 6.4.21 =< 50 g/km

New cars which are treated as low emission cars receive a FYA instead of
WDA
Date of aquisition Low emission car
1.4.15-31.3.18 =< 75 g/km
1.4.18-31.3.21 =< 50 g/km
On/after 1.4.21 0 g/km

Assets with private use by sole trader/partner

 Kept in a separate pool
 AIA/FYA where applicable/WDA, still calculated in full deducted from
the single asset pool
 Trader can only claim the business elements of the allowance
Balancing adjustment
Balancing charge
 Arise when two many capital allowances have been given on an assets
over its lifetime
 Might happen if asset is sold for an amount in excess of its TWDV
 Taxed by using it to reduce the CA in the period of account/adding it to
the adjusted trading profits computation
 Can occur on single asset pool when asset has not ceased
Balancing allowance
 Too few capital allowances have been given to an asset over its lifetime
 arise
 Might happen if asset is sold for an amount less than its TWDV
 Added to the CA
Overview of CA on Plant and Machine
FYA Main Each private Allowance
pool use asset
Per period of account
TWDV b/f X X
Aqusitions – low X X
emission car
FYA @ 100% (X)
-----
Aquistions – Other X
FYA
FYA @ 100% (X)
-----
Disposals (X)
Acquisition (AIA) X
AIA (X)
Acquisitions (non AIA X
& FYA) cars
-----
WDA @ 18% (X) (X) (X)*
TWDV c/f ---- -----
Total allowance -----

*Take only the business use percentage of the WDA on private use assets
AIA: Annual investment allowance
FYA: First year allowance
Private use asset: Used for non-business purposes by a sole trader/partner
First year allowances
CHAPTER 7: TRADING PROFITS – BASIS OF ASSESSMENT
Current year basis
 Tax year: 6.4.N – 5.4.N+1
 Basis period
o The period which is taxable in a particular tax year
o Basis of assessment for that tax year
 Current year basis (CYB)
o Basis period for the tax year is the taxable trading profits
o For 12-month period of accounting ending in that tax year
Opening years
 Special rules are needed for the opening years of a business there will
not surely be a 12-month period of accounting ending in the tax year in
whisch the business start
 Ensure there is an amount of taxable trading profit for each tax year that
the business is trading
 First tax year
o Actual basis:
 Taxable trading profits for the first tax year are taxable
trading profits of the business from the date of
commencerment to the following 5 April
 Usually be necessary to time apportion the taxable trading
profits in the first (and sometimes the second) period of
account to find this amount.
 Second tax year
o Basis of assessment in the 2nd tax year depends on the length of the
period of account ending in second tax year
Period of account ending in tax Basic period
year
Less than 12 months long Fist 12 months of trading
12 months long That 12-month period of account
More than 12 months long 12 months to the end of the period of
account ending in the 2nd tax year
No such POA Actual basis (6.4.N-5.4.N+1)
 Third tax year
o CYB: a 12-month period of account ending in that year
o Not a 12-month POA  basis period = 12 months to the end of the
POA ending in the third tax year
Overlap profits
 = Double counting of trading profits  taxed more than one
 C/f to be relieved in the future
Closing years
 Final tax year
o Basis period: From the end of basis period for penultimate tax year
to the date of cessation
 Penultimate tax year
o Usually apply current year basis
o Final POA > 12 months  no POA ending in the penultimate tax
year Basis period for penultimate tax year = 12 months to the
normal year-end date falling in that tax year
 Relief for overlap profits
o Overlap profits arising in the opening years are deducted from the
taxable trading profit in the final tax year
Partnerships
 Collection of more than one individual carrying on a business with a view
to profit
 Itself not a taxable person to income tax purposes
 Partners will be liable to tax on their individuals shares of the taxable
trading profits of the partnership on the same basis as a sole trader
 Also applying opening and closing years
 Profit allocation
o Allocated base according to profit-sharing agreement
o The agreement may specify that one or more of the partners is
entitled to “salary”. This amount come first then the remaining
amount of taxable trading profit should be allocated in accordance
with profit-sharing ratio
CHAPTER 8: NATIONAL INSURANCE CONTRIBUTION
National insurance contribution