ACCA Tax UK

only related expenses = expenses incurred wholly & exclusively in relation to the letting of the property

• insurance
• accountant/legal costs
• rent payable
• repairs
  • NOT if property could NOT be let without/purchase price was discounted) = capital costs
• loan interest (for non-residential lettings)
• motor expenses related to property business

For residential lettings (excl. furnished holiday lettings), finance costs related to property business are DISALLOWED expenses. ->100% are blocked to restrict the amount of tax relief available

INSTEAD:

Finance cost tax reducer (TAX CREDIT) of 20% of blocked finance costs

-> this needs to be sett off against income tax payable on rental income

IMPORTANT: the restrictions do not apply for commercial or furnished holiday lettings (non-residential)

The taxable property income increases. This leads to

• higher tax band rate
• loss of personal allowance
• high income child benefit charge

measures:

• letting as furnished holiday letting
• change portfolio from residential to commercial
• incorporate property business

• repairs are allowed (unless discounted purchase price or building could not be let without)
• improvements are not allowed
  • is it a repair or improvement?
• plant & machinery used = allowable
• cars - choice of:
  • Capital allowances available on cost of cars used in the business. General motor running expenses are allowable
  • HMRC approved mileage rates, instead of C.A & Cost incurred
• replacement costs of domestic items = allowed, initial buying costs = disallowed
  • restricted to cost of purchasing an identicla item
•  

Lease premium = one-off lump sum, payable @start of lease. It usually is capital, but part of thepremium may represent an advance payment of rent.

Therefore, for ST leases <=50y. the lease premium is considered as follows:

Rent income + income element -allowable expenses = assessable property income

Gross premium - Capital element = Income element

Capital element = 2% * Gross Premium x (N-1)

must be

• let furnished
• let on commercial basis to realise profit
• mind. AVAILABLE for 210d
• ACTUALLY let for 105d
• total LT lettings max. 155d (<31 = LT letting)

unrelieved losses can be carried forward and relieved against first available future property income

• FHA only against FHA
• all other properties against profit from all other properties

employment = contract of service

• tax on actually received
• wholly, exclusively & necessary expenses
• PAYE
• class 1 NIC

Self-employed = contract for service

• accruals
• Wholly & Exclusively expenses
• self assessment 2x/year
• class 2&4 Nic

EMployment income =

Remuneration (monetary /non-monnetary (taxable benefits)

- employee contr. in occ. pension schemes

- subscriptions to professional bodies

-payroll gifts to chariy

- allowable expenses

date received = earlier of

• payment date
• entitlement date

for DIRECTORS, earlier of

• date of recepit
• end of acc period if amount was determined DURING
• when determined, if determined AFTER acc. period

expenses are taxable for the employee, UNLESS they are wholly, exculsively & necessarily incurred in performance of duties of employment. then they are allowable (deductible)

1. Cost to the employer
   1. if employer buys assets or pays expenses FOR EMPLOYEE
   2. full cost incl. VAT
   3. marginal costs + VAT if goods/service normally would be sold to customers
2. annual value
   1. if assets are available for use to employee but ownership remains with employer
   2. time restricted if asset was not available for part of the year
3. contributions by emloyee
   1. taxable cash equivalent value is reduced by employee contributions
   2. EXCEPTIONS: no reduction for the provision of fuel for private mileage, UNLESS all is reimbursed by employee

1. use of living accommodation - separately determined
2. use of cars/vans - annual value
3. Loans etc - cost to employer or annual value
4. use of assets - 20% x cost to employer

if employee is provided with NOT-JOB-related living accommodation

Calculation:

Annual Charge + Addiional Charge + Ancillary Expenses - Contributions by employee = taxable benefit

annual charge = higher of gross rateable value or rent paid by employer

additional charge

• owned <6 years before made available: (cost - 75'000) * official rate of interest
• owned >6 years beforemade available (open market value - 75000) * official rate of interest
• include improvements before tax year

ancillary expenses (gas, electricity etc)

• cost to employer

private use of company car (NOT pool car) = taxable benefit

Relevant % x list price of car - employee contributions = taxable benefit

employee contributions: reduce by lower of contribution or 5000

>55g/km - increase 1% for each 5g > 55 - max 37%

diesel cars that DO NOT meet RDE2: 4% surcharge

reduce taxable benefit charge if not available >30 days

27'800 (given) * car %

All or nothing claim - if employee pays all - no fuel charge. if employee pays part - full fuel charge

use = insignificant, exempt benefit

otherwise, use amounts given in exam.

for fuel, same rules as for cars apply

a loan interest benefit charge arises if  the loan is made at less than the official rate of interest.

options for calculation of loan interest benefit cash equivalent:

1. average method: loan at beginning + loan at end / 2

2. day to day method

for assets except vehicles / computer equipments:

1. Higher of:
   1. market value at time first made available LESS annual use benefits to date (20% * MV when made available)
   2. Current market value
2. Less any amount paid for asset by employee

Badges of trade

these test if a transaction has characteristics to be classified as trading income.

For example:

• profit motive - usually essential to trading
• length of ownership - for trading rather short
• method of acquisition and reason for sale
• financing - short term borrowed money = trading
• similarity of transaction
• frequency of transaction

the trades are assessed up to the date of cessation, with final assessment in tax year in which the treading ceases

add back disallowed expenditure

add back selling price of goods taken for own use

deduct income not taxed as trading income

deduct additional expendiute not already included

- capital allowances

= tax adjusted trading profits

1. investment income
2. non-taxable income (interest on overpaid tax)
3. capital profit from sale of assets CGT

allowed expenditure 

• incurred WHOLLY & EXCLUSIVELY for the purpose of the trade
• capital allowances
• annual proportion of income element of lease premium (Income element/lease length)

disallowed expenditure

• capital expenditure
• not wholly & exclusively incurred expenses
• revenue expenditure constituting an apportion of profit
• accounting estimates (abschreibungen)

proprietor must be taxed on full market value of the goods consumed.

add normal sale price or only profit element, depending on what was booked

capital allowances = tax relief for capital expenditure on qualifying assets, in place of accounting depreciation.

Qualifying assets = plant&machinery, structures & buildings

• machinery of any type
• expenditures on buildings & structures if the following:
  • portable buildings
  • dry docks, pipelines etc
• expenditure on fictures incl. in the building is follows:
  • thermal insulation
  • expenditure for fire safety
  • water, gas, electrical systems

in general: all costs related to "Gebäudehülle" are counted as part of the cost of a building and not plant & machinery

Short-life assets (normal rate, but shown separately)

private use assets (depends on asset)

• long-life assets
• thermal insulations
• integral features of buildings
• certain cars

1. AIA
2. Cars (WDA), excl 100%
3. Disposals (WDA)
4. WDA
5. FYA

at the lower of

• proceeds value
• original cost

a balancing charge is a tax liability that arises when you sell an asset for more than its recorded tax value after capital allowances (WDV). This meens you have to pay additional tax.

a balancing allowance is a tax allowance that can be set off against tax liability and arises if sale price is < WDV

WDV <1000 -> can be written off

no AIA, WDA, FYA can be claimed in final period

Instead: balancing charge/allowance