1. BTAX Business Taxation
Session 6: Income Tax 2

2. Topics Basis periods for commencing sole traders Overlap profits
Basis periods on cessation
Losses
Partnerships
Deadlines
Penalties and interest
Record-keeping
Tax returns

3. Basis Period Fiscal year - From 6 April to 5 April
For a continuing business: 12 month Period of Account ending in Fiscal Year (SA basis)
Gives examples of WB to show how Self Assessment applies

4. Basis Period: New Business
1st Year
Start date to 5th April
2nd Year:
12 months to accounting date (if possible), or
First 12 months of trading (if there is an accounting date in the tax year), or
Tax year 4

5. BASIS PERIODS
2015/16
2016/17
Y/e 31/12/16
3/12 5

6. If any period of time lies in two basis periods
What is Overlap Profit?
If any period of time lies in two basis periods
Carry forward & deduct at cessation (or change of accounting date) 6

7. From end of last basis period until cessation7

8. Losses All the same rules apply to losses in early years but
Overlapping part of loss will only be calculated once
Questions
Example page Page 7.13: Juan Loss
A Trader from handout

9. Capital allowances claimed by the partnership
Jointly run a business, agree on share of profit, joint/several liability in UK
Each partner assessed on share of tax-adjusted profit as if a sole trader
Capital allowances claimed by the partnership
Opening year/cessation rules apply to partners joining/leaving 9

10. Dividing trading profits between partners
Calculate adjusted trading profits, after Capital Allowances, for Partnership
Divided between partners in accordance with partnership agreement
If no agreement then shared equally

11. Complex profit shares Take account of partnership ‘salaries’
Take account of interest on capital
Take account of interest on drawings
Appropriation of remaining profits according to partnership agreement
Page 7.19: Penn, Quill & Wright
Students practice Sue & Tim from handout

12. Partnership losses Also shared out according to partnership agreement
Each partner can decide how to use their share of the loss
Questions
Mary & Natalie

13. Payment of Income Tax Due: 31st January after tax year
Payments on account unless:
< £1,000 owed, or
> 80% tax collected under PAYE
Assume same tax as last year
50% due by 31st January in tax year
50% due by 31st July after tax year.
Balancing payment by 31st January following tax year

14. Filing of tax return
By 31st October following end of tax year for paper based returns
By 31st January following tax year for electronic filing

15. Penalties What are the penalties for late filing? £100
Plus daily (£10) penalty if more than 3 months late
Further £300 (or 5% tax due) if more than 6 months late
Further £300 (or 5% tax due) if more than 12 months late

16. Penalties What are the penalties for late payment of tax?
30 days allowed free for payment
More than 30 days = 5% of tax due
Further 5% if still unpaid by 31 July
Further 5% if still unpaid 12 months later

17. Penalties What are the penalties for: Incorrect return:
Lack of reasonable care: 0% to 30% of extra tax due
Deliberate: 20% to 70% of extra tax due
Deliberate and concealed: 30% to 100% of extra tax due
Failure to keep records
Up to £3,000 per tax year.

18. Penalties

19. Interest
Interest payable on all late payments and underpayments of POA (currently 3%)
Question 6.7 students

20. Keeping records How long should records be retained?
Retain for 5 years after filing deadline
i.e for 15/16 until 31/01/22
Extended if inquiry started
Records will include
P/L a/c and balance sheet
Cash books & bank statements
Account ledgers and working papers
Invoices on expenses and fixed asset purchases
Tax working papers
Copies of tax returns

21. The Tax return Self employment (full) : SEF1 – SEF3
Self employment (short) : SES1 – SES2
Required when turnover is below £82,000 pa and straight forward (i.e not cessation)
Partnership (short)
Supplementary pages for each partner (outside AAT syllabus)
Partnership return also required showing results of whole partnership (SA800)
Question 6.8 students
Page 7.35: Mark Upp
Students practice Qu 7.5: Mark, Norma & Olga
Students practice Qu 7.6: Shaun Slapp

22. Homework
Tutorial book questions 7.2, 7.4, 7.1, 7.3, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9
Make notes from chapter 7