ACCA F6 FA09 Study Text 2010
Подождите немного. Документ загружается.
Chapter 9: Trading losses of an unincorporated business
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 195
Tax planning
Choosing the optimum loss relief
Reduced capital allowances claim
6 Tax planning
6.1 Choosing the optimum loss relief
When using trading losses, the primary aim of an individual should be to save the
maximum amount of tax.
The rates of tax the individual is likely to pay in each tax year and the personal
allowances available, including projected future rates of tax and allowances, are
therefore a key factor in deciding the optimum loss relief claim.
However, cash flow could also be an important consideration. An individual may
wish, for cash flow purposes, to claim relief as soon as possible, and carry back
losses to obtain a cash repayment, and possibly a repayment supplement. This may
be more important to the individual than a higher rate of relief at a later date.
If possible, the individual should prefer not to use losses where income is already
covered by personal allowances. However, the individual may be prepared to waste
personal allowances in order to achieve a higher overall tax saving.
It may be possible to avoid the wastage of personal allowances by not claiming the
maximum capital allowances available.
6.2 Reduced capital allowances claim
Loss relief is available for the adjusted loss including capital allowances.
It is not possible to treat the adjusted loss and the capital allowances as two separate
losses. Therefore, an individual cannot set off only the adjusted loss before capital
allowances under s64 to maximise the tax savings and also carry forward the
unrelieved capital allowances as a separate loss.
However, an individual does not have to claim all his capital allowances for an
accounting period. He can claim any amount up to the maximum capital allowances
available. Therefore, it may be advantageous to reduce a trading loss by not
claiming any or all of the capital allowances available.
If a reduced capital allowances claim is made, the actual allowances claimed are
deducted from the appropriate columns in the capital allowances computation. The
TWDVs carried forward will therefore be higher, resulting in higher capital
allowances being available in the future.
Paper F6 (UK): Taxation FA2009
196 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 197
Paper F6 (UK)
Taxation FA2009
CHAPTER
10
Partnerships
Contents
1 Overview of the trading income assessment for a
partnership
2 The treatment of partnerships
3 Partnership losses
Paper F6 (UK): Taxation FA2009
198 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
Overview of the trading income assessment for a partnership
Preparation of the trading income assessment
1 Overview of the trading income assessment for a
partnership
1.1 Preparation of the trading income assessment
There are four key steps in the calculation of a trading income assessment for a
partnership:
Step 1: Prepare an adjustment of profit statement
The first step is to prepare a statement adjusting the net profit of the business (in the
financial accounts) to calculate the adjusted profit before capital allowances.
Step 2: Calculate the capital allowances available
The next step is to calculate the capital allowances available for plant and machinery
and, if applicable, industrial buildings.
Step 3: Allocate the adjusted profit after capital allowances between the
partners
Each partner in a partnership is taxed separately, in his own income tax
computation, on his share of the partnership profits. The partnership is not treated
as a separate entity and the partnership itself does not pay income tax.
Each partner is responsible for paying income tax at the appropriate rate on his
share of the profits of the partnership, based on his own personal circumstances. It
is therefore necessary to determine the amount of profits that relate to each partner.
The adjusted profits after capital allowances of the partnership are allocated
between the individual partners in accordance with the profit-sharing agreement of
the partners during the accounting period. The detailed rules governing the
allocation of profit between partners are explained later.
Step 4: Calculate the trading income assessment for the correct tax year
The last step is to apply the basis of assessment rules to each partner’s adjusted
profit after capital allowances figure, in order to decide in which tax year the profits
will be taxed.
Chapter 10: Partnerships
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 199
The treatment of partnerships
The adjustment of profit computation
The allocation of partnership profits
Allocation where there is a change in the partnership agreement
Calculating the trading income assessments
2 The treatment of partnerships
2.1 The adjustment of profit computation
Partners in a business partnership are treated as a group of individual sole traders.
The calculation of the trading income assessments for partners is therefore the same
as for a sole trader.
The adjusted profit (or loss) after capital allowances of the partnership is calculated
first. In this calculation it is important to remember to add to profit any
appropriations by the partners that have been charged through the accounts (such
as salaries paid to partners and interest on partners’ capital introduced).
2.2 The allocation of partnership profits
The adjusted profit (or loss) after capital allowances of the partnership is then
allocated between the partners. This allocation is made in accordance with the terms
of the partnership agreement in the accounting period in which the profit (or loss)
arises.
A partnership agreement will specify the allocation rules that must be followed.
Typically, an agreement will allocate the partnership profits in three ways:
a fixed salary for some or all of the partners
a fixed rate of interest on capital introduced to the partnership
a profit-sharing ratio for the balance of the profits after any salary and interest is
allocated.
Despite the terms used to describe the method of allocation between partners, the
total share allocated to each partner is then assessable on that partner as trading
income (not as employment income and interest income).
Paper F6 (UK): Taxation FA2009
200 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
Example
Henry and Ivan are in partnership. The partnership agreement provides for the
following:
Henry Ivan
£ £
Salaryperannum 50,000 30,000
Capitalintroduced 100,000 100,000
Interestoncapital(rateperannum) 10% 10%
Profitsharingratio 45% 55%
The adjusted profit of the partnership after capital allowances for the year ended 31
December 2009 was £246,000.
Required
Allocate the partnership profits for the year ended 31 December 2009 between
Henry and Ivan.
Answer
Total
Henry
Ivan
£
£
£
Salary 80,000
50,000
30,000
Interest on capital introduced (10% × £100,000) 20,000
10,000
10,000
Balance of profits (45%: 55%) 146,000
65,700
80,300
Allocation of profits 246,000
125,700
120,300
2.3 Allocation where there is a change in the partnership agreement
If a partner leaves, or a new partner joins, or the partners change the partnership
agreement part-way through an accounting period:
the adjusted profit after capital allowances must be time-apportioned according
to the date of change, and
the appropriate partnership agreement rules should be applied to each period
separately.
Example
Henry and Ivan are in partnership. The partnership agreement at 1 January 2009
provided for the following:
Henry Ivan
£ £
Salary per annum 50,000 30,000
Capital introduced
100,000 100,000
Interest on capital (rate per annum) 10% 10%
Profit sharing ratio until 30 September 2009 45% 55%
Chapter 10: Partnerships
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 201
The partnership agreement changed on 1 October 2009 and the new arrangement is
as follows:
Henry Ivan
£ £
Salary per annum 50,000 50,000
Interest on capital (rate per annum) 10% 10%
Profit sharing ratio from 1 October 2009
50% 50%
The adjusted profit of the partnership after capital allowances for the year ended 31
December 2009 was £246,000.
Required
Allocate the partnership profits for the year ended 31 December 2009 between
Henry and Ivan.
Answer
Total
Henry
Ivan
9 months to 30 September 2009
£
£
£
Salary (£50,000 × 9/12 : £30,000 × 9/12) 60,000
37,500
22,500
Interest on capital introduced
(10% × £100,000 × 9/12)
15,000
7,500
7,500
Balance of profits (45%: 55%) 109,500
49,275
60,225
Allocation of profits (£246,000 × 9/12) 184,500
94,275
90,225
3 months to 31 December 2009
Salary (£50,000 × 3/12) 25,000
12,500
12,500
Interest on capital introduced
(10% × £100,000 × 3/12)
5,000
2,500
2,500
Balance of profits (50%: 50%) 31,500
15,750
15,750
Allocation of profits (£246,000 × 3/12) 61,500
30,750
30,750
12 months to 31 December 2009
Total allocation of profits 246,000
125,025
120,975
2.4 Calculating the trading income assessments
When a partnership is originally set up:
the opening year rules are applied in the normal way to each partner’s share of
the profits in the opening tax years
the overlap profits of each individual partner are calculated separately.
If an existing partnership takes on a new partner, or a sole trader takes on a partner
and the business becomes a partnership, the following consequences arise:
The existing partners (or sole trader) continue to be assessed on their share of the
profits on a normal current year basis as if there had been no change.
Paper F6 (UK): Taxation FA2009
202 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
The new partner is assessed on his share of the profits using the opening year
rules and assuming the partner had his own accounting period starting on the
date he joined the firm. The overlap profits of that partner are calculated.
When the partnership business ceases to trade:
The closing year rules are applied in the normal way to each partner’s share of
the profits in the closing accounting periods.
Each partner can deduct his own overlap relief.
If a partner leaves the partnership (e.g. retires or dies) and the existing business
continues either as a partnership or as a sole trader business, the following
consequences arise:
The continuing partners (or sole trader) are assessed on their share of the profits
on a normal current year basis as if there had been no change.
The partner leaving the firm is assessed on his share of the profits, using the
closing year rules and assuming the partner had his own accounting period
ending on the date he left the firm. He will use his overlap relief in the final tax
year.
Where there is a change in the accounting date of the partnership business, the
change of accounting date rules are applied to each partner’s share of profits
separately.
Example
Tina and Vincent are partners and have been trading as a firm of solicitors for many
years preparing accounts to 31 December each year. They have agreed to share
profits equally. On 1 September 2009 William joined the firm on the agreement that
the three partners would share profits in the ratio 3:2:1.
The adjusted profits after capital allowances of the partnership are as follows:
Adjusted profit
after capital
allowances
£
Year ended 31 December 2009 24,000
Year ended 31 December 2010
30,000
Required
Calculate the trading income assessments of each partner for 2009/10 and 2010/11
and William’s overlap profits.
Chapter 10: Partnerships
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 203
Answer
(1) Allocate the adjusted profits after capital allowances between the partners
in accordance with the partnership agreement in the accounting period
Year ended 31 December 2009: Total
Tina Vincent William
(1) 8 months to 31 August 2009
£
£
£
£
Profit share (50%: 50%) 16,000
8,000
8,000
Nil
(2) 4 months to 31 December 2009
Profit share (3/6: 2/6: 1/6)
8,000
4,000
2,667
1,333
Allocation of profits
24,000
12,000
10,667
1,333
Year ended 31 December 2010
Profit share (3/6: 2/6: 1/6) 30,000
15,000
10,000
5,000
(2) Work out the trading income assessments of the existing partners using
normal CYB
Tina Vincent
£ £
2009/10 CYB Year ended 31 December 2009 12,000 10,667
2010/11 CYB Year ended 31 December 2010 15,000 10,000
(3) Work out the trading income assessments of the new partner
William’s share of profits: £
4 months to 31 December 2009
1,333
Year ended 31 December 2010 5,000
William started to trade: 1 September 2009 = In tax year 2009/10 = His first tax
year.
First tax year: Assess William’s profits from 1 September 2009 to 5 April 2010
Second tax year = 2010/11. Ask two questions:
Are there accounts which end in the tax
year?
Yes = year ended 31 December
2010
Are these accounts 12 months in length? Yes
Decision Assess those 12 months’ profits
Tax
year
Basis of
assessment
Basis period
Workings
(nearest month)
Trading
income
assessment
£
2009/10 Actual 1.9.2009 – 5.4.2010 £1,333 + (3/12 × £5,000) 2,583
2010/11
12 months
ending in
second year
Year ended
31.12.2010
5,000
Paper F6 (UK): Taxation FA2009
204 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
(4) Work out the overlap profits of the new partner
Overlap profits: Period 1.1.2010 – 5.4.2010.
Overlap profits = 3/12 × £5,000 = £1,250.