The new business (for Paper P6 (UK))
Part 4 of 4
This is the Finance Act 2014 version of this article. It is relevant for candidates sitting the Paper P6 (UK) exam in the period 1 April 2015 to 30 June 2016. Candidates sitting Paper P6 (UK) after 30 June 2016 should refer to the Finance Act 2015 version of this article (to be published in 2016).
So far in this article we have compared trading as an unincorporated trader with trading through a company by reference to the various relevant taxes and we have reviewed the choice of year end for an unincorporated trader.
In this final part we will look at pre-trading expenditure and capital allowances.
Expenditure incurred in the seven years prior to the commencement of trade is treated as having been incurred on the first day of trading. Where the first period of trading is the basis period for more than one tax year (as in Illustration 1 in Part 3 of this article), such expenditure, together with other costs (and capital allowances) of the first period will be counted more than once when calculating taxable profits – see Illustration 2 below.
For the purposes of capital allowances, assets purchased for use in the business prior to the commencement of trading are treated as having been purchased on the first day of trading. Assets owned by the trader and brought into the business are treated as having been acquired for their market value at the time they are brought into the business.
The annual investment allowance is increased/reduced for trading periods of more/less than 12 months. Accordingly, the length of the trading period in which significant capital expenditure is incurred can have an effect on the speed with which a business obtains relief for its capital expenditure.
Irina began trading on 1 January 2015. In December 2014 Irina spent £160,000 on equipment for use in her business.
The capital allowances claimed by Irina will depend on the date to which she prepares her first set of accounts.
Accounts prepared to 31 March 2015