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Summary AAT Level 4 - Business Tax (BTAX)
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Summary notes for AAT Level 4's exam: Business Tax (BTAX) Clear and condensed notes covering each aspect of the exam which were used to pass first time.

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Document information

  • August 13, 2023
  • 34
  • 2021/2022
  • Summary

Subjects

  • aat
  • level 4
  • btax
  • business tax
  • tax
  • tax framework
  • trading income
  • capital allowances
  • accounting
  • corporation tax
  • unincorporated
  • partnerships
  • nic
  • losses
  • loss relief
  • self assessment
  • chargeable gains
  • notes
  • s

Written for

  • AAT
  • AAT
  • AAT
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BTAX‌‌-‌‌Business‌‌Tax‌ ‌




BTAX‌‌-‌‌Business‌‌Tax‌ ‌

‌
Chapter‌‌1‌‌-‌‌Tax‌‌Framework‌ 3‌ ‌
Business‌‌Taxes‌ 3‌ ‌
Payment‌‌and‌‌Administration‌ 3‌ ‌
Statute‌‌Law‌ 3‌ ‌
Fundamental‌‌Principles‌ 3‌ ‌
Tax‌‌planning,‌‌avoidance,‌‌evasion‌ 3‌ ‌
Calculating‌‌Income‌‌Tax‌ 4‌ ‌
Types‌‌of‌‌Income‌ 4‌ ‌
Chapter‌‌2‌‌-‌‌Computing‌‌Trading‌‌Income‌ 4‌ ‌
Badges‌‌of‌‌Trade‌ 4‌ ‌
Adjustment‌‌to‌‌Profits‌ 5‌ ‌
Disallowable‌‌expenses‌ 5‌ ‌
Allowable‌‌expenses‌ 6‌ ‌
Trading‌‌Allowance‌ 6‌ ‌
Self-Employment‌‌Tax‌‌Returns‌ 6‌ ‌
Chapter‌‌3‌‌-‌‌Capital‌‌Allowances‌ 7‌ ‌
Capital‌‌vs‌‌Revenue‌‌Expenditure‌ 7‌ ‌
Capital‌‌Allowances‌ 7‌ ‌
Annual‌‌Investment‌‌Allowance‌‌(AIA)‌ 8‌ ‌
First‌‌Year‌‌Allowance‌‌(FYA)‌ 8‌ ‌
Writing-down‌‌Allowance‌‌(WDA)‌ 8‌ ‌
Ceasing‌‌Trade‌ 9‌ ‌
Special‌‌Rate‌‌Pool‌ 9‌ ‌
Chapter‌‌4‌‌-‌‌Computing‌‌Corporation‌‌Tax‌ 10‌ ‌
Computing‌ 10‌ ‌
Long‌‌Periods‌‌of‌‌Account‌ 12‌ ‌
Corporation‌‌Tax‌‌Rate‌ 12‌ ‌
Chapter‌‌5‌‌-‌‌Taxing‌‌Unincorporated‌‌Businesses‌ 12‌ ‌
Basis‌‌periods‌ 12‌ ‌
Fiscal‌‌Years‌ 13‌ ‌
Overlap‌‌Profits‌ 13‌ ‌
Cease‌‌Trading‌ 13‌ ‌
Change‌‌of‌‌Accounting‌‌date‌ 13‌ ‌
Chapter‌‌6‌‌-‌‌Partnerships‌ 14‌ ‌
Profit‌‌Sharing‌‌Agreement‌ 14‌ ‌
Changes‌‌in‌‌Partners‌ 14‌ ‌
Partnership‌‌Tax‌‌Return‌ 14‌ ‌
Chapter‌‌7‌‌-‌‌National‌‌Insurance‌ 15‌ ‌
Class‌‌2‌ 15‌ ‌

, BTAX‌‌-‌‌Business‌‌Tax‌ ‌


Class‌‌4‌ 15‌ ‌
Chapter‌‌8‌‌-‌‌Losses‌ 16‌ ‌
Unincorporated‌ 16‌ ‌
Incorporated‌ 16‌ ‌
Capital‌‌Losses‌ 17‌ ‌
Choosing‌‌Loss‌‌Relief‌‌-‌‌Individuals‌ 17‌ ‌
Choosing‌‌Loss‌‌Relief‌‌-‌‌Companies‌ 17‌ ‌
Chapter‌‌9‌‌-‌‌Self-assessment‌‌for‌‌Individuals‌ 18‌ ‌
Deadlines‌‌for‌‌Companies‌ 18‌ ‌
Record‌‌Keeping‌ 18‌ ‌
Deadlines‌‌for‌‌Individuals‌ 18‌ ‌
Penalties‌‌for‌‌Errors‌ 19‌ ‌
Penalties‌‌for‌‌Late‌‌Filing‌ 20‌ ‌
Penalties‌‌for‌‌Late‌‌Payment‌ 20‌ ‌
Interest‌ 20‌ ‌
Repayment‌ 20‌ ‌
Agent‌‌vs‌‌Principal‌ 21‌ ‌
Compliance‌‌Checks‌‌and‌‌Enquiries‌ 21‌ ‌
Chapter‌‌10‌‌-‌‌Self-assessment‌‌for‌‌Companies‌ 21‌ ‌
Company‌‌Tax‌‌Returns‌ 22‌ ‌
Compliance‌‌Checks‌‌and‌‌Enquiries‌ 22‌ ‌
Payment‌ 22‌ ‌
Current‌‌Tax‌‌Reliefs‌‌-‌‌Research‌‌&‌‌Development‌ 23‌ ‌
Current‌‌Tax‌‌Issues‌ 24‌ ‌
Chapter‌‌11‌‌-‌‌Chargeable‌‌Gains‌‌Basics‌ 24‌ ‌
Computation‌‌for‌‌Individuals‌ 25‌ ‌
Annual‌‌Exempt‌‌Amount‌‌(AEA)‌ 25‌ ‌
Capital‌‌Gains‌‌Tax‌ 26‌ ‌
Computation‌‌for‌‌companies‌ 26‌ ‌
Chapter‌‌12‌‌-‌‌Chargeable‌‌Gains‌‌Additional‌ 26‌ ‌
Part‌‌disposals‌ 26‌ ‌
Chattels‌ 27‌ ‌
Connected‌‌Persons‌ 27‌ ‌
Chapter‌‌13‌‌-‌‌Share‌‌Disposals‌ 28‌ ‌
Individuals‌ 28‌ ‌
Companies‌ 28‌ ‌
Chapter‌‌14‌‌-‌‌Chargeable‌‌Gains‌‌Reliefs‌ 29‌ ‌
Entrepreneurs’‌‌Relief‌‌(ER)‌ 29‌ ‌
Investors’‌‌Relief‌‌(IR)‌ 30‌ ‌
Replacement/Rollover‌‌Relief‌ 30‌ ‌
Gift‌‌Relief‌ 31‌ ‌
‌

, BTAX‌‌-‌‌Business‌‌Tax‌ ‌


Chapter‌‌1‌‌-‌‌Tax‌‌Framework‌ ‌
Types‌‌of‌‌businesses‌ ‌
- Sole‌‌trader‌‌=‌‌self-employed‌‌(unincorporated)‌ ‌
- Partnerships‌‌=‌‌self-employed‌‌people‌‌working‌‌together‌‌(unincorporated)‌ ‌
- Limited‌‌company‌‌=‌‌incorporated‌‌body‌‌-‌‌legally‌‌separate‌‌from‌‌owners‌ ‌

Business‌‌Taxes‌ ‌
If‌‌unincorporated‌‌you‌‌pay‌‌these‌‌taxes‌ ‌
- Income‌‌tax‌‌(income)‌ ‌
- Class‌‌2‌‌and‌‌4‌‌National‌‌Insurance‌ ‌
- Capital‌‌Gains‌‌Tax‌‌(disposals)‌ ‌
If‌‌corporated‌‌you‌‌pay‌‌these‌‌taxes‌ ‌
- Corporation‌‌tax‌‌(income‌‌and‌‌disposals)‌ ‌
- Class‌‌1‌‌and‌‌1A‌‌National‌‌Insurance‌ ‌

Payment‌‌and‌‌Administration‌ ‌
Self-Assessments‌‌=‌‌legal‌‌responsibility‌‌to‌‌pay‌‌and‌‌submit‌‌a‌‌tax‌‌return‌‌before‌‌deadline‌ ‌
Employees‌‌=‌‌taken‌‌at‌‌the‌‌source‌‌(PAYE)‌ ‌

Statute‌‌Law‌ ‌
Acts‌‌of‌‌Parliament‌‌=‌‌tax‌‌legislation‌ ‌
- Created‌‌by‌‌Gov‌ ‌
- Amended‌‌annually‌‌by‌‌that‌‌year’s‌‌Finance‌‌Act‌ ‌
Statutory‌‌Instrument‌‌=‌‌detailed‌‌rules‌ ‌
- Created‌‌by‌‌civil‌‌servants‌ ‌
- Amends/alters‌‌and‌‌act‌‌w/o‌‌it‌‌going‌‌through‌‌Parliament‌ ‌
HMRC‌‌offers‌‌guidance‌‌material‌‌of‌‌their‌‌interpretation‌‌of‌‌the‌‌above‌ ‌
- Is‌‌not‌‌legally‌‌binding‌ ‌
- Can‌‌be‌‌argued‌‌in‌‌a‌‌tax‌‌tribunal‌ ‌
- Result‌‌becomes‌‌case‌‌law‌ ‌
- Result‌‌will‌‌be‌‌applied‌‌to‌‌other‌‌cases‌‌in‌‌the‌‌future‌ ‌

Fundamental‌‌Principles‌ ‌
- Professional‌‌competence‌‌and‌‌due‌‌care‌‌=‌‌maintain‌‌professional‌‌knowledge‌‌and‌‌skill‌ ‌
- Integrity‌‌=‌‌be‌‌straightforward‌‌and‌‌honest‌ ‌
- Professional‌‌behaviour‌‌=‌‌comply‌‌with‌‌relevant‌‌laws‌‌and‌‌regulations‌ ‌
- Confidentiality‌‌=‌‌don’t‌‌disclose‌‌information‌‌without‌‌permission‌ ‌
- Objectivity‌‌=‌‌avoid‌‌bias,‌‌conflict‌‌of‌‌interest‌‌and‌‌undue‌‌influence‌ ‌

Tax‌‌planning,‌‌avoidance,‌‌evasion‌
Tax‌‌Planning‌ ‌
- Using‌‌tax‌‌reliefs‌‌as‌‌they‌‌were‌‌intended‌‌by‌‌the‌‌Gov‌ ‌
Tax‌‌Avoidance‌ ‌
- Finding‌‌loopholes‌‌in‌‌the‌‌rules‌‌of‌‌the‌‌tax‌‌system‌‌to‌‌gain‌‌a‌‌tax‌‌advantage‌ ‌

, BTAX‌‌-‌‌Business‌‌Tax‌ ‌


- Often‌‌includes‌‌artificial‌‌transactions‌‌that‌‌serve‌‌no‌‌purpose‌‌than‌‌to‌‌limit‌‌tax‌‌liabilities‌ ‌
- It‌‌is‌‌legal‌‌but‌‌not‌‌using‌‌the‌‌law‌‌as‌‌it‌‌was‌‌intended‌ ‌
- Can‌‌be‌‌challenged‌‌by‌‌HMRC‌‌and‌‌lead‌‌to‌‌pay‌‌the‌‌difference/more‌ ‌
Tax‌‌Evasion‌ ‌
- Illegal‌ ‌
- Not‌‌declaring‌‌income‌‌and‌‌so‌‌not‌‌paying‌‌tax‌‌on‌‌it‌ ‌
- Can‌‌result‌‌in‌‌fines‌‌and‌‌imprisonment‌ ‌

Calculating‌‌Income‌‌Tax‌ ‌
Trading‌‌Income‌ ‌
- Less:‌C ‌ arry‌‌forward‌‌loss‌‌relief‌ ‌
Employment‌‌Income‌ ‌
Property‌‌Income‌ ‌
- Total‌‌Income‌ ‌
Less:‌C
‌ arry‌‌back‌‌loss‌‌relief‌ ‌
- Net‌‌Income‌ ‌
Less:‌P
‌ ersonal‌‌Allowance‌ ‌
- Taxable‌‌Income‌ ‌

Types‌‌of‌‌Income‌ ‌
Similar‌‌to‌‌Personal‌‌Tax‌ ‌
- All‌‌income‌‌is‌‌totalled‌‌to‌‌make‌‌total‌‌income‌ ‌
- Deductions‌‌are‌‌taken‌‌off‌‌to‌‌get‌‌net‌‌income‌ ‌
- Personal‌‌allowance‌‌is‌‌taken‌‌off‌‌to‌‌get‌‌taxable‌‌income‌ ‌
- Really‌‌only‌‌work‌‌with‌‌non-savings‌‌in‌‌this‌‌exam‌ ‌




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