Tx notes fa22 Final

1.1.
Subject
 matter 
Whether a person is trading or not may sometimes be decided by looking at the subject matter of 
the transaction.
1.2. Length of 
ownership
 
Where items purchased are sold soon afterwards, the transactions are likely to be treated as a trade. 
If acquired unintentionally (e.g. by inheritance) and then sold, it is unlikely that trading has taken 
place.
1.3.
Frequency
 of transactions
Transactions of a capital nature will be interpreted as trading transactions where their frequency 
indicates the carrying on of a trade.
1.4. Supplementary work and marketing: 
Improvement
 
When work is done to make an item more marketable, or attempts are made to find purchasers, the 
transactions are more likely to be treated as a trade.
1.5. Reason 
for sale
 
The circumstances/reason for the sale (being forced to make a sale to raise cash may indicate not 
trading).
1.6.
 
Profit 
motive
 
The presence of a profit motive will be a strong indication that a person is trading.

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2. Adjusting the accounting profit 
2.1. Introduction 
(a)
The tax adjusted trading profit for inclusion within the income tax computation is not the same 
as the profit shown in the individuals statement of profit or loss. Accounting profits before tax 
are adjusted to arrive at tax adjusted trading profit. The main adjustments are to disallow for 
tax certain non-allowable expenses debited in the accounts and to exclude from the 
assessment any non-trading income credited in the accounts.
Note: 
When preparing this calculation, be careful to start with the NET profit per accounts. 
READ THE QUESTION CAREFULLY!
(b)
£
Net profit per accounts
X
ADD BACK: Expenditure not deductible for tax - disallowed
X
X
LESS: items not assessed as trading profit:
- Income assessable elsewhere (eg property income, interest income)
X
- Non-taxable (exempt) income
X
(X)
Adjusted profits
X
LESS: Capital allowances
(X)