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June 2023 to March 2024 exams
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If a trading loss arises under the cash basis then the only relief available to the trader is to carry
forward the loss to set o
ff
against future trading profits of the same trade.
This compares unfavourably with the normal loss reliefs available to a trader which are detailed in
Chapter 7 and may be a critical issue especially for new businesses in making the decision as to
whether to elect for the cash basis to apply and may also be a reason for a business in the future to
withdraw the election.
Premises used as both home and business premises such as a small hotel, guest house, bed and
breakfast or public house can elect for a flat rate private use adjustment to apply under the cash
basis in respect of private use of the property for such expenses as food and heat and light rather
than attempting to compute a business / private split of the expenditure. Note this is an add back
not a deduction.
The relevant flat rates will be provided in an examination question and are based on the number of
occupants. For example if the property had one occupant the add back would be £350 per month or
part thereof (£4,200 per annum) and for two occupants it would be £500 per month (£6,000 per
annum).
The flat rate add back does not include other property expenses such as rent or loan interest
payments.
Illustration 1
Eve, runs a small guest house in which she lives and prepares accounts to April 5 each year. For the
year ended April 5, 2023 she has a trading profit before any private use adjustment of £23,000. The
total cost for food, heating and lighting charged for this period amounted to £14,000.
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