Unit 18 Preparing Business Taxation Computations
Unit Commentary
This unit is about preparing tax computations for businesses and completing the relevant tax returns. There are four elements.
The first element requires you to prepare capital allowances computations, including adjustments for private use by the owners of a business.
In the second element you must prepare assessable business income computations for partnerships and self-employed individuals. This includes identifying the National Insurance Contributions payable.
The third element is concerned with preparing capital gains computations for companies and unincorporated businesses.
The final element requires you to prepare Corporation Tax computations for UK resident companies.
Throughout the unit you must show that you take account of current tax law and Inland Revenue practice and make submissions within statutory timescales. You also need to show that you consult with the Inland Revenue in an open and constructive manner, give timely and constructive advice to business clients and maintain client confidentiality.
Elements contained within this unit are:
Element 18.1 Prepare capital allowances computations
Element 18.2 Compute assessable business income
Element 18.3 Prepare capital gains computations
Element 18.4 Prepare Corporation Tax computations
Knowledge and Understanding
To perform this unit effectively you will need to know and understand:
The Business Environment
The duties and responsibilities of the tax practitioner (Elements 18.1, 18.2, 18.3 & 18.4)
The issues of taxation liability (Elements 18.1, 18.2, 18.3 & 18.4)
Relevant legislation and guidance from the Inland Revenue (Elements 18.1, 18.2, 18.3 & 18.4)
Taxation Principles and Theory
Basic law and practice relating to all issues covered in the range and referred to in the performance criteria (Elements 18.1, 18.2, 18.3 & 18.4)
Availability and types of capital allowance:
first year allowance
writing down allowance
balancing allowance and charge (relevant to industrial buildings and plant and
machinery including computers, motor vehicles and short life assets) (Element 18.1)
Treatment of capital allowances for unincorporated businesses including private use adjustments (Element 18.1)
Adjustment of trading profits and losses for tax purposes (Element 18.2)
Regulations relating to disallowed expenditure such as business entertaining, bad debt write-offs and provisions, private expenditure and capital expenditure (Element 18.2)
Basis of assessment of unincorporated businesses (Element 18.2)
Basic allocation of income between partners (Element 18.3)
Identification of business assets disposed of including part disposals (Element 18.3)
Calculation of gains and losses on disposals of business assets including indexation allowance (Element 18.3)
Capital gains exemptions and reliefs on business assets including rollover relief and taper relief but excluding retirement relief ((Element 18.3)
Rates of tax payable on gains on business assets disposed of by individuals (Element 18.3)
The computation of profit for Corporation Tax purposes including income, capital gains and charges (Element 18.4)
Calculation of Corporation Tax payable by starting, small, large and marginal companies including those with associated companies (Element 18.4)
Set-off of trading losses incurred by companies (Element 18.4)
Calculation of National Insurance Contributions payable by self-employed persons and employers of not contracted-out employees (Element 18.2 & 18.4)
Self assessment including payment of tax and filing of returns for unincorporated businesses and companies (Element 18.2 & 18.4)
The Organisation
How the taxation liabilities of an organisation are affected by its legal structure and the nature of its business transactions (Elements 18.1, 18.2, 18.3 & 18.4)
The organisation’s legal structure and its business transactions (Elements 18.1, 18.2, 18.3 & 18.4)
Element 18.1 Prepare capital allowances computations
Performance Criteria
In order to perform this element successfully you need to:
Classify expenditure on capital assets in accordance with the statutory distinction between capital and revenue expenditure
Ensure that entries and calculations relating to the computation of capital allowances for a company are correct
Make adjustments for private use by business owners
Ensure that computations and submissions are made in accordance with current tax law and take account of current Inland Revenue practice
Consult with Inland Revenue staff in an open and constructive manner
Give timely and constructive advice to clients on the maintenance of accounts and the recording of information relevant to tax returns
Maintain client confidentiality at all times
Range Statement
Performance in this element relates to the following contexts:
Business owners:
Self-employed individuals
Partnerships
Element 18.2 Compute assessable business income
Performance Criteria
In order to perform this element successfully you need to:
Adjust trading profits and losses for tax purposes
Make adjustments for private use by business owners
Divide profits and losses of partnerships amongst partners
Apply the basis of assessment for unincorporated businesses in the opening and closing years
Identify the due dates of payment of Income Tax by unincorporated businesses, including payments on account
Identify the National Insurance Contributions payable by self-employed individuals
Complete correctly the self-employed and partnership supplementary pages to the Tax Return for individuals, together with relevant claims and elections, and submit them within statutory time limits
Consult with Inland Revenue staff in an open and constructive manner
Give timely and constructive advice to clients on the maintenance of accounts and the recording of information relevant to tax returns
Maintain client confidentiality at all times
Range Statement
Performance in this element relates to the following contexts:
Clients:
Sole traders
Partnerships
Element 18.3 Prepare capital gains computations
Performance Criteria
In order to perform this element successfully you need to:
Identify and value correctly any chargeable assets that have been disposed of
Identify shares disposed of by companies
Calculate chargeable gains and allowable losses
Apply reliefs, deferrals and exemptions correctly
Ensure that computations and submissions are made in accordance with current tax law and take account of current Inland Revenue practice
Consult with Inland Revenue staff in an open and constructive manner
Give timely and constructive advice to clients on the maintenance of accounts and the recording of information relevant to tax returns
Maintain client confidentiality at all times
Range Statement
Performance in this element relates to the following contexts:
Chargeable assets that have been:
Sold
Gifted
Lost
Destroyed
Reliefs:
Rollover relief
Relief for gifts
Element 18.4 Prepare Corporation Tax computations
Performance Criteria
In order to perform this element successfully you need to:
Enter adjusted trading profits and losses, capital allowances, investment income and capital gains in the Corporation Tax computation
Set-off and deduct loss reliefs and charges correctly
Calculate Corporation Tax due, taking account of marginal relief
Identify and set-off Income Tax deductions and credits
Identify the National Insurance Contributions payable by employers
Identify the amount of Corporation Tax payable and the due dates of payment, including payments on account
Complete Corporation Tax returns correctly and submit them, together with relevant claims and elections, within statutory time limits
Consult with Inland Revenue staff in an open and constructive manner
Give timely and constructive advice to clients on the maintenance of accounts and the recording of information relevant to tax returns
Maintain client confidentiality at all times
Range Statement
Performance in this element relates to the following contexts:
Loss reliefs relating to:
Trade losses
Non-trade losses
