Income Tax

Schedule D – Case I and II

Scope

Case I: Tax adjusted Profits of a self-employed trader.
Case II: Tax adjusted Profits of a self-employed professional.

Basis of Assessment

Profits from the accounts done in 2005 are taxed in 2005. The accounts must be for a twelve-month period.
Calculating Case I and II Profit

There are three steps to work out a businessperson's taxable Case I and II profit. They are:
1. Start of with the net profit/loss for the profit and loss account.
2. Add back any expenses, which are not allowable.
3. Subtract any incomes that are not taxable under case I and II. E.g. rental income.

Treatment of Expenses
Expense: Add back Do Not Add back
¨ Any expense that is wholly and exclusively for the business P
¨ Expenses not for the business P
¨ Owners drawing/salary – anything owner takes for private use P
¨ Political/charitable donations P
¨ Any expense incurred for the employees P
¨ Capital expenditure – costs associated with buying/improving fixed assets P
¨ Depreciation P
¨ Repairs to fixed assets P
¨ Bad debts P
¨ Increase in general provision P
¨ Increase in specific provision P
¨ Repaying capital sum of loans P
¨ Business entertainment P
¨ Penalties/fines for breaking the law P
¨ Car lease costs P (Some)

Notes:
1. Car Lease Costs:
Write down the total lease costs.
Step 1 - subtract personal percentage of the Owner's car only.
Step 2 - subtract:
Answer after step 1 x       (Price of car - €22,000)
                Price of the Car
NB: The amounts that you subtract are the amounts that are to be added back.

2. General Provision:
Created a 2% provision – add back as it is only a general provision and is not tax deductible.

Question

Claire is a self-employed florist and has been in business for a number of years. She has prepared accounts for the year ended 30th September 2003 and has asked you to review these with a view to completing her Tax return.

Accounts... [continues]

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