PRINCIPLES OF TAXATION FOR BUSINESS AND
INVESTMENT PLANNING THIRD 2026 FINAL
PAPER REVIEW QUESTIONS ANSWERS
BUNDLED PRACTICE COLLECTION
◉ trading income vs capital gains
Answer: 1. trading income - classed as self-employed so will have to
register for SA tax return and pay income tax (20/40/45%) and
class 4 NICs (6%/2%)
2. capital gains - profits taxed as CGT (18/24%) and have an annual
exempt amount of £3000 on gains
◉ recommended actions to minimise tax consequences
Answer: - voluntarilty register for SA tax return to lower penalties
- reconstruct taxable records as far back as you can go
- try to argue trading / non trading boundary up to certain pointin
time to lower tax
- utilise £3000 CGT exemption
- if profits <£1000 on trading income then dont need to declare
income
,- if deemed as trading then encure every allowabel expense is
claimed agaisnt profit so taxable income is lower (revenue
expenditure + wholly / exclusively for trade)
◉ examples of deductible expenses for boris
Answer: moodifying / repairing bikes, purhcasing bikes for resale,
business miles / travel, delivery costs, ebay transaction fees,
replacement seats on bikes for resale
◉ what is the remoteness test
Answer: how closley related to the day to day running of the
business is the expense? is it only for the purpose of work?
- subscriptions to trading societys are okay but not political parties
◉ morgan v tate and lyle ltd
Answer: donation to conservative party was allowed as a deductable
expense as it was made to resist the nationalisation of the sugar
industry proposed by the labour party which would have caused the
business to cease --> passed remoteness test
◉ what is the duaility test
Answer: does the expense simultaneously serve a personal and
business expense? --> if yes then fails test
,if it has a single business purose but has dual use (eg van bought
soley for business but used privatley 50% of the time) --> personal
use can be seperated and so only business use % is deductable
◉ Mallalieu v Drummond
Answer: Barister tried to deduct the cost of the clothes she wore in
court BUT house of lords said the clothes simultaneously served the
purpose of 'warmth and decency' so were not deductible
◉ Caillebotte v Quinn
Answer: a self empoyed carpenter tried to deduct the difference
between eating at home and (10p) and eating in a cafe (40p) when
he was working away from home BUT denyed as food has the dual
purpose of 'eating to live'
◉ Parsons v R&C Commrs
Answer: stunt performer was allowed to deduct dental and medical
expenses
◉ interfish v hmrc
Answer: Fishing company paid £1.2m to sponsor Plymouth Albion
rugby club. They tried to claim fully deductible BUT court said it has
the dual purpose of improving the rugby clubs finanical position as
well as benefiting interfish --> if they could have seperated the cost
, of advertiisng eg logos on players shirts then this part could have
been deductible
◉ revenue vs capital expenditure
Answer: 1. Revenue is recurring in nature + expected to be used up
in the course of trading + maintains assets rather than improves
- receipts from the sale of information
- compensation for cancellation of small commerical contracts
2. capital is often a 1 off expnse which creates a long lasting asset or
enduring benefit (eg future reduced payments)
But there is no definition --> it is largely based on previous case law
◉ expenses specifically disallowed as deducable for self employed
Answer: - fines / penalties / illegal payments (parking fines for
employees okay but never speeding tickets or for directors)
- gifts if >£50 of food, tobacco or alcohol and don't advertise
business logo to customers (employees okay)
- entertainment to customers BUT employyes okay (if >£150 per
person then BIK arises)
- education for new skills
- appropriation of wages --> include in taxable profit (includes own
NICs)
- legal charges not related to business expenditure or capital in
nature eg buying new van
INVESTMENT PLANNING THIRD 2026 FINAL
PAPER REVIEW QUESTIONS ANSWERS
BUNDLED PRACTICE COLLECTION
◉ trading income vs capital gains
Answer: 1. trading income - classed as self-employed so will have to
register for SA tax return and pay income tax (20/40/45%) and
class 4 NICs (6%/2%)
2. capital gains - profits taxed as CGT (18/24%) and have an annual
exempt amount of £3000 on gains
◉ recommended actions to minimise tax consequences
Answer: - voluntarilty register for SA tax return to lower penalties
- reconstruct taxable records as far back as you can go
- try to argue trading / non trading boundary up to certain pointin
time to lower tax
- utilise £3000 CGT exemption
- if profits <£1000 on trading income then dont need to declare
income
,- if deemed as trading then encure every allowabel expense is
claimed agaisnt profit so taxable income is lower (revenue
expenditure + wholly / exclusively for trade)
◉ examples of deductible expenses for boris
Answer: moodifying / repairing bikes, purhcasing bikes for resale,
business miles / travel, delivery costs, ebay transaction fees,
replacement seats on bikes for resale
◉ what is the remoteness test
Answer: how closley related to the day to day running of the
business is the expense? is it only for the purpose of work?
- subscriptions to trading societys are okay but not political parties
◉ morgan v tate and lyle ltd
Answer: donation to conservative party was allowed as a deductable
expense as it was made to resist the nationalisation of the sugar
industry proposed by the labour party which would have caused the
business to cease --> passed remoteness test
◉ what is the duaility test
Answer: does the expense simultaneously serve a personal and
business expense? --> if yes then fails test
,if it has a single business purose but has dual use (eg van bought
soley for business but used privatley 50% of the time) --> personal
use can be seperated and so only business use % is deductable
◉ Mallalieu v Drummond
Answer: Barister tried to deduct the cost of the clothes she wore in
court BUT house of lords said the clothes simultaneously served the
purpose of 'warmth and decency' so were not deductible
◉ Caillebotte v Quinn
Answer: a self empoyed carpenter tried to deduct the difference
between eating at home and (10p) and eating in a cafe (40p) when
he was working away from home BUT denyed as food has the dual
purpose of 'eating to live'
◉ Parsons v R&C Commrs
Answer: stunt performer was allowed to deduct dental and medical
expenses
◉ interfish v hmrc
Answer: Fishing company paid £1.2m to sponsor Plymouth Albion
rugby club. They tried to claim fully deductible BUT court said it has
the dual purpose of improving the rugby clubs finanical position as
well as benefiting interfish --> if they could have seperated the cost
, of advertiisng eg logos on players shirts then this part could have
been deductible
◉ revenue vs capital expenditure
Answer: 1. Revenue is recurring in nature + expected to be used up
in the course of trading + maintains assets rather than improves
- receipts from the sale of information
- compensation for cancellation of small commerical contracts
2. capital is often a 1 off expnse which creates a long lasting asset or
enduring benefit (eg future reduced payments)
But there is no definition --> it is largely based on previous case law
◉ expenses specifically disallowed as deducable for self employed
Answer: - fines / penalties / illegal payments (parking fines for
employees okay but never speeding tickets or for directors)
- gifts if >£50 of food, tobacco or alcohol and don't advertise
business logo to customers (employees okay)
- entertainment to customers BUT employyes okay (if >£150 per
person then BIK arises)
- education for new skills
- appropriation of wages --> include in taxable profit (includes own
NICs)
- legal charges not related to business expenditure or capital in
nature eg buying new van
