Your tax client Ray Carrington is self-employed, running his own retail business selling antique furniture from both his shop premises and online from home. His profit and loss account for the year ended 31 March 2023 is as follows:

1. Gross profit £300,000
   Expenses
   Depreciation 5,000
   Motor expenses (Note 1) 12,000
2. Professional fees (Note 2) 6,000
3. Repairs and renewals (Note 3) 1,000
4. Travel and entertaining (Note 4) 3,000
5. Wages and salaries (Note 5) 120,000
6. Other expenses (Note 6) 43,000
7. 
   
8. Net profit £110,000

Note 1 Motor expenses.

During the year, Ray drove a total of 10,000 miles, of which 2,000 were for private purposes the remainder being on business.

Note 2 Professional fees.
This comprised £900 for accountancy, £1,000 for personal financial planning for Ray, £2,100 trade debt collection, and £2,000 for legal fees in respect of an unsuccessful application to extend his shop and add a cafe.

Note 3 Repairs and Renewals
This figure was made up of £600 for replacement parts and repair of for the shop’s point of sales till systems, and £400 for a new security camera installed in the shop.

Note 4 Travel and Entertaining
This consisted of £2,000 for Ray’s business travelling expenses and £1,000 for a staff summer party which cost £100 per person and was held annually.

Note 5 Wages and Salaries

This figure includes £20,000 paid to Ray's wife. She works part-time in the business as a sales assistant. The other sales assistants, doing identical jobs, are paid £12,000 a year each

Note 6 Other Expenses

This figure includes £40 bouquet of flowers as a wedding present for an employee, £900 for Ray's personal gym subscription, a political donation of £100 to the Green Party and £400 for a trade subscription to the local Chamber of Commerce, which has been helpful in supporting his business. The balance of expenses is all tax allowable.

Note 7 Use of Office

Ray uses one of the eight rooms in his private home as an office for the business. The total running costs of the house for the year were £5,600. These costs have not been included in the accounts.

Note 8 Private Telephone

Ray uses his mobile phone to make business calls. The total cost of the phone calls for the year was £1,200 of which 25% related to business calls. The cost of the calls has not been included in the accounts

Note 9 Goods for Own Use

Ray took a table from the shop for his own personal use. It cost £900 and could have been sold for £1,200. No entry has been made in the accounts to reflect this.

Note 10 Plant and Machinery

Capital allowances for the year ended 31 March 2023 are £3,000 before considering any adjustment that might be required due to the information in note 3 above.

Requirement

Calculate Ray's adjusted taxable trading profit for the year ended 31 March 2023 starting with net profit £110,000 making clear your treatment of each item. If an item is allowable for tax add it back and show 0 (nil). Ray has not elected to use the cash basis or fixed rate expenses.

Answer rating: 100% (QA)

To calculate Rays adjusted taxable trading profit we need to go through each item and determine its tax treatment The treatment for each item Gross profit This is the sales revenue minus the cost of g... View the full answer