The new business
Part 4 of 4
This is the Finance Act 2024 version of this article. It is relevant for candidates sitting the ATX-UK exam in the period 1 June 2025 to 31 March 2026. Candidates sitting ATX-UK after 31 March 2026 should refer to the Finance Act 2025 version of this article (to be published on the ACCA website in 2026).
So far in this article we have compared trading as an unincorporated business with trading through a company by reference to the various relevant taxes and we have reviewed the choice of year end for an unincorporated business.
In this final part we will look at pre-trading expenditure and capital allowances.
Pre-trading expenditure
Expenditure incurred in the seven years prior to the commencement of trade is treated as having been incurred on the first day of trading.
Capital allowances
Under the cash basis, which is now the default basis of taxation, relief for pre-trading capital expenditure such as plant and machinery, will be deductible as trading expenses incurred on the first day of trade. The only capital allowances available under the cash basis are in respect of cars, unless the trader claims fixed rate expenses instead.
For the purposes of capital allowances, where the accruals basis is used (or for cars under the cash basis), assets purchased for use in the business prior to the commencement of trading are treated as having been purchased on the first day of trading. Assets owned by the trader and brought into the business are treated as having been acquired for their market value at the time they are brought into the business.
The annual investment allowance is increased/reduced for trading periods of more/less than 12 months. Accordingly, the length of the trading period in which significant capital expenditure is incurred can have an effect on the speed with which a business obtains relief for its capital expenditure.
Illustration 2
Irina began trading on 1 January 2025 and elects to be taxed on the accruals basis. In February 2025, Irina spent £385,000 on equipment for use in her business.
The capital allowances claimed by Irina will depend on the date to which she prepares her first set of accounts.
Accounts prepared to 31 March
| Main pool £ | Allowances £ |
|
|---|---|---|
| Three-month period ended 31 March 2025 | ||
| Additions qualifying for AIA | 385,000 | |
| AIA (maximum £1,000,000 x 3/12) | (250,000) | 250,000 |
135,000 | ||
WDA (18% x 3/12) | (6.075) | 6,075 |
128,925 | 256,075 |
|
Period ending 31 March 2026 | ||
WDA at 18% | (23,207) | 23,207 |
Tax written down value carried forward | 105,718 | |
Total allowances for the first two trading periods | 279,282 |
Accounts prepared to 30 September
Main pool | Allowances |
|
|---|---|---|
Nine-month period ended 30 September 2025 | ||
| Additions qualifying for AIA | 385,000 | |
| AIA (maximum £750,000 (£1,000,000 x 9/12) | (385,000) | 385,000 |
| Tax written down value carried forward | –– | |
| Period ending 30 September 2026 | ||
| No tax written down value brought forward | –– | –– |
| _______ | ||
Total allowances for the first two trading periods | 385,000 |
The speed with which the capital allowances are claimed is only a timing difference, as opposed to an absolute difference. However, it could have significant cash flow implications.
Conclusion
In order to be able to handle questions concerning an unincorporated business:
- You must be willing to stop and think before you start writing your answer in order to ensure that you identify the taxes which need to be referred to and the points which need to be made.
- You must know the basis of assessment rules in respect of profits and losses and be able to apply them to situations where the profits vary on a monthly basis.
- You must know the differences between an unincorporated business and a company and take care that you apply the appropriate rules.
Note: The unincorporated business is considered further in:
Written by a member of the ATX-UK examining team
The comments in this article do not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content of this article as the basis of any decision. The authors and ACCA expressly disclaim all liability to any person in respect of any indirect, incidental, consequential or other damages relating to the use of this article.
