Income tax: income from self-employment: formula sheet

Key formulas

Adjusted trading profit

Net profit per accounts + disallowable expenditure − non-trading and separately taxed income − capital items credited = profit before capital allowances; then − capital allowances (+ balancing charges) = taxable trading profit

Capital allowances are deducted after the adjustment. Rates come from the tax tables ACCA provides.

Basic deductibility test

Expense is allowable if incurred wholly and exclusively for the purposes of the trade and is revenue in nature

Where an expense has both private and business use, only the business part is allowed.

Cash basis profit

Cash receipts − cash payments for allowable expenses (with specific rules for capital items)

Applies to eligible unincorporated traders unless they elect for accruals.

Trading allowance

Gross trading income up to £1,000 is fully relieved; above that, deduct £1,000 instead of actual expenses (if beneficial)

The £1,000 figure is a core ATX rule. Check the tax tables and the question for conditions.

Partnership profit split

Adjusted firm profit is allocated using each partner's profit-sharing ratio and any salary or interest entitlement for the period

Allocate the profit after capital allowances. Salaries and interest are shared first, then the balance by ratio.

Main pool WDA

WDA = 18% × (b/f balance + additions not covered by AIA or FYA − disposal proceeds)

Reducing balance. Pro-rate for a period that is not 12 months.

Special rate pool WDA

WDA = 6% × (b/f balance + additions not covered by AIA or FYA − disposal proceeds)

Integral features and cars with CO2 emissions over 50 g/km. Use a separate pool.

Annual investment allowance

AIA = 100% × qualifying expenditure, up to £1,000,000 per year

Not available on cars. Time-apportion the limit for a period that is not 12 months. Allocate it first to special rate additions.

Company first year allowances

Main pool additions: 100%. Special rate pool additions: 50%

Companies only. Sole traders and partnerships cannot claim these.

Car rates

New zero-emission 100%; second-hand zero-emission 18%; CO2 1-50 g/km 18%; CO2 over 50 g/km 6%

The 18% rate applies in the main pool and the 6% rate in the special rate pool. Private use by a sole trader needs a separate asset column.

Balancing adjustment on cessation

Pool balance − proceeds (each limited to cost) → positive = balancing allowance; negative = balancing charge

Do this pool by pool. No WDA or AIA in the final period.

Structures and buildings allowance

SBA = 3% × qualifying construction cost per year, straight line

Land is excluded. Cost is spread over time rather than reduced on a reducing balance.

Basis period

Basis period = the tax year (6 April to 5 April)

This applies to continuing years. Profits are time-apportioned from the accounting periods that overlap the tax year.

Time apportionment

Profit for tax year = Σ (adjusted profit of accounting period × months of that period in the tax year ÷ months in the accounting period)

Apportion to the nearest month, as the exam's supplementary instructions require.

Opening year

First tax year = profits from the date trading starts to the next 5 April

The second tax year is a full tax year, built by apportionment.

Closing year

Final tax year = profits from 6 April to the date trading ceases

Include all profits not yet taxed. Overlap relief from before 2024/25 was used in the 2023/24 transition year, so there is none to deduct on cessation. Apply only a transition-related adjustment if the question specifically gives one.

Change of accounting date

No special rule: apportion each accounting period that overlaps the tax year

Watch the number of months in any long or short period of account.

Carry forward relief

Loss c/f deducted from first available profits of the SAME trade, as much as possible

Carry forward is a claim against the first available profits of the same trade. There is no time limit on use. The claim is made within four years of the end of the tax year in which the profits arise against which the loss is relieved. You cannot choose to use only part of the profits to protect the personal allowance.

Sideways relief (s64)

Loss set against total income of year of loss and/or previous year, before the personal allowance

You choose the year order. Claim by 12 months after 31 January following the end of the loss tax year. Within a year, you cannot restrict the claim to save the personal allowance.

Early years relief

Loss in any of the first four tax years set against total income of the previous three tax years, earliest first

Same claim deadline as sideways relief. Both are subject to the cap.

Terminal loss relief

Loss of final 12 months set against trade profits of year of cessation and previous three tax years, latest first

Unrelieved overlap relief is deducted in computing the final basis period profit or loss, which can increase the terminal loss. Only trading profits, not other income. Not subject to the cap.

Cap on income tax reliefs

Maximum relief in a tax year = higher of £50,000 or 25% × income

Income here is total income before the reliefs, adjusted as the question directs. Applies per tax year to sideways and early years claims. Taken from ACCA's tax tables.

Claim deadline for 2025/26 sideways or early years loss

31 January 2028

Twelve months after the normal filing date of 31 January 2027.

Allocation order

Profit = salaries + interest on capital + balance shared in the profit-sharing ratio

Do this for each period in which the sharing arrangements are different. Salaries and interest are time-apportioned if stated per annum.

Time apportionment

Profit for a part-period = period profit × months in part ÷ months in period

The exam instructions say to apportion to the nearest month. Do not apportion by days.

Partner's taxable profit for a tax year

Sum of the partner's allocated shares for the part-periods that fall in the tax year

On the tax year basis, the profits of a tax year are those arising in it. Apportion each period of account to the tax year.

Opening and closing years

New partner: taxed from the date of joining. Leaving partner: taxed to the date of leaving

Treat each as starting or ceasing a trade. Continuing partners are not treated as ceasing.

Sideways loss relief limit: LLP members and limited partners

Relief against general income and gains is capped at the capital contributed

Unrelieved losses are carried forward against future profits from the same trade. They can be used sideways later if the contribution increases.

Sideways loss relief limit: non-active partners

Capped at £25,000 per tax year for a non-active partner, meaning one who spends on average less than 10 hours a week personally engaged in the business

This limit covers sideways relief against income and against capital gains. The £25,000 figure is not given in the tax tables, so you must learn it. Where a partner is also restricted by a capital contribution limit, the lower limit applies.

Cap on income tax reliefs

Reliefs are capped at the higher of £50,000 or 25% of income

This applies unless the relief is otherwise restricted. Apply it after the specific loss restrictions.

Salaried member of an LLP

Treated as an employee if conditions A, B and C are all met

A: it is reasonable to expect that at least 80% of the total amount payable by the LLP for the individual's services is disguised salary, meaning it is fixed, or varies without reference to the firm's overall profits. B: no significant influence over the firm's affairs. C: capital contribution is less than 25% of the disguised salary.

Class 4 main rate

6% × (profits between £12,571 and £50,270)

The band is £37,700 wide. Maximum charge at the main rate is £2,262.

Class 4 additional rate

2% × (profits above £50,270)

Applies to the slice only, not to all profits.

Class 4 lower limit

Nil on the first £12,570 of profits

If profits are £12,570 or less, there is no Class 4.

Class 1 employee

8% × (earnings £12,571 to £50,270) + 2% × (earnings above £50,270)

Use when comparing with a company director's salary.

Class 1 employer

15% × (earnings above £5,000 per year)

Extra cost to the company, on top of gross salary. It is a deductible expense for the company.

Employment allowance

Up to £10,500 off employer Class 1

Only if the employer qualifies. Check the facts before applying it.

Class 1A

15% × taxable benefits provided to employees

Employer only. Relevant when a company provides benefits in kind.

Net payment to scheme

Net payment = Gross contribution × 80%

The scheme claims 20% basic rate relief. Gross = net × 100 ÷ 80.

Maximum relievable gross contribution

Higher of relevant earnings and £3,600

For a trader, relevant earnings are broadly taxable trading profits. Contributions above this get no relief.

Annual allowance

£60,000 for 2025/26

Pension input above this, after carry forward, is subject to the annual allowance charge.

Tapered annual allowance

£60,000 − ((Adjusted income − £260,000) ÷ 2), minimum £10,000

Applies only if threshold income exceeds £200,000. Use the ACCA tax tables for limits.

Carry forward

Current year allowance, then unused allowance of the previous 3 years, earliest first

You must have been a member of a registered scheme in each year you carry forward from.

Band extension

Basic rate band £37,700 + gross contribution; higher rate limit £125,140 + gross contribution

This gives higher and additional rate relief.

Annual allowance charge

(Pension input − available allowance) taxed at the trader's marginal rates

The excess is treated as the top slice of income.

Incorporation relief: gain deferred

Gain deferred = Total gain × Value of shares received ÷ Total consideration

Total consideration includes shares, cash and any loan account. The rest of the gain is chargeable now.

Base cost of shares

Base cost = Market value of shares received − Gain deferred

This is what you use when the shares are later sold, so the deferred gain is taxed then.

BADR rate and limit

Qualifying gains taxed at 14% up to £1,000,000 lifetime limit

Gains above the limit are taxed at 18% (basic rate band) or 24%. Investors' relief has the same rate and limit but applies to shares.

CGT annual exempt amount

Annual exempt amount = £3,000

Deduct it from the net gains before applying the rate. Set it where it saves the most tax, which is usually against gains taxed at the highest rate.

BADR qualifying conditions (sole trader)

Disposal of whole or part of a trading business, or its assets within 3 years after cessation; owned for at least 2 years

For shares in a personal company the conditions differ: at least 5% of ordinary share capital and voting rights, plus office or employment, for 2 years.

Corporation tax rates

Small profits rate 19% (profits up to £50,000); main rate 25% (profits over £250,000); marginal relief between

Marginal relief = (£250,000 − Augmented profits) × 3/200 × Taxable total profits ÷ Augmented profits.

SDLT on non-residential property

Up to £150,000: 0%; £150,001 to £250,000: 2%; £250,001 and above: 5%

A transfer of a business property to a company is a land transaction, so check SDLT in an incorporation.

Quick revision

• Start every trading income question with accounting profit, then add back disallowable items and deduct non-trading income.
• Capital allowances in the tax tables: main pool 18%, special rate pool 6%, structures and buildings allowance 3% straight line.
• The annual investment allowance is 100% up to an expenditure limit of £1,000,000.
• Car allowances depend on CO2 emissions, so check the emissions band before choosing the rate.
• Show all workings, work to the nearest £ and apportion to the nearest month, as the supplementary instructions state.
• Class 4 NIC: nil to £12,570, 6% to £50,270, then 2% above that.
• Class 1A is 15%, and the employment allowance is £10,500.
• Pension relief: the annual allowance is £60,000, with a £3,600 maximum contribution that qualifies without earnings.
• Income tax reliefs are capped at the higher of £50,000 or 25% of income, unless otherwise restricted.
• Business asset disposal relief taxes qualifying gains at 14%, with a £1,000,000 lifetime limit.
• Personal allowance is £12,570 and is reduced to zero when adjusted net income reaches £125,140.
• End each advice answer with a clear recommendation, and state any assumptions you have made.

Common mistakes

• Deducting depreciation as an expense Fix: Always add back depreciation. Relief comes through capital allowances.
• Leaving non-trading income in trading profit Fix: Scan the income side. Deduct interest, rent and gains on disposal.
• Giving WDA or AIA in the final period of trade. Fix: On cessation, skip the WDA and AIA. Deduct proceeds and clear the pool with a balancing adjustment.
• Claiming the AIA on a car. Fix: Cars do not qualify for the AIA. Check the CO2 emissions and use the car rates instead.
• Calculating overlap profits for a new business that began after the transition Fix: Under the tax year basis a new business has no overlap profits. Check that each month of profit is taxed once and stop there.
• Using the accounting period profit as the tax year profit Fix: Always time-apportion. Even a 30 June year end needs 3 months of one period and 9 months of the next in each tax year.
• Applying the cap to carry forward or terminal loss relief. Fix: Apply the cap only to sideways and early years relief. Carry forward and terminal relief are outside it.
• Using the early years carry back in the wrong order. Fix: Early years: earliest of the three previous years first. Terminal: latest year first.
• Using the profit-sharing ratio of the tax year instead of that of the period of account. Fix: Allocate profit within each period of account first. Convert to tax years only afterwards.
• Giving a partner a full year of salary when they joined or left part-way through. Fix: Multiply any annual salary or interest by the months in the part-period ÷ 12.

Exam tips

• Show each adjustment with a one-line reason. ATX awards marks for explanation and for professional skills.
• Use the pro forma every time, and do not drop items you treat as allowable. Say 'allowable' for them in the working.
• Read the scenario for the basis. If the cash basis or trading allowance applies, say so and apply the right rules.
• Put capital allowances in a separate working and link the figure in.
• For partnerships, always check the sharing rules for the period and compute salaries first.
• Show every pool column and every number. Marks are given for method, even if one figure is wrong.
• Read the entity type first. Full expensing only applies to companies. For a sole trader, quote the AIA and WDA.
• Look at each car's CO2 emissions. They decide the rate, the pool and whether any first year allowance applies.