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ACCA Applied Skills · Taxation (UK) · Income from self-employment

Which one of the following statements about the treatment of a sole trader's own expenses in computing adjusted trading profit is correct?

The private proportion of a trader's car running costs must be disallowed, because it is not incurred wholly and exclusively for the trade. The trader's own salary or drawings, income tax and Class 4 national insurance are personal items and are never deductible.

  1. APrivate use of a business car by the trader is adjusted by disallowing the private proportion of running costsCorrect
  2. BSalary drawn by the trader is allowable if paid monthly
  3. CIncome tax paid by the trader is allowable when paid through the business bank account
  4. DClass 4 national insurance is allowable if the trader is a higher rate taxpayer

Explanation

Where the trader uses an asset privately, the private proportion of costs is not incurred wholly and exclusively for the trade and is added back. Drawings, income tax and Class 4 NIC are personal and never deductible.

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