Gary is an electrician. He works as an employee of Electrical Solutions Ltd but in addition to this he started his own business on 1 December 2017. His adjusted trading profits for the six-month period ended 31 May 2018 were £8,700 and they were £16,800 for the year ended 31 May 2019.
The following information is available for the tax year 2020/21:
Gary’s statement of profit or loss for the year ended 31 May 2020 is as follows:
| £ | £ | |
| Income | 41,987 | |
|
Expenses: |
||
| Purchases | 5,550 | |
| Depreciation | 4,625 | |
| Motor expenses | 2,400 | |
| Other expenses | 4,672 | |
| (19,097) | ||
| Net profit | 22,800 |
• During the year, Gary did some electrical work on his own home and took goods out of the business to do this. The goods cost £300 (selling price £450) and this has been included in purchases. Gary has not paid anything into the business for them and no other accounting entries have been made.
• Gary charges all the running expenses for his motor car to the business. During the year ended 31 May 2020 Gary drove a total of 12,000 miles, of which 8,000 were for business.
• Other expenses of £4,672 include a £100 parking fine incurred by Gary whilst working at a customer’s property and a £200 political donation.
• Gary uses his private telephone to make business calls. The total cost of the private telephone for the year ended 31 May 2020 was £1200 and 40% of this related to business calls. The cost of these calls has not been included in the expenses above of £19,097.
• Capital allowances for the year ended 31 May 2020 are £2,100.
Required:
a) Calculate the trading profit that will have been assessed on Gary for the tax years 2017/18, 2018/19 and 2019/20 respectively. [4 marks]
b) Gary thinks he has been taxed twice on some of his trading profits. Advise him as to why this might be the case and how he would be compensated for this. [4 marks]
c) Calculate Gary’s adjusted trading profit for the year ended 31 May 2020.
