1. Schedule D Case I/II – Self-Employed Income
Calculation of Case I/II Taxable Profits
Taxation of Business Profits
Sole Traders
Trade or Profession
Accounts prepared under accepted accountancy standards
The rules for calculating profit for tax purposes differ to accepted accountancy standards in some instances

2. Schedule D Case I/II – Self-Employed Income
Adjustments
Start with Net Profit figure from Accounts
Expense not allowed for tax purposes – Add-back
Expense allowed and included in accounts – No adjustment required
Expense allowed and not included – Deduct
Income included that shouldn’t be taxed under Case I/II - Deduct

3. Schedule D Case I/II – Self-Employed Income
Three Main Categories of Adjustments
Capital
Expenses not wholly and exclusively for the purpose of the trade (business)
Disallowed by statute

4. Schedule D Case I/II – Self-Employed Income
Capital
Capital expenditure is not allowed as an expense when calculating profit for tax purposes
Includes the capital expenses itself and related expenses
Capital income is not taxed under Case I/II

5. Schedule D Case I/II – Self-Employed Income
What is Capital?
Three factors to consider
How is it treated in the accounts?
Does it have an enduring benefit for the trade?
Does it have a recurring quality?

6. Schedule D Case I/II – Self-Employed Income
Common Capital Adjustments
Improvements v Repairs
Depreciation
Capital Grants
Profit or loss on capital disposals
Expenses related to disposals of capital assets
Repaying capital on a loan

7. Schedule D Case I/II – Self-Employed Income
Not Wholly and Exclusively for the Trade
Expenses not related to trade
Related to other sources of income
Personal Expenses
Drawings
Salary payments to spouse/child where he/she does not work in the business
Income Tax payments
Personal expenses such as phone bills
Expenses can be apportioned between a personal and business element

8. Schedule D Case I/II – Self-Employed Income
Disallowed by Statute
Entertainment
Donations
Interest on late payment of tax
Movements in General Provisions
Specific provisions – no adjustment required for movements in specific provisions
Add-back an increase in a general provision
Deduct a decrease in a general provision

9. Schedule D Case I/II – Self-Employed Income
Disallowed by Statute
Motor Expenses
Fines are not allowable expenses
Motor expenses can be apportioned based on business/private use – Value for private use is added back
Motor Lease Restriction
Relates to cars that are leased by the sole trader
Limits the amount of lease payment that can be claimed as a deduction
Prevents sole traders from claiming a deduction for lease payments on expensive cars

10. Schedule D Case I/II – Self-Employed Income
Disallowed by Statute
Pension Fund Contributions
Pension contributions for the sole trader are disallowed and added back
Pension contributions for staff – Amount paid in the tax year are allowed

11. Schedule D Case I/II – Self-Employed Income
Disallowed by Statute
Patent Royalties – disallowed as a trading expense and added back
Finance lease payments – interest and capital allowable
Operating lease – interest only allowable, no adjustment required

12. Schedule D Case I/II – Self-Employed Income
Disallowed by Statute
Employee expenses
All costs related to having an employee are allowed.
The sole trader’s own salary / drawings are not allowed as an expense.
Salary paid to a spouse or children is only allowed when the spouse / child works in the business.

13. Schedule D Case I/II – Self-Employed Income
Pre-Trading Expenses
Pre-trading expenses are allowed when:
They were incurred for the purposes of a trade or profession, and
They were incurred within 3 years of the trade commencing, and
Were not otherwise allowable.
Pre-trading expenses are treated as having been incurred on the date the trade commenced.
A loss created by pre-trading expenses cannot be used against other income.

14. Schedule D Case I/II – Self-Employed Income
Income Not Taxed Under Case I/II
Non- Case I/II income must be deducted when they appear in the Income Statement
Rental Income, Deposit Interest, Dividend income, etc. are not taxed under Case I/II and should not be part of the taxable profit from a business