I Am Marina, Working As Tax Adviser

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Dear Ali, I am Marina, working as tax adviser. I am writing to you regardless your situation that you should be registered as self-employed for income tax and may be for VAT. In this letter I will describe the appropriate criteria which will help me to make a decision that you are trading or not. As well, I will give you an overview of the principles and accounting for VAT and explain the administration of the VAT. The HM Revenue & Customs (HMRC) use several test known as the Badges of Trade which helps to decide if person is trading or not. The main criteria’s are following: • Subject matter of the transaction Ali is buys a car with a view to selling it later in order to make a profit – this indicate that he is trading. In the case,…show more content…
In the case, Cape Brandy Syndicate v CIR 1921, where members of winery purchased Cape brandy and blend it with French brandy. They distilled too much and sold the surplus. They have been indicated as trading, even thought they were arguing that the transaction was a capital nature from the sale of an investment. • Reason for sale The acquisition seems to be planned with the definitive sale in mind - this indicates trading. In some cases, the presence of one badge is enough to indicate trading as it was in the case Rutledge v CIR mentioned above. • Motive Ali is intentionally buying cars at a cheap price to sell on at a good profit. He buys at auction only cars that need to be restored, and after car is in good condition he sells it again at auction – this indicates trading. In the case, Wisdom v Chamberlain 1969, a taxpayer purchased silver bullion to gain on the devaluation of the pound. Because the purchase was done in order to gain a profit therefore were was nature of trading. Conclusion. All six badges of trade point towards trading, The HMRC will assess the above as trading and Ali’s income from this activity is Trading Income. I would advise Ali to register as self-employed. Please read below an overview about VAT in order to find out if this applies to you. The principles of VAT A Taxable person is a person who has made taxable supplies and is registered for VAT. Should charge VAT on output and may reclaim
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