Trading, Profit and Loss Account (TPLA)
Basic Pro Forma Trading, Profit & Loss Account - An Explanatory Guide
If you are self employed you will need to provide accounts of your business in support of your Personal Income Tax Return.
This basic Trading, Profit and Loss Account ("TPLA") is designed to help business owners who are sole traders, but who do not use the professional services of an accountant or firm of accountants to prepare tax returns and accounts.
If the annual turnover (see below) of your business, however, is below £15000 and this is not the first year or the first accounting period of your business, you may choose instead to use the Three Line Account (form 3LA).
Keeping of records
There are regulations in place which require all taxpayers, and that obviously includes those in business, to keep, maintain and retain records for income tax purposes. There is a Statement of Practice on Keeping, Maintaining and Retaining Records, issued by the Director, which explains how the income tax office interprets the requirements of the law.
You will see the Statement of Practice includes an illustrative guide as to the type of record that should be made and also sets out the measures in place if you do not keep, maintain and retain adequate records.
General notes for the user
The TPLA has a degree of "Help" built in, for the convenience of the user, which may be viewed, where available, by clicking on the relevant yellow box.
Only the yellow boxes may be completed.
All calculations are carried out automatically within the TPLA, including adjustments to expenses to reflect the percentage of private use, where applicable.
The list of expenses is not exhaustive due to the varying types of business and is therefore only designed to be representative of those expenses that may be incurred in the majority of businesses. If you wish to claim an expense which does not appear in the list you will need to specify what it is.
What is meant by turnover/gross takings/sales/receipts/income?
This is the total gross income arising from the normal trading activities of the business before any deductions, and includes all receipts, whether or not an invoice has been raised, in cash, by cheque, credit/debit card, bank transfer or other electronic payment and so on. Gross income would also include:-
- Other miscellaneous receipts (e.g. rent from subletting part of the business premises, receipts from the States Registered Apprenticeship Scheme etc.),
- Value of any reward for work done other than by actual monetary payment,
- Value of any stock taken from the business without payment for use by you, your family and/or friends.
The gross income of a business does not include:-
- Loans made to the business by the owner or third party lenders such as banks/finance companies and/or family or friends,
- Receipts from the sale of any assets of the business, which should be recorded separately in the section entitled "Details of any Purchases/Sales of Fixed Assets"
How do I deal with stock of goods for resale?
A definition of stock can be found in the Statement of Practice on Keeping, Maintaining and Retaining Records.
Opening Stock is the cost of the stock brought forward from the previous accounts (i.e. the closing stock from the previous year) or taken as zero if this is a new business.
A record of all stock on hand at the end of the accounting period must be made and the value recorded as Closing Stock, (normally at the lower of cost or market value).
What expenses can I claim?
Basically, you may claim any expense if it was laid out wholly and exclusively for the purpose of running the business, unless specifically excluded by legislation.
If there has been any private use then the amount claimed should be adjusted accordingly, by only claiming the proportion that relates to the business use in the TPLA and where the precise amount of private use cannot be determined, realistic estimates can be claimed.
Examples of expenses which are not allowable
The most common examples include:-
- Your own drawings, e.g. wages or salary, including your own personal Social Security contributions and any other personal expenses paid for by the business,
- Wages or salary paid to a business partner,
- Expenditure on capital items such as the cost of acquisition of business assets (e.g. motor vehicle, equipment, computer etc.)
- The cost of initial training undertaken to put you in a position to be able to carry on the business
- Travel expenses between your home and place of business
- Clothes that may be used for ordinary everyday wear such as jeans, T-shirts, training shoes etc, although the cost of protective clothing/footwear is allowable, such as overalls, gloves, hard hat and footwear with steel toecaps etc.
- The cost of any alterations, additions or improvements to leased business premises,
- Premiums paid in respect of life, accident or sickness assurance,
- Fines for breaking the law, such as parking tickets, court fines, income tax surcharges etc.
- General provisions for doubtful debts, although specific bad debts may be allowable.
- Repayment of capital on loans, i.e. loan repayments,
- The cost of the acquisition of a business, which could include the purchase of a taxi plate, fishing licence, milk or paper round etc. although the interest charged on a loan to acquire a business or an asset of the business would be allowable.
I have employed staff but not operated the Employees' Tax Instalment (ETI) Scheme so can I still claim the expense?
As an employer you are required to operate the ETI scheme on all wages, whether the employee worked on a full time, part time or casual basis. For more information you should refer to the Employers Guide to the ETI Scheme.
The ETI scheme must also be operated on any person who works for you as a subcontractor on a labour only basis - see Part 4 of the Employers Guide to the ETI Scheme which fully sets out the position.
If you have failed to operate the ETI scheme on your employees or on any labour only subcontractors you have engaged, you should still claim the expense and attach a schedule setting out the name, address and amount paid to each person but you may be required to pay the tax that you should have deducted.
It is important that if you are still employing anyone and you have not registered with this office that you contact the ETI Section (Tel. 740440 or e-mail firstname.lastname@example.org) in order to register.
What information do I need to provide for other subcontractors who provided labour and materials?
The ETI scheme does not apply if the subcontractor supplied the materials for the job. If that is the case, you should provide the name, address and amount paid, as shown in the relevant section of the TPLA.
It should be noted however that if only negligible amounts of materials (e.g. a carpenter supplying only his tools, nails and screws) are supplied the ETI scheme must be operated as the subcontractor will be considered to have supplied only labour. If in doubt call the ETI helpline on 740440.
Am I able to claim for the wear and tear of an asset?
The Income Tax Office will calculate the Annual Allowances (similar to depreciation) due, to reflect the wear and tear on the fixed assets of your business.
There is a section in the TPLA for you to set out details of the assets bought and sold during the period covered by the accounts. It is important to provide all of the information requested to assist in the calculation of any allowance that you may be due or to make any necessary adjustments on the asset's sale.
What do I do next?
If you have completed the TPLA:
- Please ensure you have saved a copy for your records.
- Print a copy of the TPLA and attach it to your income tax return.
- If using this template in conjunction with the submission of an on-line return please ensure it is uploaded in the self-employment section of the return.
These notes are intended to help the business owner through the process of completing the TPLA for submission in support of his/her Personal Income Tax Return.
If you find you need more help/guidance with the keeping of records or preparation of accounts you may still need the services of a professional accountant.
The staff at the Income Tax Office are not able to prepare accounts for you but if you are using the TPLA and there are any general points on which you are unsure and need assistance please follow this link to contact us, quoting your income tax reference number.
The Director of Income Tax reserves the right to insist on certified accounts being prepared by a suitably qualified person if he feels it is appropriate to do so.