Taxation of trading profits—basis, receipts and deductions


Published by a ÀÏ˾»úÎçÒ¹¸£Àû Tax expert
Practice notes

Taxation of trading profits—basis, receipts and deductions


Published by a ÀÏ˾»úÎçÒ¹¸£Àû Tax expert

Practice notes
imgtext

Once a company has established that it has a trade (for which see Practice Note: What is a trade for tax purposes?), it is required to calculate the Profits of its trade or trades for corporation tax purposes in accordance with generally accepted accounting practice, but subject to:

  1. •

    removing any receipt or deduction that is of a capital nature

  2. •

    removing any deduction for an expense that was not incurred wholly and exclusively for the purposes of the trade (WEPT)—ie removing those expenses that are not WEPT expenses, and

  3. •

    making adjustments for specific items that are identified by statute as being, or not being, a receipt or deduction of the trade for tax purposes

The basic principles for calculating trading profits

A company is required to calculate the profits of its trade or trades for corporation tax purposes in accordance with generally accepted accounting practice (GAAP), subject to any requirement to the contrary.

This means that a company's taxable trading profits will largely be the accounting profits of the company, unless:

  1. •

    any of

Powered by Lexis+®
Jurisdiction(s):
United Kingdom
Related legal acts:
Key definition:
Profits definition
What does Profits mean?

The aggregate of income and chargeable capital gains of a company.

Read more

Popular documents

Is there any guidance as to the appropriateness of defining ‘Control’ as either (a) in accordance with

Is there any guidance as to the appropriateness of defining ‘Control’ as either (a) in accordance with section 1124 of the Corporation Tax Act 2010, or as (b) the beneficial ownership of more than 50% of the issued share capital of a company or the legal power to direct or cause the direction of the

Qualifying charitable donations and excess management expenses

Qualifying charitable donations and excess management expensesAll companies within the charge to corporation tax can deduct qualifying charitable donations from their total profits, after all other deductions have been made (other than group relief and group relief for carried-forward losses) to

Distribution key concepts—repayment of capital

Distribution key concepts—repayment of capitalAlongside the concept of new consideration, which is further explained in Distribution key concepts—new consideration, the concept of repayment of capital is vital in determining whether certain transactions are distributions.At the broadest level the

Capital allowances—interaction with CGT, VAT and stamp taxes

Capital allowances—interaction with CGT, VAT and stamp taxesThis Practice Note sets out how the capital allowances rules interact with the rules relating to:•capital gains tax, including corporation tax on chargeable gains (CGT)•value added tax (VAT), and•stamp taxes, namely:◦stamp duty land tax