Adjustment of profits ― overview

Produced by a Tolley Owner-Managed Businesses expert

Owner-Managed Businesses

Guidance

Why is the adjustment of profits relevant for tax?

Broadly speaking, profits generated by trading activities are subject to income tax in the hands of sole traders and partners, and corporation tax in the context of companies.

The tax legislation provides that the profits of a trade must be calculated in accordance with generally accepted accounting practice (GAAP), subject to any adjustments required or authorised by law. The starting point for calculating trading profits is usually the profit before tax figure as per the accounts, which is then subject to tax adjustments where applicable, which ultimately leads to the amount of total taxable profits.

See Simon’s Taxes B2.101.

What is GAAP?

GAAP is defined for this purpose by CTA 2010, s 1127. GAAP currently includes accounts prepared under:

•
UK GAAP (for most trades this will be either FRS 102 or FRS 105 for micro entities), see FRC: UK Accounting standards
•
International Financial Reporting Standards (IFRS) and any International Accounting Standards (IAS) that have not been superseded by IFRS

Since the above choices all

Access this article and thousands of others like it
free for 7 days with a trial of Tolley+™ Guidance.

TAKE A FREE TRIAL

Popular Articles

Owner-Managed Businesses

Sales, advertising and marketing

Sales, advertising and marketingExpenditure on sales, advertising and marketing activities may include amounts which are disallowable for the purposes of calculating trading profits. This may be because the expenditure is:•capital in nature (see the Capital vs revenue expenditure guidance note)•not

14 Jul 2020 13:28 | Produced by Tolley Read more

Employment Tax

Loans written off

Loans written offCompanies sometimes provide directors, employees or shareholders with low interest or interest-free loans either as part of the reward package or on special occasions to help the individual meet significant expenditure. The employment income implications of these loans are discussed

14 Jul 2020 12:11 | Produced by Tolley Read more

Corporation Tax

Temporary differences

Temporary differencesCalculation of temporary differencesThe temporary difference arising in respect of an asset or liability is calculated by comparing the carrying value of that asset or liability with its tax base.IAS 12 uses the concept of taxable or deductible temporary differences. Whether a

14 Jul 2020 13:49 | Produced by Tolley in association with Malcolm Greenbaum Read more

��˾��ҹ��