Trading profits and losses and tax credits

By Tolley
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The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Trading profits and losses and tax credits
  • Determining the profit or loss
  • Trading losses

Determining the profit or loss

A claimant’s trading income is defined in the regulations as follows:

  • the amount of his taxable profits for the tax year from:
    • any trade carried on in the UK or elsewhere, and
    • any profession or vocation the income from which does not fall under any other provisions of the tax credits regulations
  • if the claimant is a partner in the trade, profession or vocation, his taxable profit for the year arising from his share of the partnership’s trading or professional income

SI 2002/2006, reg 6

‘Taxable profits’ has the same meaning as set out in ITTOIA 2005, Part 2 and is therefore net of any capital allowances claim. In the case of both sole traders and partners, the averaging rules are ignored so the profit used for tax credits is the taxable profit for the year before averaging is applied. Averaging for income tax purposes is discussed in the Averaging of trading profit guidance note.

TCTM04004

The basis period rules for tax purposes are used to determine the taxable profits for the tax credits claim. For sole traders and partners with established trades, this means that the taxable profits for a tax year are the tax-adjusted profits for the accounting period ending in the tax year (ie the current year basis). See the Basis periods guidance note for a discussion of these rules in more detail.

Where

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