B2.472 Tax and tax-related expenditure
For the latest New Development, see ND.1905.
Income tax or corporation tax is imposed on a profit which has been ascertained, and the tax is in substance a portion of the profit which has to be paid over to the Crown. Accordingly, such tax on the profit is not a deduction to be made in arriving at the amount of the profit1.
Where tax is charged on a transaction which is to be taken into account in ascertaining the results of the trading activity, the tax is deductible in arriving at those results.
Thus, stamp duty incurred on the purchase of land or shares by a dealer in either of those commodities is deductible in calculating trading profits. Where a trader acquires business premises, however, and pays stamp duty on the purchase, the tax is treated as a capital item and is only deductible in the subsequent chargeable gains computation on the disposal of the premises.
Capital gains tax is not itself deductible where the land or interest in land is a capital asset of the business. Where the land or interest is trading stock of the taxpayer, the realised value of the land is allowed as a deduction in computing the profits of the trade.
Where the tax is a single imposition on the commencement of business or the establishment of business premises or the installation of equipment, the tax is likely to be capital expenditure. Similarly, capital duty or similar levies imposed on the raising of