Adjustment to accounting profits

By Tolley

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

  • Adjustment to accounting profits
  • Items not taxed as trading income
  • Goods for own use
  • Appropriations to trading stock
  • Premiums on leases
  • Simplified cash basis

In order to find the tax-adjusted profits reportable on the Tax Return, the following proforma is used:

Net profit per the accountsX 
Add: disallowed expenditureX 
Less: items not taxed as trading income(X) 
Less: capital allowances(X) 
Tax-adjusted profitX 

This guidance note considers:

  • income included in the accounts which is not treated as trading income for tax purposes
  • other common adjustments necessary for tax purposes

This guidance note should be read in conjunction with the Trading income and expenses and Capital allowances guidance notes.

The application of these rules to the simplified cash basis is discussed at the bottom of this guidance note.

Items not taxed as trading income

Not all receipts which a trader includes in his business accounts are taxed as trading income. Traders might include income in their accounts which is not derived from their trade. Typical examples of non-trading income are:

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