Calculating trading profits after coronavirus (COVID-19)

Produced by Tolley
  • (Updated for Coronavirus (COVID-19))

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Calculating trading profits after coronavirus (COVID-19)
  • Changes in trading operations
  • Breaks in trading activity
  • Changes in trading activity
  • Income and expenses during the coronavirus pandemic
  • Income recognition on donations of goods or services
  • Donations ― expenditure
  • Donations of medical supplies
  • Refunds of subscriptions and membership fees
  • Secondments
  • More...

The lockdown restrictions imposed inthe UK from March 2020 as a result of the coronavirus (COVID-19) pandemic had a significant impact on the trading operations of a huge number of businesses inthe UK. Many industries were forced to cease trading completely whilst the usual customer base was required to stay at home. Others were able to alter their usual activities or to donate equipment on a voluntary basis to assist invarious ways inthe fight against the virus.

Changes to the usual trading activities of a business, as well as the type of income or expenditure generated, can have an impact on the way inwhich trading profits are calculated for tax purposes. HMRC has issued guidance inthis regard, which is summarised below together with links to other guidance notes for further details. HMRC’s guidance aims to apply existing tax principles to crisis-driven changes intrading activities, rather than to establish any new principles or changes inpractice.

Changes intrading operations

Trading profits are calculated for corporation tax and income tax purposes inrespect of each separate trade, although it is possible (but unusual) to carry on more than one trade concurrently. See the Adjustment of profits ― overview guidance note for details of these calculations. The commencement of a new trade or the cessation of an existing trade gives rise to a number of tax considerations.

For example, trading losses can only be used against profits arising inthe same trade and will be wasted if they remain unutilised at the time the trade permanently ceases. See the Trading losses and anti-avoidance guidance note. It is also important that all income and expenses arising inrespect of a trade that has ceased are recognised inthe correct period. See the Other adjustments to profits guidance note for details on post-cessation receipts and expenses.

In addition, the date on which a trade starts determines the first period for which its profits come

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