Owner-Managed Businesses

Other adjustments to profits

Produced by Tolley
  • 19 Oct 2021 08:11

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

  • Other adjustments to profits
  • Items not taxed as trading income
  • Pre-trading expenditure
  • Premiums on leases
  • Contributions to flood defence schemes
  • Post cessation receipts and expenses

Other adjustments to profits

Statutory references to ITTOIA 2005 relate to unincorporated businesses and CTA 2009 relate to companies unless otherwise stated.

Items not taxed as trading income

Not all receipts of traders and companies will be taxed as trading income, such as:

  1. rental income

  2. bank interest received

Any non-trading income is deducted in arriving at the trading profit figure, as shown here:

Profit before taxX
Add: disallowed expenditureX
Less: items not taxed as trading income(X)
Less: capital allowances(X)
Trading profitX

This other income will then be brought back in the main tax computation and taxed accordingly.

In exceptional circumstances, rental income from the letting of surplus business accommodation can be treated as arising from the trade, as opposed to being treated as property income.

This will be the case where:

  1. the premises being let are temporarily surplus to requirements

  2. the let premises are part of a building in which another part is being used in the trade, and

  3. the letting receipts are relatively small

Pre-trading expenditure

Expenses incurred in the seven years before the commencement of a trade are treated as incurred on the first day of trading. Such expenses will be deducted from profits in the first accounting period, provided they are allowed under normal rules (ie they must not be capital in nature and they must be incurred wholly and exclusively for the purposes of the trade).

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