Adjustment of profits ― overview

Produced by a Tolley Owner-Managed Businesses expert

Owner-Managed Businesses

Guidance

Why is the adjustment of profits relevant for tax?

Broadly speaking, profits generated by trading activities are subject to income tax in the hands of sole traders and partners, and corporation tax in the context of companies.

The tax legislation provides that the profits of a trade must be calculated in accordance with generally accepted accounting practice (GAAP), subject to any adjustments required or authorised by law. The starting point for calculating trading profits is usually the profit before tax figure as per the accounts, which is then subject to tax adjustments where applicable, which ultimately leads to the amount of total taxable profits.

See Simon’s Taxes B2.101.

What is GAAP?

GAAP is defined for this purpose by CTA 2010, s 1127. GAAP currently includes accounts prepared under:

•
UK GAAP (for most trades this will be either FRS 102 or FRS 105 for micro entities), see FRC: UK Accounting standards
•
International Financial Reporting Standards (IFRS) and any International Accounting Standards (IAS) that have not been superseded by IFRS

Since the above choices all

Access this article and thousands of others like it
free for 7 days with a trial of Tolley+™ Guidance.

TAKE A FREE TRIAL

Popular Articles

Value Added Tax

Reverse charge ― buying in services from outside the UK

Reverse charge ― buying in services from outside the UKThis guidance note covers the reverse charge that applies to services that have been bought in from outside the UK. For an overview of VAT and international services more broadly, see the International services ― overview guidance note. For

15 Dec 2020 14:02 | Produced by Tolley Read more

Trusts and Inheritance Tax

Holdover relief for disposals by trustees

Holdover relief for disposals by trusteesOverviewWhere a capital gain has been realised on an asset that has been disposed of and that disposal was not for full value (that is not in an arm’s length sale) then holdover relief may be available. This will happen when trustees appoint capital assets

14 Jul 2020 11:54 | Produced by Tolley Read more

Owner-Managed Businesses

Interest on late paid tax

Interest on late paid taxIntroductionInterest on late paid tax is a compulsory charge set out in legislation to reflect the interest which would have accrued to the Exchequer had the correct amount of tax been paid at the right time.Harmonised legislation was introduced in 2009 to:•set statutory

14 Jul 2020 12:00 | Produced by Tolley in association with Philip Rutherford Read more

��Ӱ��