Part 2U.K.Trading income

Chapter 3U.K.Trade profits: basic rules

24Professions and vocationsU.K.

Apart from section 30 (animals kept for trade purposes), the provisions of this Chapter apply to professions and vocations as they apply to trades.

25Generally accepted accounting practiceU.K.

(1)The profits of a trade must be calculated in accordance with generally accepted accounting practice, subject to any adjustment required or authorised by law in calculating profits for income tax purposes.

(2)This does not—

(a)require a person to comply with the requirements of [F1the Companies Act 2006 or subordinate legislation made under that Act] except as to the basis of calculation, or

(b)impose any requirements as to audit or disclosure.

(3)This section is subject to [F2section 25A (cash basis for small businesses)] .

(4)This section does not affect provisions of the Income Tax Acts relating to the calculation of the profits of Lloyd's underwriters.

[F325ACash basis for small businessesU.K.

(1)A person who is or has been carrying on a trade may elect for the profits of the trade to be calculated on the cash basis (instead of in accordance with generally accepted accounting practice).

(2)References in this Part to calculating the profits of a trade on the cash basis are references to doing so in accordance with this section.

(3)Chapter 3A contains provision about—

(a)when a person may make an election under this section, and

(b)the effect of such an election.

(4)Where an election under this section has effect in relation to a trade, sections 27, 28 and 30 do not apply in relation to the calculation of the profits of the trade.]

26Losses calculated on same basis as profitsU.K.

(1)The same rules apply for income tax purposes in calculating losses of a trade as apply in calculating profits.

(2)This is subject to any express provision to the contrary.

27Receipts and expensesU.K.

(1)In the Income Tax Acts, in the context of the calculation of the profits of a trade, references to receipts and expenses are to any items brought into account as credits or debits in calculating the profits.

(2)There is no implication that an amount has been actually received or paid.

(3)This section is subject to any express provision to the contrary.

28Items treated under CAA 2001 as receipts and expensesU.K.

The rules for calculating the profits of a trade need to be read with—

(a)the provisions of CAA 2001 which treat charges as receipts of a trade, and

(b)the provisions of CAA 2001 which treat allowances as expenses of a trade.

[F428AMoney's worthU.K.

(1)Subsection (2) applies—

(a)for the purpose of bringing into account an amount arising in respect of a transaction involving money's worth entered into in the course of a trade, and

(b)if an amount at least equal to the amount that would be brought into account under that subsection is not otherwise brought into account as a receipt in calculating the profits of a trade under a provision of this Part other than a provision mentioned in subsection (3).

(2)For the purpose of calculating the profits of the trade, an amount equal to the value of the money's worth is brought into account as a receipt if, had the transaction involved money, an amount would have been brought into account as a receipt in respect of it.

(3)But where another provision of this Part makes express provision for the bringing into account of an amount in respect of money's worth as a receipt in calculating the profits of a trade (however expressed), that other provision applies instead of subsection (2).]

29InterestU.K.

For the purpose of calculating the profits of a trade, interest is an item of a revenue nature, whatever the nature of the loan.

30Animals kept for trade purposesU.K.

(1)Animals or other living creatures kept for the purposes of a trade are treated as trading stock if they are not kept wholly or mainly—

(a)for the work they do in connection with the carrying on of the trade,

(b)for public exhibition, or

(c)for racing or other competitive purposes.

(2)But they are not treated as trading stock if they are part of a herd in relation to which a herd basis election has effect (see Chapter 8).

(3)This section applies to shares in animals or other living creatures as it applies to the creatures themselves.

(4)This section does not apply to professions or vocations.

31Relationship between rules prohibiting and allowing deductionsU.K.

(1)Any relevant permissive rule in this Part—

(a)has priority over any relevant prohibitive rule in this Part, but

(b)is subject to [F5section 36 (unpaid remuneration), section 38 (employee benefit contributions), section 48 (car F6... hire) and section] 55 (crime-related payments).

[F7(1A)But, if the relevant permissive rule would allow a deduction in calculating the profits of a trade in respect of an amount which arises directly or indirectly in consequence of, or otherwise in connection with, relevant tax avoidance arrangements, that rule—

(a)does not have priority under subsection (1)(a), and

(b)is subject to any relevant prohibitive rule in this Part (and to the provisions mentioned in subsection (1)(b)).]

(2)In this section “any relevant permissive rule in this Part” means any provision of—

(a)Chapter 5 (apart from sections 60 to 67),

[F8(aa)Chapter 5A,]

(b)Chapter 11, F9...

(c)Chapter 13, [F10or

(d)Chapter 17A,]

which allows a deduction in calculating the profits of a trade.

(3)In this section “any relevant prohibitive rule in this Part”, in relation to any deduction, means any provision of this Part (apart from sections [F1136, 38,] 48 and 55) which might otherwise be read as—

(a)prohibiting the deduction, or

(b)restricting the amount of the deduction.

[F12(4)In this section “relevant tax avoidance arrangements” means arrangements—

(a)to which the person carrying on the trade is a party, and

(b)the main purpose, or one of the main purposes, of which is the obtaining of a tax advantage (within the meaning of section 1139 of CTA 2010).

“Arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).]