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Introduction

B2.301 What are the general rules governing the deductibility of trading expenses?

The profits of a trade must be calculated in accordance with generally accepted accounting practice for companies (see B2.102), subject to any adjustment required or authorised by law in calculating profits for tax purposes¹.From the tax year 2024/25 the cash basis is the default method of calculating profits or losses as long as the trade is not an excluded trade (see B2.111)². There is an option to elect to use GAAP instead³. Up to and including 2023/24 the default method of calculating profits or losses was GAAP for unincorporated trading businesses but there was an option to elect into the cash basis if the business met the qualifying thresholds. (see B2.112).

If, however, there is specific statutory authority to prohibit the deduction of a particular expense for tax purposes,