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Why are adjustments to profit important?

When calculating the profits of a trade, it is necessary to consider whether the expenses posted to the income statement are deductible for tax purposes. If not, the expenses must be adjusted from profit in order to calculate the income tax or corporation tax liability (as appropriate).

As there are many different trades which each incur a wide variety of expenditure that may require adjustment, a huge body of case law has evolved to supplement the fundamental principles set out in statute. The relevant concepts are explained in the Adjustment of profits ― overview guidance note.

The table below lists some of the more common adjustments, together with links to additional sources of information including other guidance notes, Simon’s Taxes and HMRC’s manuals. Whether costs are allowable or not in practice often depends upon the specific trade in question and the surrounding facts. The table below should be used as a guide only.

Navigation tip: press ‘Ctrl + F’ to search for a particular term within the table.