Part 2Trading income
Chapter 3Trade profits: basic rules
24Professions and vocations
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 practice
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 F5the 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 F12section 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.
25AF6Cash basis for small businesses
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 profits
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 expenses
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 expenses
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.
28AF10Money's worth
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).
29Interest
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 purposes
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 deductions
1
Any relevant permissive rule in this Part—
a
has priority over any relevant prohibitive rule in this Part, but
F41A
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),
F7aa
Chapter 5A,
b
Chapter 11, F9...
c
Chapter 13, F8or
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 F236, 38, 48 and 55) which might otherwise be read as—
a
prohibiting the deduction, or
b
restricting the amount of the deduction.
F114
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).