Taxable trading profits

The starting point for your taxable profit is your profit and loss account.

In calculating your taxable profits you are entitled to claim deductions for business expenses from your business income in your profit and loss account. However, in order to be allowable, these business expenses must be wholly and exclusively for the purposes of your business.

It’s not always straight-forward and noted below are a couple of areas where the rules are slightly different:

• When you buy equipment for your business such as a new computer, desk or car, you are entitled to deduct a proportion of the cost each year that you own and use them in your business - these expenses are known as capital allowances.
• When you take business stock for your own use this is treated as a sale at retail value not the wholesale cost to you.
  
  An example would be a newsagent who took a copy of the daily newspaper and a bar of chocolate home with him each night.

Any drawings from your business bank account are not tax deductible, though if your spouse works for you in the business then any drawings to pay her salary are allowable provided they are actually paid to her and represent the market rate for her duties.

Download the full guide and review Section 4 for more examples as to what adjustments will be made in calculating your taxable profits.

And be careful because if the taxman does not consider the expenses qualify they will be added back to your business profit.