Tx notes fa22 Final

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5. Tax Adjusted Trading Profit 
5.1. This calculation is similar to unincorporated business: 
5.2. Adjusted profit 
The rules discussed in chapter 4 for unincorporated business are similar for incorporated businesses 
and should now be revised. 
The main di
ff
erences in the adjustment of profit in corporation tax are:
(a)
No private element of expenses added back as no proprietor.
(b)
Drawings (cash or goods) is not relevant for companies as no proprietor. Any salaries or 
benefits provided to business owners who work in the company are assessed as employment 
income on the individual and will be allowable deductions for the company. Any distributions 
(dividends paid to shareholders) are not allowable deductions and are paid out of post tax 
profit.
(c)
Family salaries are not relevant for companies.
(d)
Legal fees regarding the issue of share capital are an expense only for companies and as they 
are of a capital nature, the expense is disallowed and added back in the adjustment of trading 
profit.
(e)
Legal fees with regard to registering patents and trademarks are allowable by statute.
(f)
Interest payable on a non-trading loans are added back, but the expense is deductible instead 
against interest income.
(g)
Interest payable to HMRC is treated as non-trading but is also tax relievable against interest 
income (interest receivable from HMRC is taxable as interest income).
Adjusted profit
X
less
Capital Allowances
(X)
Tax adjusted trading profit
X

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