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The amount of profit that is shown in your annual accounts will not necessarily be the same as your taxable profit. This is due to accounting standards and tax rules being different. For example, you may have entertaining costs as an expense in your accounts which are not tax deductible. This would result in your accounting profit being different from your taxable profit by the amount of the entertainment costs.

Adjustments such as capital allowances and annual investment allowances can also result in a difference in profit figures. For example, you may have new equipment worth £10,000 in your accounts which is depreciated by £2,000 (which reduces the profit by £2,000), for tax purposes annual investment allowances may have been claimed for the full £10,000 (reducing your taxable profit by £10,000). This would result in a difference of £8,000 between the two figures.

There are further factors that could explain differences, but if you are in doubt your accountant will be able to give you a detailed explanation. 



About The Author

Karl Bilby

We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!

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