Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Profits definition

What does Profits mean? Profits describes the net surplus generated by a business or asset after deducting relevant costs, used to assess performance, tax liabilities, distributions and damages. The precise meaning is context‑specific. For corporation tax in the UK and Ireland, legislation provides that a company’s profits include both income and chargeable gains (capital gains), not just trading results. Key distinctions include: - Accounting profit: measured under applicable GAAP. - Taxable profits: accounting profit adjusted by statute (for example, disallowables, capital allowances, losses and group relief). - Distributable profits: profits available for lawful dividends under companies legislation (UK Companies Act 2006, Irish Companies Act 2014), broadly the company’s...

Determining 'trade' for UK tax: badges of trade, legal tests, HMRC guidance, case law and the impact of tax avoidance

Published by a LexisNexis Tax expert

Practice notes

A company is liable to corporation tax on the profits arising from its trade or trades under the rules in sections 34–201 of the Corporation Tax Act 2009 (ie Part 3). It is therefore essential for any company to establish whether it is actually undertaking a trade and to determine which parts of its operations fall within that trade. A company may run more than one trade, and the profit or loss of each must be worked out separately. Where any of a company’s activities are not trading in nature, they may instead fall to be taxed under other provisions, such as corporation tax on capital gains, which follow different rules.

An individual is chargeable to income tax on the profits of their trade, profession or vocation in line with the rules in sections 3–259 of the Income Tax (Trading and Other Income) Act 2005 (ie Part 2). For additional detail on the income tax treatment of trading profits, including the meanings of profession and vocation, see Practice Note: Types of income for income tax purposes—Trading income...

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Web page updated on 21/05/2026

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