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The Taxable Profit template converts a sole trader's or partnership's accounting profit into the profit or loss actually chargeable to tax under HMRC's self-assessment rules, by adding back disallowed and non-trading items, applying capital allowances, and re-presenting income and expenses under the categories a tax return expects.

Table of contents 

When should I use this template?

Use it for any unincorporated sole trader or partnership working papers file that needs the profit chargeable to tax worked out, before it is split (where relevant) between partners in the Partners - Taxable profit allocation template. It covers both sole traders and partnerships: a dropdown lets you pick the format directly if the general settings template is not present, otherwise the format is picked up automatically from the legal form set there.

Before you start

  • Complete the Summary of disallowed income and expenses account templates first. This template pulls its add-back figures from the disallowed amounts entered there, category by category.
  • Decide the basis for this template: By category, which totals disallowed amounts and depreciation/amortisation/disposals wherever they occur, or By mapping, which lists the individual accounts affected instead. This is a template-wide switch, selectable in a dropdown near the top.
  • If you will be splitting the resulting figure between partners, add the Partners - Taxable profit allocation template as well. It links back to this one automatically once both are present.

Background: what it's for

Accounting profit and taxable profit are not the same thing. HMRC's rules disallow certain expenses (entertaining, some legal and professional costs, fines, private use adjustments, and more), require non-cash items like depreciation and amortisation to be added back, and expect capital allowances to be claimed instead. This template starts from the profit or loss per the accounts and works through those adjustments to arrive at the figure actually chargeable to tax, then re-presents business income and expenses under standard tax-return categories, including farming-specific cost categories such as livestock and crop enterprises where the partnership operates a farm, and pulls out rental profit separately, since rental income has its own tax treatment.

Steps

  1. If the [Unincorporated] General settings - Partnership template is not present, choose Partnership or Soletrader in the format dropdown at the top; otherwise the legal form is picked up automatically.
  2. Choose the basis for the template, By category or By mapping, using the dropdown provided. This determines whether the add-back sections below group disallowed amounts by category or list them account by account.
  3. Review the Add and Less sections under Profit/(Loss) per accounts. These list depreciation, amortisation, disposals of fixed assets, and any other disallowed income or expenses entered on the account templates, and build up to the adjusted profit.
  4. Complete the Less capital allowances section as needed: AIA/WDA, balancing charge, balancing allowance, structures and buildings allowance, and any other allowance you add manually. Each field only appears once you enter something, and a hover warning appears if you enter a value with an unexpected sign, for example a positive balancing charge.
  5. Check the resulting Taxable profit (or loss) figure at the foot of the first table. This is the figure the Partners - Taxable profit allocation template uses.
  6. Review the Business Income and Business Expenses tables below. These re-present the trial balance under the standard tax-return categories, alongside how much of each is disallowed, so you can see where the adjustments came from.
  7. Review the Rental profit table, which separates rental property income and expenses (taken from the same disallowed-categories classification) into their own profit or loss figure.

What flows through to the rest of the accounts/workflow?

  • The final taxable profit (or loss) figure feeds the Partners - Taxable profit allocation template, which splits it between the individual partners. This template only shows the note pointing you to it once that template has been added, is unhidden, and is starred.
  • The rental income and expense totals it recalculates are also picked up by the Partners - Taxable profit allocation template as a separate allocation category.

What rolls forward next year?

Nothing carries forward automatically inside this template. The format (Partnership/Soletrader) and basis (By category/By mapping) selections, and all the capital allowances figures, need to be reviewed and re-entered each year, since they reflect that year's disallowed amounts and claims.

Where the data comes from

  • Summary of disallowed income and expenses account templates: supply every disallowed and category-tagged amount used in the add-back and business income/expenses tables.
  • [Unincorporated] General settings - Partnership template: supplies the legal form (partnership or sole trader), where present.
  • Capital allowances: entered directly in this template.

Frequently asked questions

Should I use "By category" or "By mapping"?

"By category" totals disallowed amounts by category across all relevant accounts, which is quicker where postings are spread across many accounts. "By mapping" lists each individual account affected, which is useful where you need to see or check which specific accounts are driving an add-back.

Why is there a warning next to my capital allowance figure?

Balancing charges are expected to be positive and increase taxable profit; AIA/WDA, balancing allowances and structures and buildings allowances are expected to be negative and reduce it. The hover warning flags a value entered with the opposite sign so you can double-check it.

Does this template split the taxable profit between partners?

No. This template calculates the overall taxable profit for the partnership or sole trader. Splitting it between individual partners is done in the separate Partners - Taxable profit allocation template, which reads its figure from here.