Taxes Consolidation Act 1997 section 387

Calculation of amount of profits or gains for purposes of terminal loss

Section 387 defines how the taxable profits of a trade or profession are calculated for the purposes of setting a terminal loss against them under section 385.

• The relevant profits figure is the assessable profit of the trade or profession, reduced by capital allowances, qualifying deductions from total income, and (for bodies of persons) dividends paid out of trading profits.
• Where a deduction could be allocated to either trading profits or other income, it must be set against the other income first, preserving the trading profits figure as far as possible.
• If a payment that is not made wholly and exclusively for trade purposes reduces the assessed profits for a year, the terminal loss available to carry back to earlier years is reduced by the same amount.
• The resulting profits figure represents what the trader would ultimately have borne tax on, ignoring personal allowances and reliefs.