What does section 43 of ITTOIA 2005 require when trade profits are calculated before the 9 month deadline?

Section 43 requires that if trade profits are calculated before the 9 month period from the end of the period of account has expired, any employee benefits, expenses or pension contributions not yet provided, paid or made must be assumed as not going to happen within the deadline. No deduction should be claimed for those outstanding amounts in the initial computation.

Can a deduction be claimed later if amounts are paid before the 9 month deadline expires?

Yes. If the relevant benefits, expenses or contributions are in fact provided, paid or made before the 9 month period expires, the taxpayer can revise the profit calculation and amend their tax return accordingly. The normal self assessment amendment rules accommodate this, allowing returns to be updated once the conditions in section 38 are satisfied.

How does section 43 interact with the section 38 deduction rules for employee benefits?

Section 38 allows deductions for employee benefits, expenses or contributions only if amounts are provided, paid or made within 9 months of the period of account end. Section 43 addresses the practical issue that many businesses finalise calculations before that window closes, requiring a cautious approach that disallows deductions for amounts still outstanding at the computation date.

What is a practical example of section 43 applying to an early profit calculation?

A business with accounts ending 31 March 2024 prepares its profit calculation in August 2024. An approved but unpaid £10,000 staff bonus must be excluded from the deduction. If the bonus is paid in October 2024, before the 31 December 2024 deadline, the business can revise its calculation and amend its tax return to include the £10,000 deduction.

Income Tax (Trading and Other Income) Act 2005 section 43

Profits calculated before end of 9 month period

Section 43 deals with how trade profits should be calculated when the computation is prepared before the end of the 9 month deadline referred to in section 38, and what assumptions must be made about unpaid amounts.

Applies when trade profits are calculated before the 9 month period from the end of the period of account has expired
Any employee benefits, expenses or pension contributions not yet provided, paid or made at the time of calculation must be assumed as not going to happen within the deadline
If those amounts are subsequently provided, paid or made before the 9 month deadline expires, the calculation can be revised and tax returns amended
Normal self assessment amendment rules apply to allow corrections when the conditions are met in time

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