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HMRC internal manual

Business Income Manual

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Specific deductions - interest: overdrawn capital account - no adjustment for revaluations

This chapter applies for Income Tax purposes to the computation of trade profits and property income. References in the text to a ‘business’ should therefore be taken to include both trades and property businesses. The chapter does not apply for Corporation Tax purposes, where there are separate rules in the loan relationships legislation (see CFM11000).

S34 Income Tax (Trading and Other Income) Act 2005

When examining the proprietor’s capital account transactions you should draw a distinction between accumulated realised profits, both capital and revenue, on which a proprietor is free to draw and unrealised profits or losses. Unrealised profits do not represent a cash item and may never be realised. They cannot affect the level of bank borrowings. You should disregard unrealised profits or losses in considering whether a proprietor’s account is overdrawn.

A revaluation of business assets (for example property or goodwill) in advance of disposal is an example of unrealised profit and should therefore be disregarded.