What is a profit and loss account?
Answered 17 March 2026
The available sources do not contain a standalone definition of a "profit and loss account" as a general accounting concept. However, the sources do describe its role and nature in a tax context.
HMRC guidance / practice
The profit and loss account (also referred to as an income statement) is a financial statement prepared by a company as part of its accounts. It is the statement in which amounts recognised as items of profit or loss for an accounting period are recorded.
It is distinct from other statements such as the statement of other comprehensive income (OCI), the statement of changes in equity, and the statement of total recognised gains and losses.
In the context of a self-employed business, the profit and loss account includes items such as profits or losses arising on the sale of business assets (e.g. plant and vehicles), calculated by comparing the balance sheet value with the amount obtained on sale. However, proceeds from the sale of purely capital items (e.g. a surplus freezer) would not ordinarily be included.
For tax purposes, an amount is treated as "taken to profit or loss" if it is recognised in the company's income statement or profit and loss account for the period. It does not include amounts recognised only in OCI or directly in equity.
Under the Digital Services Tax rules, revenues recognised in the income statement (or profit and loss account) are taken into account for DST purposes.
Note: The available sources treat the profit and loss account as a well-understood accounting concept and do not provide a formal standalone definition. For a comprehensive accounting definition, you may wish to consult the relevant UK GAAP standard (FRS 102) or the Companies Act 2006.
Citation sources
F(2)A15 made a significant change to which amounts recognised in a company’s accounts, in respect of the loan relationships matters, fall to be taken into account for tax, absent the application of special rules. Before amendment, there was an expanded tax definition of an “amount taken into account in determining a company’s profit or loss” in S597(1), as it then stood. This was primarily based on the statement in the account to which a debit or credit was taken, including the company’s profit
Money realised from the sale of a capital item (for example a surplus freezer) was not included in the profit and loss account and was, therefore, not included in the calculation of net earnings. But the profit and loss account did include any loss or profit when business assets, such as plant and vehicles were sold. This was a capital profit or loss but properly reflected in the profit and loss account based upon accountancy principles. The loss or profit was calculated by comparing the value s
ognised in the consolidated group accounts if no exemption from the requirement to consolidate the accounts applied. When the DST accounting period and consolidated financial statements do not align Where the consolidated financial statements and the DST accounting period cover a different length of time, the revenues of the financial statements will be time apportioned to give the revenues arising in the DST accounting period. The most likely reason for this is the first DST accounting period c
S595(2) sets out the general rule which is that the amounts to be brought into account by a company as credits or debits for any period for the purposes of PT7 in respect of the matters mentioned in section 594A(1) are those which are recognised in determining the company’s profit or loss for the period in accordance with generally accepted accounting practice. Generally accepted accounting practice (GAAP) is defined in CTA10/S1127 as IAS where a company prepares IAS accounts and will mean UK GA