What is retained earnings in company accounts?
Answered 17 March 2026
Thank you for your question. However, I should be transparent with you: "retained earnings" is an accounting concept, not a UK tax law concept. The available tax law sources and HMRC guidance only reference retained earnings in passing (in the context of thin capitalisation, IFRS 17 transitions, etc.) rather than providing a standalone definition. Based on what those sources do say, here is what can be confirmed:
HMRC Guidance / Practice
HMRC's guidance on thin capitalisation describes retained earnings (also referred to as "retained profits") as follows:
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Retained earnings are part of shareholders' funds (equity). For thin capitalisation purposes, equity means shareholders' funds, which includes share capital, retained earnings, share premium, and reserves.
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Retained earnings represent the balance of accumulated profits less accumulated losses. This balance is part of shareholders' funds. If losses accumulate and this balance falls below zero, the company is said to be in negative equity.
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In the context of IFRS accounting, HMRC equates retained earnings with "accumulated profits less accumulated losses" as shown on the balance sheet.
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Retained earnings appear in the equity section of the balance sheet, alongside share capital and other reserves.
⚠️ Important caveat: The available tax sources do not provide a comprehensive standalone definition of retained earnings, as it is primarily an accounting/company law concept governed by UK GAAP (FRS 102) or IFRS rather than tax legislation. For a full accounting definition, you may wish to consult FRS 102 (the Financial Reporting Standard applicable in the UK and Republic of Ireland) or the Companies Act 2006 provisions on distributable profits.
Citation sources
will is recognised sufficiently in profit projections, and goodwill reserves should not count as equity. Retained profits (or losses) The balance of accumulated profits/losses is part of shareholders’ funds. Losses will create or contribute to a negative balance which can reduce shareholders’ funds. When this balance falls below zero, the company is in negative equity. You may encounter other reserves in this section of the balance sheet. If the accounts are UK GAAP or IFRS compliant, then these
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