BIM40090 - Receipts: general: anticipation of profits

You may meet claims that a profit shown in the accounts is an ‘anticipation of profit’ and that this should not at that time be taxed. The commonest examples are profits taken on long-term or construction contracts under FRS 102 Section 23 Revenue. The case often cited in support of such a claim is Willingale v International Commercial Bank Ltd [1978] 52TC242 which concerned the way a bank accounted for bills of exchange. The bank took the profit on the revaluation of bills of exchange that it held on trading account into its profit and loss account. The House of Lords, by a majority, held that that profit should be excluded for tax purposes.

The issue in Willingale is a specialised one and it is unlikely that the decision is of any general application outside the financial sector. The House of Lords subjected the transactions to close analysis; and the majority then concluded that nothing had been ‘realised’ on bills held at the year end (and the minority concluded that something had been).

Recognition in the profit and loss account of profit means that profit is realised and not anticipated. There should therefore be no grounds for excluding profits from the tax computation.