Profit

Profit represents the financial gain realized when the amount earned from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity. It's essentially the net income after all deductions have been made from the total revenue.

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Situations Where Profit is Relevant

• For the Self-Employed: Individuals running their own business must calculate their profit to determine their taxable income, which is revenue minus allowable business expenses or the flat £1,000 Trading Allowance, whichever is applicable.
• Landlords: Those who earn rental income must assess their profit by deducting allowable expenses from their rental income to find their taxable amount.
• Selling Assets: When selling property, shares, or other assets, profit is the difference between the sale price and the original purchase price, after subtracting any allowances like the Capital Gains Tax Allowance.

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Importance of Knowing Your Profit

Understanding your profit is crucial for tax purposes. HMRC taxes individuals and businesses based on their profits, so accurately calculating this figure is essential for meeting your tax obligations correctly.

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Calculating Profit

1. For Self-Employed and Landlords: Subtract allowable expenses from your total revenue. If expenses are lower than revenue, the remainder is your profit.
2. For Asset Sales: Subtract the purchase price and any applicable allowances from the sale price to determine profit.

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Dealing with a Loss

If your costs exceed your earnings, resulting in a loss, it may not be immediately beneficial. However, losses can sometimes be carried forward to offset against future profits, potentially reducing future tax liabilities.