You will 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 example is attributable profit
taken on long- term contracts under SSAP9. 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).
The taking of profit on long-term contracts is entirely
different. Attributable profit relates by its nature to work that
has been done and it has been earned by that work. If the
conditions of SSAP9 are satisfied (which means in particular that
the outcome of the contract must be able to be assessed with
reasonable certainty) the profit that is taken will be on work that
has been carried out.
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. This
applies in particular to profits on uncompleted long-term contracts
that are recognised in accounts in accordance with SSAP9.
