INTM432100 - Schedule 28AA: how it works: Advantage in relation to UK taxation

The basic rule (Schedule 28AA) provides that an adjustment must be made by the taxpayer in preparing his tax return if the difference between the arm's length provision and the actual provision confers a potential advantage on them in relation to UK taxation. ICTA88/SCH28AA/PARA5 provides that there is a potential advantage in relation to UK taxation if a person's taxable profits for a chargeable period are reduced, or losses, expenses of management or group relief are increased as a result of non arm’s length price.

Often only one party to the transaction will be potentially advantaged by the actual provision, however, if both parties to the transaction are potentially advantaged by the actual provision, then both would need to make an adjustment. An adjustment under ICTA88/SCH28AA/PARA1 can only increase taxable profits or reduce a tax loss, never the opposite.