Defining “Profits” for British Income Tax Purposes: A Contextual Study of the Depreciation Cases, 1875–1897

Abstract

Seven British income tax disputes over depreciation (1875–1897) are analyzed in this contextual study. The legal cases reveal how uncertainty over meanings for “depreciation,” “profits,” and “capital” reflected social and political tensions which had commercial accounting implications. Case analysis yields evidence of how judicial support reinforced the Inland Revenue's technical authority over a competing tax administration institution and enabled its modern regulatory control over taxpayers to be constructed. The British example illustrates the ways in which technical and administrative practices may emerge from the contestation of meanings that takes place both in a wide political context and within particular institutional settings.

Unitary Taxation: Tax Base and the Role of Accounting

“…At this most basic level the conflict between accounting for taxation purposes and financial reporting is already obvious. A second major reason for the divergence (as Section 4 shows) is that financial accounting approaches to defining key concepts such as depreciation, profits and capital are frequently considered to be too fuzzy for taxation purposes (Lamb 2002). Hence a more prescriptive approach is often adopted for taxation purposes -such as the common replacement of depreciation charges with a 'capital allowance' for taxation purposes.…”

A study of the changing relationship between large corporates and the Inland Revenue

“…The majority of tax research takes place within the major areas of accounting; financial accounting; financial management and management accounting. The range of research from an accounting discipline is wide37 and draws upon other disciplines such as law as mentioned above in relation to tax and accounting (Freedman, 1995;Lamb, 1995Lamb, ,2001Lamb, ,2002Macdonald, 1995;Noke, 2000;Oats andTuck, 2006,2005). This interdisciplinary approach is reflected in the critical accounting literature in that critical accounting literature draws upon other disciplines in particular sociology and accounting can be considered to be a "social and institutional practice" (Miller, 1994: 1).…”

“…17 The foci of tax research include reporting costs in published accounts (Holland, 1998;Hodgkinson, 2002); tax influence on financial reporting (Noke, 2000;Freedman, 1995;Macdonald, 1995;Lamb, 1995); interrelationship between tax and accounting (Oats andTuck, 2005,2006;Lamb, 2001Lamb, ,2002; implications of tax legislation (Casson, 1998;Killian, 2006); organisation and management of tax practice and planning (Porter 1999a(Porter , 1999bHansford and Hasseldine, 2002;Tuck, 2001a, 2001b); tax education and training (Freedman and Power 1992;Miller, 2002 and the tax influence on individual and corporate financial behaviour (Acker et al, 1997;Dobbs and Miller, 2002).…”

“…Since the 19th century the IR has had operational responsibility in practice to collect income tax in accordance with Parliamentary legislation (Lamb, 2002).…”

“…These activities have changed since the Board of the IR was established as a distinct department of the UK Government in 18498. Since the 19"' century the IR has had operational responsibility in practice for collecting tax in accordance with legislation passed by Parliament (Lamb, 2002). However the scope of the IR's activities has widened in that, as well as collecting tax, the IR is now responsible for paying out tax credits.…”