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Wherever an income tax or corporation tax statute refers to 'receipts' or 'expenses' in the context of the calculation of the profits of a trade, then unless otherwise provided this is to be interpreted as references to items brought into account as credits or debits when calculating the profits. The use of these terms is not to be taken as an implication that the amounts have actually been received or paid¹. This provision does not apply if the cash basis is being used for income tax purposes (see B2.111 and B2.112)².

The meaning of expenses was one of the issues discussed in the NCL Investments Ltd³ case. The matter to be determined was whether debits to the profit and loss accounts of the taxpayer companies, which were required by IFRS 2 and resulted from the grant to their employees by the trustees of an employee benefit scheme of options to acquire shares in the holding company of the group, were allowable deductions for corporation tax purposes. HMRC argued that the debits were