ECONOMIC AND FISCAL CONCEPTS OF INCOME IN THE UNITED KINGDOM

There is considerable truth in the statement that while accountants, economists and tax experts (both in Government service and in commerce), are concerned much of the time with the concept of " income" , all three groups would find it very difficult to supply an all-embracing definition of the word.The aim of this article, following on the introduction by Wisselink, is to see what light is thrown upon the subject by considering how the fiscal concept of income in the U.K. compares with that of the accountant and the economist.Throughouc we will restrict our attention to problems of corporate income only.It is necessary to begin by stating, in very general terms, how an economist views " income" .To the man in the street, income is what he can spend during a period and still be as well-off at the end, in the sense that none of his capital will have been consumed.This intuitive approach to income corresponds fairly closely with that of the economist -Hicks, for example, has defined income by using this " well-off-ness" approach.Thus, on this basis, the income of a company is the amount it can pay out in dividends during a period and be as " well-off" at the end of the period as it was at the start.But attempts to measure business income on this ideal basis run into difficulties.Obviously, in order to calculate income by this method one must first calculate capital and, for this purpose, it is no use relying on the historical costs of resources utilised -capital or equity can only be valued by reference to future receipts.This valuation, however, involves making assumptions about the rate of interest and the level of prices, and here it is difficult to obtain consensus of opinion.Possibly for this reason economists have also defined income or profit in another way -namely as " revenues" less expenses, or factor costs as the economist calls them.At this point, it is worth recording the obvious, that the economist is inter ested in building a theory which will explain how a firm, in a given market situation, will develop in the long run; and, on the basis that the aim will be to maximise profits, an elegant analysis of profit itself, and of the way in which it should be measured, can be built up.But the emphasis is on theory and on what will tend to come about in the long run.There can be no doubt, however, that this alternative approach of the eco nomist to profit is much closer to that of the accountant or auditor.He sees his main responsibility as informing both investors (or owners) and management about the profitability and value of the firm in which they are involved.In order to do this, the accountant calculates profit in the following way -transactions between the company and oher persons are recorded at their exchange prices, with the result that " revenue" for the accounting period is market value of " sales" , while " costs" consist of outgoings incurred as a result of those sales, or as a result of decisions to carry on operations during the period (e.g.administrative costs), or it consists of other outlays which cannot be related to future periods.It is clear that the accountant's profit or income, though also defined as the difference between revenues and costs, is a much more objective concept than that of the economist, and so is the accountant's measure of capital -the historic " money m a b biz.310

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