Is Schedule H the same as the profit in my UK company accounts?

No. Schedule H reports current earnings and profits, a US tax measure. The accounts profit prepared under FRS 102 is only the starting point at line 1. Regulations section 1.964-1(a) then requires adjustments to conform the statement to US generally accepted accounting principles and further adjustments to conform it to US tax accounting standards. Fair value movements on investment property, revaluation surpluses, provisions that fail the US all-events test, share-based payment charges and deferred tax all move the number away from the accounts figure.

Do I complete Form 5471 Schedule H in pounds or in dollars?

In pounds, if sterling is the company's functional currency, which it will be for a typical UK trading company. The schedule instructs that the amounts on lines 1 through 5c are entered in functional currency, and Regulations section 1.964-1(a) requires the earnings and profits computation itself to be made in that currency, determined under section 985. The dollar figure appears only at line 5d, where the line 5c result is translated at the average exchange rate as defined in section 989(b)(3), with the rate disclosed at line 5e using the divide-by convention, meaning pounds per one US dollar rounded to at least four places.

Does UK R&D relief or the Patent Box reduce earnings and profits?

The deduction-based elements do not. An enhanced R&D deduction and a Patent Box deduction are computational reliefs given in the UK corporation tax return, not economic outlays, so they reduce taxable total profits without reducing earnings and profits. GOV.UK describes the Patent Box as operating through a deduction that reduces profits so a reduced 10 percent rate applies, and directs R&D claims for accounting periods beginning on or after 1 April 2024 to the merged scheme or to Enhanced R&D intensive support. Where relief instead arrives as a credit recognised in income in the accounts, that credit generally does form part of the economic result and is treated accordingly.

Which Form 5471 filer categories have to complete Schedule H?

Category 4 filers and Category 5a filers complete Schedule H. Category 5b and Category 5c filers, broadly the unrelated and related constructive US shareholders of foreign-controlled CFCs, are not required to. A US person who wholly owns a UK limited company is normally described in both Category 4 and Category 5a and files the full form with the separate schedules, Schedule H included. Schedule H should not be confused with the separate Schedule H-1 in the current Form 5471 package.

What happens to my GILTI and subpart F figures if Schedule H is wrong?

The error travels. Each component of line 5c is carried to the applicable Schedule J, Part I, line 3, column (a), so the current year figure opens the movement in the accumulated earnings and profits pools, including previously taxed earnings and profits, which in turn drives the shareholder-level detail on Schedule P. Section 952(c) also limits subpart F income by reference to current earnings and profits, and tested income for the GILTI regime, labelled net CFC tested income for tax years beginning after 31 December 2025, is computed from the same restated US-principles figures. A single misstatement at line 1 or line 2 can therefore change the amount actually included in income.

Form 5471 Schedule H: E&P for UK Companies

Q: Do UK capital allowances go on Schedule H?

Generally not. Capital allowances are a UK corporation tax mechanism, and GOV.UK confirms that UK tax law disallows depreciation and revaluations of capital assets and grants capital allowances instead. Schedule H asks a different question. The depreciation and amortization caption reports the difference between the depreciation charged in the books and depreciation computed under US tax accounting standards. Where the capital allowances claim has never entered the accounts, it does not enter Schedule H either, and inserting it in place of a US depreciation figure produces an earnings and profits number that cannot be reconciled.

Form 5471 Schedule H is where a controlled foreign corporation's current earnings and profits are computed, and for a US person who owns a UK limited company it is the hardest page in the return to get right. Schedule H does not report the profit in your Companies House accounts and it does not report the taxable total profits in your CT600. It reports a third figure entirely: earnings and profits, or E&P, built by taking current year net income per the foreign books of account and applying a defined schedule of additions and subtractions until the result follows United States financial and tax accounting standards. The whole computation is performed in the company's functional currency, which for most UK trading companies is sterling, and it is translated into US dollars only at the very end. Because that figure then feeds Schedule J and the subpart F and GILTI machinery, an error made here does not stay here.

What does Schedule H actually report?

Schedule H (Form 5471), currently at its December 2021 revision, is titled Current Earnings and Profits. It is a single page, and its header instruction is unambiguous: enter the amounts on lines 1 through 5c in functional currency. The statutory foundation is section 964(a), which directs that E&P be determined under regulations according to rules substantially similar to those applicable to domestic corporations. Those regulations, at Regulations section 1.964-1(a), set out a three-step method: prepare a profit and loss statement for the year from the books of account regularly maintained by the corporation for the purpose of accounting to its shareholders; make the adjustments necessary to conform that statement to US generally accepted accounting principles; then make the further adjustments necessary to conform it to US tax accounting standards. Schedule H is the visible output of steps two and three.

That structure explains why so many UK-prepared workings cannot be supported when a return is examined. A UK accountant will hand over a set of FRS 102 accounts and a corporation tax computation. Neither of those is step one, step two or step three. The FRS 102 accounts feed step one only to the extent they are drawn from the books regularly maintained for reporting to members. The corporation tax computation is a purely UK measure that plays no part in any of the three steps at all.

Why is E&P neither UK accounting profit nor UK taxable profit?

Earnings and profits is an economic measure of a corporation's capacity to make distributions out of income without impairing capital. It is a US tax construct with no UK equivalent, and it deliberately ignores both the presentational choices that shape a set of statutory accounts and the incentive reliefs that shape a corporation tax computation. Its job is to describe what the company actually earned in economic terms, restated onto US principles.

For any UK company with a US shareholder there are therefore at least three different profit figures in circulation for the same twelve months:

Accounting profit: profit or loss reported under FRS 102, or under IFRS for larger groups, and filed at Companies House. This is an input to step one, not the answer.
Taxable total profits: the UK corporation tax measure. As GOV.UK's overview of the corporation tax implications of FRS 102 explains, section 46 of the Corporation Tax Act 2009 requires the profits of a trade to be calculated in accordance with generally accepted accountancy practice, subject to any adjustment required or authorised by law. This figure has no bearing on Schedule H.
Current earnings and profits: the US measure reported on Schedule H, derived from the accounts by US financial and tax accounting adjustments and expressed in functional currency.

The distinction has real consequences. UK reliefs that cut taxable total profits without reducing economic income do not cut E&P. Equally, book charges that reduce accounting profit but are not recognised under US tax accounting standards do not reduce E&P either. A UK company can show a loss on its corporation tax computation and still carry substantial positive E&P, with all the subpart F and GILTI exposure that implies for its US owner.

Which Form 5471 filers have to complete Schedule H?

Schedule H is completed by Category 4 filers and Category 5a filers. Category 5b and Category 5c filers, broadly the unrelated and related constructive US shareholders of foreign-controlled CFCs, are not required to complete it, which is why an otherwise identical minority interest can produce a dramatically shorter return.

Category 4: a US person who controlled the foreign corporation for an uninterrupted period of at least 30 days during the annual accounting period, with control turning on more than 50 percent of voting power or of value.
Category 5a: a US shareholder of a controlled foreign corporation who is not described in Category 5b or Category 5c.
Category 5b and 5c: generally relieved from Schedule H, so a US minority holder in a UK company controlled from outside the United States will usually not compute E&P on the form at all.

If you are the sole owner of a UK company you will typically be described in both Category 4 and Category 5a, and you file the full form together with the separate schedules, Schedule H among them. Note also that Schedule H is a distinct schedule from Schedule H-1 in the current Form 5471 package; the two are not interchangeable and completing one does not satisfy the other.

How does the Form 5471 Schedule H mechanic work?

Line 1 is the starting point: current year net income or loss per foreign books of account. For a UK company that is the profit or loss for the financial year taken from the books regularly maintained for reporting to members, expressed in sterling.

Line 2 is the engine. Its caption asks for the net adjustments made to line 1 to determine current earnings and profits according to US financial and tax accounting standards, and it is laid out in two columns, net additions and net subtractions, across a fixed list of captions:

Capital gains or losses
Depreciation and amortization
Depletion
Investment or incentive allowance
Charges to statutory reserves
Inventory adjustments
Income taxes, which the form itself cross-references to Schedule E, Part I, Section 1, line 6, column (m), and to Schedule E, Part III, line 3, column (i)
Foreign currency gains or losses
Other, which requires a supporting statement to be attached

Lines 3 and 4 total the net additions and net subtractions respectively. Line 5a then produces current earnings and profits as line 1 plus line 3 minus line 4. Line 5b captures any DASTM gain or loss for a corporation using the dollar approximate separate transactions method, which is a hyperinflationary regime and will not arise for an ordinary UK company. Line 5c combines lines 5a and 5b, and then requires the result to be split by category of income: a general category amount at 5c(i), a passive category amount at 5c(ii), and section 901(j) sanctioned country amounts at 5c(iii)(A) through 5c(iii)(D). Each of those components is carried to the applicable Schedule J, Part I, line 3, column (a).

Only at line 5d does the schedule leave sterling. Line 5d reports current earnings and profits in US dollars, being the line 5c amount translated at the average exchange rate as defined in section 989(b)(3). Line 5e then requires the exchange rate used to be disclosed. The category split at 5c is frequently mishandled for UK companies: an owner-managed trading company will usually generate general category E&P, but a company that also holds a deposit portfolio, a let property or intercompany loan interest can generate passive category E&P that has to be separated out and carried to its own Schedule J.

Which currency is Schedule H computed in, and when does translation happen?

Section 985(a) provides that, unless regulations say otherwise, all determinations under the income tax subtitle are made in the taxpayer's functional currency. Section 985(b) defines that currency for a qualified business unit as the currency of the economic environment in which a significant part of the unit's activities are conducted and which the unit uses in keeping its books and records. Regulations section 1.964-1(a) then ties the two together by requiring the E&P computation itself to be made in the foreign corporation's functional currency, determined under section 985.

For a UK company trading in the United Kingdom, paying UK staff, banking in sterling and preparing sterling accounts, the functional currency is sterling. Two things do not change that on their own: a US shareholder who keeps personal records in dollars, and a UK company that happens to invoice US customers in dollars. FRS 102 section 30 applies a similar-sounding test based on the primary economic environment in which the entity operates, and the two conclusions usually agree, but the US determination is made under section 985 and should be documented on that basis rather than borrowed from the accounts.

Translation then happens once, at line 5d, using the average exchange rate for the taxable year of the foreign corporation as section 989(b)(3) defines it for section 951(a)(1)(A) inclusions. The disclosure at line 5e is the part most preparers get backwards. Exchange rates on Form 5471 are reported using the divide-by convention: the rate is expressed as the amount by which the functional currency amount must be divided in order to give the equivalent amount of US dollars, rounded to at least four places. For a sterling company that means pounds per one US dollar, not the dollars-per-pound quotation that appears in every newspaper and on every currency app.

Compute in sterling: every figure from line 1 through line 5c is a sterling figure for a company with a sterling functional currency.
Translate once: the dollar amount appears only at line 5d, on the combined line 5c result.
Disclose divide-by: line 5e is pounds per dollar. Entering the familiar dollars-per-pound rate inverts the disclosure and makes the schedule irreconcilable.
Leave line 5b blank unless DASTM genuinely applies, which for a UK company it will not.

Which UK-to-US differences actually move the number?

This is where a UK file is won or lost. The line 2 captions are drafted generically for foreign corporations worldwide, so the work is mapping FRS 102 concepts onto them. The differences below are the ones that recur in practice for UK limited companies.

Depreciation and capital allowances. GOV.UK's FRS 102 overview paper states the UK position plainly: UK tax law departs from the accounting standards by disallowing depreciation and revaluations in respect of capital assets, and instead granting capital allowances on some assets. That gives every UK preparer a reflex, which is to strip out book depreciation and insert the capital allowances claim. For Schedule H the reflex is wrong. The depreciation and amortization caption asks for the difference between the depreciation charged in the books and depreciation computed under US tax accounting standards. UK capital allowances, whether the annual investment allowance, writing down allowances, full expensing or the structures and buildings allowance, are a domestic UK computational mechanism. Where they have never touched the accounts, no capital allowance figure enters Schedule H anywhere.

Provisions and accruals. GOV.UK notes that for UK tax purposes the recognition and measurement of provisions in the accounts forms the basis for the quantum and timing of relief, subject to adjustment where the expenditure is capital or otherwise disallowable. US tax accounting standards do not follow the accounts in the same way. The all-events test and the economic performance requirement mean that a provision recognised under FRS 102 section 21 is frequently not deductible for US purposes in the year it is booked. Dilapidations provisions, restructuring provisions, warranty provisions and bonus accruals settled outside the relevant window are the reliable candidates for an adjustment at the other caption.

Revaluations and fair value. FRS 102 permits revaluation of tangible fixed assets and requires investment property to be carried at fair value with movements through profit or loss. Neither produces income for US tax purposes. A UK company holding its trading premises on a revaluation basis, or holding a let property as investment property, can report a large accounting movement that has to be reversed out of the E&P computation entirely. Left in, it is one of the largest single overstatements of a Schedule H figure we see.

Share-based payment. UK relief here is governed by Part 12 of the Corporation Tax Act 2009, and GOV.UK observes that the accounting under FRS 102 section 26 is closely aligned with the old UK GAAP treatment. The book charge spread over a vesting period and the US tax treatment of the same award are separate questions and the timing rarely coincides. For a UK company running an EMI plan or an unapproved option plan alongside US shareholders, this is a recurring adjustment.

R&D relief and the Patent Box. Both are delivered through the UK corporation tax computation rather than through the profit and loss account, and neither has a US counterpart. R&D relief for smaller companies has historically taken the form of an enhanced deduction, with a payable credit for loss-makers; GOV.UK directs claims for accounting periods beginning on or after 1 April 2024 to the merged R&D scheme or to Enhanced R&D intensive support. The Patent Box, as GOV.UK describes it, is claimed by election made within two years after the end of the accounting period and operates through a deduction that reduces profits so that a reduced 10 percent rate applies to the relevant profits. Enhanced deductions and Patent Box deductions are computational fictions in the UK return. They are not economic outlays and they do not reduce earnings and profits. Where relief is instead recognised as a credit in income in the accounts, the analysis reverses and the credit generally does form part of the economic result. That asymmetry is the most common cause of an understated Schedule H figure in an innovation-led UK company.

Foreign currency. The foreign currency gains or losses caption catches the divergence between FRS 102 section 30 and the US rules. A UK company with dollar or euro receivables retranslates monetary items at the reporting date and takes the difference through profit or loss. The corresponding US treatment turns on the rules for transactions denominated in a nonfunctional currency, and the timing and character of the amounts recognised do not automatically match. Unrealised retranslation, in particular, is a reliable source of difference.

Income taxes and deferred tax. The income taxes caption is the one the form itself cross-references to Schedule E, and two points matter for UK companies. First, the figure entering the E&P computation is the current UK corporation tax position, and it must reconcile to what has been reported on Schedule E rather than to whatever total tax charge appears in the accounts. Second, deferred tax recognised under FRS 102 section 29, most commonly on the very timing difference between book depreciation and capital allowances discussed above, has no counterpart in the E&P computation at all. Leaving deferred tax inside the working is the quietest and most common error in UK-prepared Schedule H files, because it never looks obviously wrong on the face of the schedule.

Book depreciation under FRS 102 against US tax depreciation, with the UK capital allowances claim playing no part in the figure.
FRS 102 provisions and accruals that fail the US all-events and economic performance tests.
Revaluation surpluses on tangible fixed assets and fair value movements on investment property.
Share-based payment charges recognised over a vesting period for EMI or unapproved options.
Enhanced R&D deductions and Patent Box deductions, which cut UK taxable profit but not economic income.
Deferred tax recognised under FRS 102 section 29, which has no earnings and profits equivalent.
Unrealised foreign exchange movements on monetary and non-monetary items.

A worked restatement for a UK limited company

The figures below are illustrative and are used only to show the shape of the restatement. Assume a wholly owned UK trading company with a sterling functional currency, a 31 March year end, a single US shareholder who is a Category 4 and Category 5a filer, and a small investment property held alongside the trade.

Profit for the year per the FRS 102 accounts: 820,000 pounds. This is the line 1 starting point, taken from the books regularly maintained for reporting to members, not from the abridged set filed at Companies House.
Add back the fair value uplift on the investment property of 150,000 pounds. FRS 102 routes it through profit or loss; it is not income for US purposes.
Adjust depreciation: book depreciation of 96,000 pounds against US tax depreciation of 140,000 pounds, a net subtraction of 44,000 pounds. The company's UK capital allowances claim of 310,000 pounds appears nowhere on the schedule.
Add back a dilapidations provision of 60,000 pounds recognised under FRS 102 but failing the US economic performance test in the year.
Add back the share-based payment charge of 48,000 pounds on unexercised EMI options.
Reverse the deferred tax credit of 22,000 pounds recognised on the depreciation and capital allowances timing difference.
Reconcile the income taxes caption to the current UK corporation tax accrual as reported on Schedule E, rather than to the total tax charge in the accounts.

Running those through gives current earnings and profits of 1,012,000 pounds before the income taxes reconciliation, against an accounting profit of 820,000 pounds and a UK taxable figure lower again once the capital allowances claim and any R&D relief are taken. That sterling result is entered at line 5c, split between the general and passive categories because the investment property rental generates passive income, and only then translated at line 5d at the average rate for the year, with the rate disclosed at line 5e as pounds per dollar.

The point of the illustration is the spread. Three materially different numbers, one company, one year. A preparer who reaches for whichever figure is nearest to hand will file a Schedule H that nobody can reconcile two years later, which is exactly the position that turns a routine examination into a protracted one.

Why does an error on Schedule H propagate?

Schedule H is not a standalone disclosure. The form directs each component of line 5c to the applicable Schedule J, Part I, line 3, column (a), so the current year figure is the opening move in the annual reconciliation of accumulated earnings and profits. From there the consequences fan out across the return and into the shareholder's own Form 1040 position.

Schedule J: current E&P by income category opens the movement in the accumulated pools, including the previously taxed earnings and profits pools.
Schedule P: the PTEP detail reported by shareholder cannot be correct if the pools it draws on were built on a wrong current year figure.
Subpart F: section 952(c) limits the subpart F income taken into account by reference to the corporation's current earnings and profits, so an understated Schedule H can suppress an inclusion that should have been made.
GILTI, which the Code labels net CFC tested income for tax years beginning after 31 December 2025: tested income is computed on US principles from the same restated figures, so the underlying workpapers either support both or neither.
Distributions: whether a payment out of a UK company is a dividend for US purposes depends on E&P, not on whether the directors declared a dividend under the Companies Act 2006.

Why are Companies House accounts the wrong starting point?

Most UK owner-managed companies qualify as small and file filleted or abridged accounts, often with no profit and loss account on the public record at all. Preparers working remotely from the company reach for that filed set because it is the document they can obtain. Regulations section 1.964-1(a) requires the profit and loss statement to be prepared from the books of account regularly maintained by the corporation for the purpose of accounting to its shareholders. The filleted set filed at Companies House is a public disclosure product built to a statutory minimum. It is not those books, and it will not survive scrutiny as the step-one document.

The practical answer is to build the file from the full statutory accounts and the underlying records, and to retain the evidence that supports each adjustment: the trial balance, the fixed asset register showing cost and date placed in service, the provisions schedule, share plan valuation reports, the deferred tax computation and the exchange rate source used at line 5d. There is a related point that is almost never addressed in UK files with more than one US holder. Regulations section 1.964-1(c) places accounting method and taxable year elections in the hands of the controlling domestic shareholders, defined for a CFC as the US shareholders who in the aggregate own more than 50 percent of the total combined voting power. Where a UK company has several US shareholders, somebody has to establish who those persons are and whether the elections have in fact been made.

What do UK company owners get wrong most often?

Starting from the CT600 taxable profit rather than from the accounts profit.
Starting from the filleted accounts filed at Companies House rather than the full statutory accounts.
Importing the UK capital allowances claim into the depreciation and amortization adjustment.
Leaving deferred tax recognised under FRS 102 section 29 inside the computation.
Reporting the line 5e exchange rate as dollars per pound instead of pounds per dollar.
Translating individual line items into dollars instead of computing in sterling and translating once at line 5d.
Treating enhanced R&D deductions and Patent Box deductions as reductions in economic income.
Reporting the whole figure as general category without testing whether any part of it is passive category.
Failing to attach the supporting statement required by the other caption at line 2i.

Schedule H rewards preparation that begins with the right documents and a written map from each FRS 102 line to its US treatment. That map, retained year on year, is what makes the accumulated pools on Schedule J defensible a decade later, and it is what allows a distribution, a share sale or a restructuring to be characterised correctly when it eventually happens. For US owners of UK companies, US and UK tax preparation and compliance work of this kind is best handled as a single integrated file rather than as two returns prepared in isolation on either side of the Atlantic.