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Why is the adjustment of profits relevant for tax?

Broadly speaking, profits generated by trading activities are subject to income tax in the hands of sole traders and partners, and corporation tax in the context of companies.

The tax legislation provides that the profits of a trade must be calculated in accordance with generally accepted accounting practice (GAAP), subject to any adjustments required or authorised by law. The starting point for calculating trading profits is usually the profit before tax figure as per the accounts, which is then subject to tax adjustments where applicable, which ultimately leads to the amount of total taxable profits.

See Simon’s Taxes B2.101.