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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Tax and accountancy: meaning of ‘generally accepted accounting practice’

S997 Income Tax Act 2007, S1127 Corporation Act 2010

Generally accepted accounting practice (GAAP) means:

  • UK generally accepted accounting practice (UK GAAP); or
  • for companies or other entities which prepare their accounts in accordance with international accounting standards (IAS), generally accepted accounting practice in relation to such accounts.

Individuals, not being ‘entities’, may not use IAS. Almost all UK companies have the choice of preparing their statutory (ie Companies Act) accounts either under IAS or using UK GAAP. Charities are an exception - they are not permitted to use IAS. Other entities, such as partnerships or trustees of a unit trust, may also use IAS.

The option for UK companies to use IAS for their statutory accounts was introduced for periods f account beginning on or after 1 January 2005.

An important point to note is that these rules only apply to the computation of profits for tax purposes. So, for example, a non-resident trading in the UK would not have to prepare UK GAAP accounts and, if their accounts are not prepared in accordance with IAS, they would have to prepare a computation which complied with UK GAAP for tax purposes.

Further guidance on the tax implications of IAS and UK GAAP, including a list of comparisons between the two sets of standards, can be obtained from the page ‘International accounting standards - the UK tax implications’ here.

The following guidance explains more about UK GAAP and IAS and their interaction:

BIM31020 Tax and accountancy: meaning of ‘UK generally accepted accounting principles’
BIM31025 Tax and accountancy: meaning of ‘international accounting standards’
BIM31027 Tax and accountancy: interaction of UK GAAP and IAS