BIM34001 - Change of basis of computing taxable profits: introduction and flowchart

The basis on which taxable profits of a trade, profession or vocation are computed may change from one period of account to the next. This may be as:

  • a result of a change in the legislation,
  • a change in our understanding of the legislation,
  • a change of accounting policy, or
  • to correct errors.

These different situations have been dealt with differently by case law and legislation.

For tax purposes a major distinction is whether the old basis was a valid or an invalid basis. A valid basis is one, which conforms to the law or practice applicable to the period of account concerned, an invalid basis conforms to neither.

Decision process 


Is the old basis of computing the profits a valid basis?

Guidance on valid and invalid basis is at BIM34020.

  • No - A change from invalid to valid is governed by the Ahmedabad principle, see BIM34025
  • Yes - See below

Has there been a change in basis or simply a refinement of the existing method?

See BIM34050.

  • No - No adjustment is necessary, see BIM34015
  • Yes - See below 

Is the change a change in accounting policy?

See BIM34045.