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HMRC internal manual

Business Income Manual

Change of basis of computing taxable profits: HMRC ability to impose a change

To impose a change the basis must be an invalid basis

HMRC may only impose a change where the basis used is not correctly computed in accordance with either the law or the practice applicable to the period of account in question, see BIM34020. In other words, the method of computing taxable profits:

  • is not computed in accordance with generally accepted accounting practice, see BIM31015,


  • does not incorporate adjustments required by law,


  • does not pay sufficient attention to the facts.

Where a method of computing profits for tax purposes is an invalid basis then it should be changed to a valid basis for that period of account. Where the tax profits for previous periods were computed on the old, invalid basis there is a change from an invalid basis to a valid basis, see BIM34030 and BIM34035.

A policy, which is apparently consistent, may on examination be found to pay insufficient regard to the changing facts. For example a fixed percentage addition for overheads in a stock valuation may lead to inconsistency if the underlying facts show this to be inappropriate. However time should not be spent in trying to agree minor annual variations if, in practice, the estimation technique adopted yields a reasonable result, taking one year with another.