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HMRC internal manual

Business Income Manual

Change of basis of computing taxable profits: accounting policy changes: when are they made?

A change of accounting policy may be mandatory as a result of a change in GAAP or on the implementation of a new accounting standard. Alternatively, a change can be made voluntarily.

Section 10 of FRS102 requires accounting policies to be applied consistently for similar transactions and events, unless another accounting standard specifically requires or permits a different policy to be applied to different categories of similar items. It also notes that voluntary changes should only be made if the change results in reliable and more relevant information.

The concept of consistency has also been recognised in the courts. For example its importance in relation to the valuation of stocks was stressed by the House of Lords in Ostime v Duple Motor Bodies Ltd [1961] 39TC537. For a new policy to be appropriate the need for change must outweigh the need for consistency. That will depend on the facts, including the comparative degrees of validity of the old and new policy.

Whether or not a change in accounting policy is appropriate will depend on the facts of each case. Examples of when a change might be justified are where:

  • a company is taken over and changes its accounting policy to match that of its new owners, or
  • a concern changes its accounting policy to conform to some alteration in the nature of its trade, or
  • a change is necessary to conform to a new accounting standard.