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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Change of basis of computing taxable profits: changes in tax adjustment

S227 Income Tax (Trading and Other Income) Act 2005, S180 Corporation Tax Act 2009

A ‘tax adjustment’ is defined as any adjustment required or authorised by law in computing profits of a trade for Income Tax or Corporation Tax purposes.

Tax adjustments are made where tax legislation or case law requires a departure from the profits computed in accordance with GAAP. An example is the capital/revenue divide, which means that depreciation is added back in the tax computations.

Changes made to comply with new legislation are excluded

Where there is new legislation it applies from a specific date. Any transitional effects will often be dealt with by the new legislation. The adjustment income and expenses provisions do not apply to a change that is made in order to comply with legislation that was not applicable to the previous period of account.

 

Changes made as a result of a change in understanding are included

Tax adjustments may change as a result of a change in understanding of what is required or authorised by law. The adjustment income and expenses provisions do apply to such changes.