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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Change of basis of computing taxable profits: adjustment income and expenses: change from realisation basis to mark to market (fair value) accounting: spreading election

S237 Income Tax (Trading and Other Income) Act 2005, S186 Corporation Tax Act 2009

When a trading entity moves from a realisation basis of computing taxable profits to a fair value basis they may make an election to spread any resulting adjustment income or receipt evenly over six periods of account.

The election must be made:

  • in writing,
  • to an officer of HMRC,
  • by 31 January after the tax year in which the change of basis occurs for Income Tax purposes,
  • within twelve months of the end of the first accounting period to which the new basis applies for Corporation Tax purposes.

If the trade ceases before the whole adjustment has been charged to tax then the remainder is treated as chargeable to tax immediately before the cessation.

The election is made for six periods of account, not for six years, so if any such periods are shorter than a year there is no adjustment to the amount to be brought in.