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HMRC internal manual

Business Income Manual

Cash basis: alternative basis: barristers: example of spreading of adjustment income

Suppose the adjustment income at 31 March 2011 is £80,000. If the business has profits exceeding £80,000 (before Capital Allowances) in each of the next nine years beginning with the year the adjustment income would otherwise be chargeable, £8,000 will be charged to tax.

The balance of £8,000 will be taxed (as adjustment income) in the tenth tax year.

However, if profits for the year ended 30 April 2014 are only £50,000 then only £5,000 will be charged to tax for 2015-16 under S238(2)(b) ITTOIA 2005. The remaining £3,000 will end up being charged in year 10, along with the normal £8,000 for that year and any other amounts postponed from other years because of insufficient profits under S238(2)(b) ITTOIA 2005.