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HMRC internal manual

Corporate Finance Manual

Loan relationships: computational rules: GAAP: following the accounts

Computation to follow accounts

For periods of account beginning on or after 1 January 2005, CTA09/S307 provides that a company must bring into account those amounts relating to loan relationships that, in accordance with generally accepted accounting practice (GAAP), are recognised in determining the company’s profit or loss. ‘Generally accepted accounting practice’ is defined at FA04/S50 (CFM33070).

HMRC staff should consult their HMRC accountant in any case where it appears that a company - whether or not it has adopted IAS 39 or FRS 26 - has not accounted for some or all of its loan relationships in accordance with GAAP.

Credits and debits are not only those in the Profit and Loss account

Under UK GAAP, profits or losses will sometimes be reflected in the Statement of Total Recognised Gains and Losses (STRGL). Under International Accounting Standards they may be reflected in the equivalent, the Statement of Changes in Equity, rather than in the profit and loss account (UK GAAP) or income statement (IAS).

CTA09/S308 states that references to the amounts recognised in determining the company’s profit and loss include amounts recognised in the

  • profit and loss account or income statement
  • the statement of total recognised gains and losses or statement of changes in equity
  • or any other statement of items taken into account in computing the company’s profits and losses,

and include any ‘prior-period adjustment’.

See CFM33120 for a qualification to the application of GAAP where amounts are ‘not fully recognised’ for accounting purposes.

See CFM33130 for further rules on the accounting basis used, in particular the use of an ‘amortised cost basis of accounting’ and ‘fair value accounting’.

See CFM33180 for exceptions from the general principle of following the accounts.

Companies with non GAAP-compliant accounts

CTA09/S309 requires a company that does not draw up accounts that comply with GAAP, or does not draw up accounts at all, to prepare its tax computations as if it had drawn up GAAP compliant accounts. CFM33110 gives an example.

Power to make regulations

CTA09/S310 gives the Treasury power to make regulations about amounts in accounts that are brought in for tax purposes. Regulations relating to the change to International Accounting Standards are made under this provision.