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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Loan relationships: computational rules: GAAP: changes of accounting policy

Changes of accounting policy

Where a company changes from one accounting basis to another, the taxable debits and credits to be brought into account are determined by generally accepted accounting practice. CTA09/S308(2) ensures that any prior period adjustment shown in the accounts - whether it arises from a change of accounting policy, or for some other reason - is, with one exception, taken into account for tax purposes.

The exception is if the adjustment arises from a fundamental error, resulting in the comparatives for the earlier year being restated. In such a case it will normally be appropriate for the company to file an amended return for the earlier year.

When a company adopts International Accounting Standards for the first time, IFRS1 requires it (unless it elects under paragraph 36A not to) to draw up its opening balance sheet in accordance with IAS and restate the comparatives for the previous year as if IAS accounting had been used. CTA09/S316 to S319 ensure that transitional adjustments on loan relationships do not drop out of account.

Debits and credits could fall out of account as a result of a statutorily enforced change of accounting basis where the parties to the loan relationship begin or cease to be connected. Rules at CTA09/S350 and S351 ensure that this does not happen.

Change of accounting practice regulations

CTA09/S319 allows regulations to be made to prescribe the debits and credits to be brought into account where there is a change of accounting policy. The Loan Relationships and Derivative Contracts (Change of Accounting Practice) Regulations 2004 (SI2004/3271) are made under this section and modify the normal change of accounting policy rules so that certain amounts are deferred or never brought into account. See CFM76060.

Periods of account beginning before 1 January 2005

For periods of account beginning before 1 January 2005, FA96/S90 provided rules to ensure that no credits or debits were left out of account where the use of one authorised accounting was superseded by another. See CFM80100+ for more details.