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HMRC internal manual

Corporate Finance Manual

Other tax rules on corporate finance: Change of accounting policy: cases where there is no prior period adjustment

No prior period adjustment

CTA09/S308 and CTA09/S597 ensure that in the majority of cases, where there are Prior Period Adjustments (PPA), they are brought in as debits and credits for tax purposes.

However, these rules are not sufficient to ensure that no amounts will fall out of charge on transition. There may be no PPA in the accounts, because companies restate comparative figures under IAS, FRS 101 or FRS 102 (see CFM76010).

CTA09/S315 - S319 for loan relationships and CTA09/S613 - S615 for derivative contracts therefore apply to transitions where there is no PPA. These rules only apply where S308 and S597 do not apply.

CTA09/S315 - S319 and CTA09/S613 - S615 apply where a company

  • changes its accounting policy for drawing up accounts from one period of account to the next, and
  • both accounting policies are acceptable for UK tax purposes.

The difference between the carrying value of an asset or liability representing a loan relationship or a derivative contract at the end of the earlier period and the beginning of the later period is brought in for tax purposes as a debit or credit in the later period.

Carrying value is defined in statute to mean the carrying value of the asset or liability as shown in the balance sheet of the company subject to adjustments for specific tax provisions which have the effect of changing the carrying value for tax purposes. See CFM76040 for more on the meaning of ‘carrying value’.