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HMRC internal manual

Corporate Finance Manual

Old rules: loan relationships: authorised accounting methods: meaning of generally accepted accounting practice

Introduction to accounting methods: GAAP

This guidance applies to periods of account beginning before 1 January 2005

Generally accepted accounting practice (GAAP) is defined in ICTA88/S836A(1) for periods of account beginning before 1 January 2005. It means, in relation to the accounts of UK companies, the GAAP used so that those accounts show a true and fair view.

Where the requirements of the tax legislation conflict with GAAP, the company must make an adjustment to ensure that the computations follow the legislation for tax purposes. For example

  • it may be GAAP for a company to account for loan relationships using the mark to market method. However, if it is connected to the other party, it must use the accruals (CFM23030) or amortised cost (CFM21640) method, unless the exemption in FA96/S88 applies.
  • it is required accounting practice for a company using the accruals basis to make bad debt provisions. This provision is not recognised for tax purposes when the debtor and creditor are connected.

The following guidance looks at the specific requirements for each method.