Income Tax (Trading and Other Income) Act 2005 section 227

Application of Chapter

Section 227 sets out when the rules on changes of accounting basis apply to a person carrying on a trade, and defines the key concepts of a change of accounting policy and a change in tax adjustments.

• The chapter applies when a trader changes the basis on which trade profits are calculated for income tax between one accounting period and the next, provided the old basis accorded with the law or practice at the time and the new basis accords with current law and practice.
• A change of basis includes either a change of accounting policy (such as switching between UK GAAP and international accounting standards, or vice versa) or a change in the tax adjustments applied when computing taxable profits.
• A change in tax adjustments does not include changes made simply to comply with new legislation that did not apply to the previous period, but does include changes arising from a revised view of what the law requires or permits.
• The rules do not apply to relevant foreign income charged on the remittance basis, and apply only where the same person carries on the trade before and after the change — so a change of basis occurring on a change of ownership of the trade is excluded.