Income Tax (Trading and Other Income) Act 2005 section 239A

Spreading on leaving cash basis

Section 239A provides for adjustment income arising when a trader leaves the cash basis to be spread equally over six tax years, unless an election is made to accelerate the charge.

• When a trader who has been using the cash basis ceases to use it in the following tax year, any resulting adjustment income can be spread over six tax years
• One-sixth of the total adjustment income is treated as arising and charged to tax in each of the six years, starting from the year in which the full amount would otherwise have been taxable
• This spreading mechanism eases the tax burden that would otherwise fall entirely in a single year when transitioning away from the cash basis
• The trader may elect under section 239B to accelerate the tax charge, which overrides the default six-year spreading rule